United Arab Emirates VAT Obligations

The UAE VAT Law – Are Free Zone Companies Affected?

Based on the Federal Decree-Law No. (8) of 2017, the UAE introduced Value Added Tax (VAT) as per 1 January 2018. The general VAT rate is 5%, applying to both goods and services. Some goods and services are zero-rated, while VAT exemptions apply under certain conditions.

UAE Free Zone Companies Are Generally Subject to VAT Liability – With Some Exceptions

All companies in the United Arab Emirates are considered as UAE resident businesses, including free zone companies. Offshore companies are exempted.

The Federal Decree-Law No. (8) of 2017 on Value Added Tax, including all its amendments until the most recent one (the Cabinet Decision No. 88 of 2021, dated 28 September 2021), does not distinguish between UAE mainland and UAE free zone companies.

The Law provides for zero VAT rate, which is applied to UAE free zone companies as well, in the following cases:

  • Export of goods and services, which is subject to the zero VAT rate. However, export to GCC member states (Gulf Cooperation Council members) that implemented VAT are not zero-rated in the UAE.
    If the recipient of services is a natural person, that person shall be considered as being “outside the State” if they only have a short-term presence in the UAE of less than a month and the presence is not effectively connected with the supply.
  • zero-rated VAT applies to the supply of crude oil and natural gas, some healthcare and educational services and goods, and to the first supply of residential real estate.
  • Outbound touristic tours are subject to the zero VAT rate, for the part out of the country;
  • Export of telecommunication services, conditions apply;
  • International transport of goods and services, conditions apply;
  • Supply of aircrafts, ships, boats or floating structures that are designed or adapted to be used for commercial transportation of passengers or goods;
  • Precious metals, if of a purity of 99 percent or more and if in a form tradeable in global bullion markets.
  • Please note that services supplied within free zones or to businesses in other free zones are subject to VAT at a rate of 5%.

The UAE VAT Law also provides for exempted supplies, which are also applied to free zone companies:

  • Subsequent supply of residential property is VAT-exempted.
  • Most financial services;
  • Supply of residential property as lease, if the lease is longer than 6 months or if the tenant is holder of an Emirates ID;
  • Supply of bare land;
  • Local Passenger Transport Services;
  • Transport of goods between designated free zones; designated free zones are free zones that are fenced, have strict entry controls and customs services inside of the free zone.

Obligation to Register for VAT in the UAE

All businesses in the UAE, including UAE free zone businesses, must register for VAT if they sold goods or services subject to VAT at a value of AED 375,000. A Person required to register for VAT pursuant to the provisions of the Law must file a Tax Registration application with the Authority within 30 days of being required to register.

Voluntary registration for VAT is possible after the threshold of AED 187,500 of taxable goods has been reached.

UAE resident businesses, which includes businesses in UAE free zones, that want to apply for an exemption from Tax Registration on the basis that all of his supplies are zero-rated, must apply to the Authority in a manner and by means specified by the Federal Tax Authority. Businesses which are VAT exempted are not allowed to reclaim paid VAT (output VAT).

Obligation to Issue VAT Invoices and to Provide Evidence

UAE businesses that are registered for VAT must issue VAT invoices (marked as “Tax Invoice).

The Law requires all VAT payers to provide evidence of purchases and sales if required. Needless to say that this obligation requires all UAE businesses, including UAE free zone businesses, that are subject to VAT to maintain proper accounting.

UAE VAT Returns and Payment

The standard VAT period is:

  • quarterly for businesses with an annual turnover below AED 150 million
  • monthly for businesses with an annual turnover of AED 150 million or more.

VAT Returns must be received by the Authority no later than the 28th day following the end of the Tax Period concerned or by such other date as directed by the Authority. Any VAT payable must be paid until the aforementioned date.

UAE VAT Refund

If the Taxable Person has excess Recoverable VAT for a VAT Period and has made a request to the Authority by the means specified by the Authority to be repaid the amount of the excess, then the Authority shall repay the amount to the Taxable Person. Alternatively, a VAT credit might be granted for future VAT liabilities.

Non-resident businesses may are entitled to VAT refund as well.

Shanda Consult may further advise you on UAE VAT matters and provide its respective services. Please contact us now through the contact form below.