The United Arab Emirates (UAE) is boldly ramping up its efforts to diversify its economy. The introduction of a 5-percent Value Added Tax (VAT) in January 2018 marked an important development in the country. This not only creates a new source of revenue but also reinforces the government’s visionary goal to reduce reliance on oil. This guide will provide you with information on how to submit VAT in UAE.
The economic impact of VAT
Since VAT’s inception in 2018 up until October 2021, the government has already accumulated tax revenues worth $26 billion. The funds generated through VAT will be used to finance top-quality public services.
According to Dinesh Kanabar, “While VAT was not the first federal tax to be introduced in the UAE – this distinction goes to the Excise Tax, which came into effect a mere three months earlier – VAT was the first truly universal federal tax that directly impacted all segments of the UAE population, business, and government.” Kanabar is the chief executive officer of WTS Dhruva Consultants.
In the company’s report on UAE VAT, it noted that “VAT will continue being the main revenue-generating tax for the UAE for the next few years.”
What is a VAT return?
A VAT return summarizes a taxable person’s sales (from his or her goods and/or services) and purchases during a specific period, revealing their VAT liability. The VAT liability refers to the difference between the VAT payable on sales and the recoverable VAT on purchases. If the VAT owed on sales exceeds the recoverable VAT, the person must pay the difference to the tax authority. Conversely, if the recoverable VAT is greater, the excess can be used to offset future payments to the Federal Tax Authority (FTA).
Who should submit a VAT return in UAE?
In the UAE, registered taxpayers must file a VAT return every tax period to the FTA. It is also mandatory for businesses whose taxable supplies and imports exceed $102,100 per year. It further extends to non-UAE-based businesses engaged in taxable supplies within the UAE, regardless of value. The voluntary registration threshold is $51,050.
When is the deadline for filing?
VAT return filing is a crucial obligation, and it must be done by the 28th day of the month following the tax period. This is the case unless the FTA specifies otherwise. Payment, if applicable, must also reach the FTA by this deadline. If the deadline falls on weekends or national holidays, the due date will be the next business day.
Note that the standard tax period spans three calendar months, although the FTA may assign different periods for specific groups or fix them every month. FTA has the discretion to consider extension requests for filing.
How to submit VAT in UAE?
You need to employ a systematic approach when it’s tax season. After all, submitting late or submitting a return with errors can be costly. When you submit your VAT return late for the first time, you’ll incur a penalty of around $272. Subsequent late submissions will be fined $545 each time. If you’re a business and you have errors or omissions in your document, you will face fines ranging from $817 to $1,361.
To help you out, here’s a comprehensive guide on how to submit VAT in UAE.
1. Prepare all pertinent documents
To avoid any errors or omissions, compile all records of transactions you made during the tax period covered. After you gathered the documents, check if all figures are correct. For improved efficiency and accuracy, implement a proper record-keeping system.
2. Access and complete the VAT 201 form
You can access this form via the FTA’s e-Services portal. To access the portal, you must first register and verify your account via email. Once on the portal, click on the “VAT 201 – New Vat Return” button. Here, your details such as tax registration number, name and address are typically auto-populated based on your registration information. The VAT return period will also be automatically filled out.
When filling out the form, make sure to cover all the details required. These include:
- Standard-rated taxable supplies
- Zero-rated supplies
- Exempt supplies
- Goods imported to the UAE and adjustments (if any)
- Purchase or expenses on which you paid a VAT
- Supplies subject to reverse charge provisions (for both VAT on sales and expenses)
After you input all figures, the following will be automatically computed:
- Total value of due tax for the period
- Total value of recoverable tax for the period
- Payable tax for the period
Once you’ve carefully checked their correctness, provide signatory details. For any mistakes or omissions, utilize the Handling of Errors and Mistakes section, correcting errors using the FTA’s Voluntary Disclosure Form 211. Keep in mind that penalties may apply.
3. Settle payments
Upon submitting your VAT return form, the FTA will send a confirmation message to validate your filed VAT return. If the FTA conveys queries or discrepancies, respond promptly and provide the necessary information to resolve any issue.
If you have any VAT liability or administrative penalties to settle, pay the amount through e-Dirham. It supports payments via credit card (limited to Mastercard and Visa) or an e-Dirham card. Other payment options include local and international bank transfers.
Knowing how to submit VAT in UAE — and doing so in an accurate and timely manner — will ensure your compliance with the country’s tax regulations. Especially for businesses, this is important to avoid fines and legal issues and maintain a good reputation.
In a broader context, it’s a showcase of your commitment to supporting the UAE’s economic diversification efforts. The taxes you pay will be used to fund various public services, which, in turn, will contribute to the overall development of the country and its citizens.
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