It is a well-known fact that United Arab Emirates (UAE) is a tax haven for start-ups and all-sized companies. Aside from no personal income tax and no corporate tax, other benefits for businesses also include no currency restrictions and low import duties, making the UAE an attractive place to run your businesses.
Before making your decision to start/relocate your business, you need to understand how the VAT system works in this country. Further on, we'll look at the recent VAT rules and what they mean for you in 2022.
When must you register for VAT, and what is the rate?
First and foremost, ensure your business have up-to-date financial records. If your taxable supplies/imports exceed or are about to exceed the threshold of AED 375,000, you must register for VAT. There is a voluntary registration threshold of AED 187,500 which is 50% of the mandatory registration threshold.
Under this scenario, VAT-registered businesses must:
- Charge VAT on taxable goods/services they supply
- Reclaim VAT they paid on business-related goods/services
- Regularly report VAT
Currently, the VAT rate in the UAE is 5% on most taxable goods and supplies.
VAT exempted sectors in the UAE
There are several categories where supplies will be exempt from VAT. These include:
- Some financial services (clarified in VAT legislation)
- Residential properties
- Bare land
- Local passenger transport
There are also zero-rated sectors where VAT will be charged at 0% regarding the main categories of supplies:
- Exports of goods and services outside the GCC
- International transport and means of transportation
- Certain investment grade precious metals
- New residential properties (under certain circumstances)
- Certain education and healthcare goods/services
A business may receive a refund from the government on tax that it has paid to its suppliers.
How to get a refund:
- Log on to the Federal Tax Authority’s e-Services portal
- Select the VAT tab, then the VAT refunds tab, and select VAT refund request
- Complete the request form
- You will receive an email from the FTA detailing the result of your application
Tourists and visitors are also able to claim a refund on VAT paid on purchases they made during their trip to the UAE. This is done through the ‘Tax Refund for Tourists Scheme’ which can be located at all UAE ports of entry/exit.
Set up your business with Palladium Group
The setup process can become a fast track by working with a company formation specialist. It’s the quickest way to get set up in the UAE, letting Palladium Group take care of all the details.
We can also help you with opening a corporate bank account, and offer important advice on the type of financial institution that would best suit your requirements.