#vatinuae

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VAT on Designated Zones in UAE – Complete 2025 Guide

VAT on Designated Zones in UAE – Complete 2025 Guide

The Federal Tax Authority (FTA) implemented Federal Decree-Law No. 8 of 2017 to introduce Value Added Tax (VAT) in the UAE. Effective from January 1, 2018, VAT has become an integral part of business operations across the country.

What is VAT in the UAE?

VAT is an indirect tax imposed on the supply of goods and services at every point in the supply chain. The end consumer ultimately bears the tax cost, while registered businesses collect and remit VAT on behalf of the government.

Purpose of VAT Implementation

The UAE introduced VAT to diversify revenue streams and support its high-quality public services such as healthcare, education, and transportation. This move also contributes to long-term economic stability.

What is the VAT Rate in the UAE?

The standard VAT rate is 5%. However, some goods and services are categorized as zero-rated or exempt under UAE VAT law, making them either tax-free or non-taxable.

How VAT Works: Example

Imagine a mobile phone sold by a manufacturer to a distributor, who then sells it to a retailer, who finally sells it to the end consumer. VAT is charged at each stage at 5%, but registered businesses can claim VAT refunds on purchases. This creates a tax credit chain that ensures proper collection at the consumer level.

VAT Registration in UAE

Mandatory Registration: If your taxable supplies and imports exceed AED 375,000 annually.

Voluntary Registration: If they exceed AED 187,500.

You can register online via the FTA’s official website.

Types of VAT Supplies in the UAE

Standard-Rated Supplies: 5% VAT applies.

Zero-Rated Supplies: 0% VAT, but businesses can reclaim input tax. Examples: education, healthcare, exports, precious metals, and international transport.

Exempt Supplies: No VAT, and input tax cannot be claimed. Includes residential rent, undeveloped land, life insurance, and public transport.

Deemed Supplies: Not traditional supplies but VAT still applies. Includes personal use of business assets or transferring goods across GCC states.

Out-of-Scope Supplies: Supplies not subject to VAT as defined by the FTA.

© 2025 Unicorn Global Solutions | UAE VAT Advisory Services

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VAT in UAE: A Complete Guide for 2025

VAT in UAE: A Complete Guide for 2025

The United Arab Emirates is quickly evolving into a major global business hub, offering immense opportunities for entrepreneurs and investors. Alongside this growth, understanding tax regulations—especially Value Added Tax (VAT)—is crucial for compliance and strategic planning.

What is VAT in UAE?

VAT (Value Added Tax) is an indirect tax imposed on the consumption of goods and services. It was introduced in the UAE on January 1, 2018 under Federal Decree-Law No. 8 of 2017 by the Federal Tax Authority (FTA). The end consumer ultimately bears the VAT cost, while businesses collect and remit it to the government.

Why Was VAT Implemented in the UAE?

The UAE government offers exceptional public services such as education, healthcare, and infrastructure. VAT helps diversify government revenue without heavily relying on oil income, ensuring the sustainability of these services for future generations.

VAT Registration Thresholds in UAE

Mandatory Registration: AED 375,000 in annual taxable supplies and imports.

Voluntary Registration: AED 187,500 in supplies, imports, or expenses.

Businesses can register via the FTA portal.

Types of VAT Supplies in UAE

Standard-Rated Supplies: 5% VAT on most goods and services.

Zero-Rated Supplies: 0% VAT, but input tax recovery is allowed (e.g., exports, healthcare, education, international transport).

Exempt Supplies: No VAT and no input tax claim allowed (e.g., residential property, life insurance, some financial services).

Deemed Supplies: Taxable even if not sold for consideration (e.g., business assets used personally).

Understanding Input Tax in UAE

Input tax is the VAT paid on purchases and imports. Businesses can recover input tax if proper documentation such as tax invoices and import declarations are maintained.

VAT Records Required

All VAT-registered businesses must maintain the following records for at least five years:

Sales and purchase ledgers

Tax invoices and receipts

Accounting and bank records

Payroll and fixed asset registers

VAT Return Filing in UAE

VAT returns must be filed quarterly (or as defined by the FTA) via the FTA portal. Businesses must file and pay the return by the 28th day of the following tax period.

Impact of VAT on Individuals and Businesses

Individuals: May see slight increases in costs depending on spending habits.

Businesses: Must collect VAT on sales, claim input VAT, maintain proper records, and file returns regularly.

Accurate bookkeeping and compliance help avoid administrative penalties.

Penalties for Non-Compliance

According to Federal Law No. (7) of 2017 on Tax Procedures, penalties apply for late registration, late filing, failure to issue tax invoices, and tax evasion. The FTA can impose fines ranging from AED 1,000 to hundreds of thousands based on the nature of the violation.

Conclusion

Understanding VAT in the UAE is essential for business success and regulatory compliance. Whether you are a new entrepreneur or an established entity, proper VAT implementation ensures smooth operations and legal compliance. For expert VAT advisory, reach out to trusted consultants like Unicorn Global Solutions for customized guidance.

© 2025 Unicorn Global Solutions | VAT Advisory & Compliance in UAE

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What is the procedure to register for VAT in UAE?

Registering for VAT in UAE is a key requirement for businesses earning above the set limit. The process includes creating an account on the FTA portal, filling out the VAT registration form, and submitting the required documents. Read this article to understand the process in detail.

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UAE VAT Registration Guide For 2023

In the United Arab Emirates (UAE), VAT is a consumption tax that is levied on most goods and services sold in the country. If your business is based in the UAE or you are planning to start a business in the UAE, you may need to register for VAT if your taxable supplies and imports exceed a certain threshold.

To register for VAT in the UAE, you will need to follow these steps:

Determine if your business is     eligible to register for VAT. In the UAE, businesses with a taxable     turnover above AED 375,000 per year are required to register for VAT.

Prepare the necessary documents. To     register for VAT, you will need to have the following documents:

 Trade license  

Emirates ID or passport of the business owner(s)  

VAT registration application form  

Submit the VAT Registration application. You can submit your VAT     registration application online through the Federal Tax Authority’s (FTA)     e-Services portal or at an FTA customer happiness center. 

 Wait for approval. Once you have submitted your VAT registration application, the FTA will review your application and determine if you are eligible to register for VAT. If your application is approved, you will receive a VAT registration certificate. 

 Charge VAT on your sales. Once you have registered for VAT, you will need to start charging VAT on your sales at the applicable rate (currently 5%). You will also need to submit VAT returns to the FTA on a regular basis to report the VAT you have collected and any VAT you have paid on your purchases.

It’s important to note that VAT registration and compliance can be complex, and it is advisable to seek the guidance of a professional tax advisor to ensure that you are following UAE VAT regulations.

VAT De-Registration in UAE

In the United Arab Emirates (UAE), businesses that are registered for value-added tax (VAT) may de-register for VAT if they meet certain conditions. To de-register for VAT, a business must first inform the Federal Tax Authority (FTA) and then submit a de-registration application through the FTA’s e-services portal.

To be eligible for VAT de-registration, a business must meet the following conditions:

The business must not have any taxable supplies or imports in the past 12 months.

The business must not expect to have any taxable supplies or imports in the next 30 days.

The business must not have any outstanding tax liabilities or penalties.

If a business meets these conditions, it can apply for de-registration by completing the de-registration application form on the FTA’s e-services portal and submitting it along with any required supporting documents. The FTA will review the application and may request additional information or documentation before deciding on the de-registration.

If the de-registration is approved, the business will no longer be required to charge VAT on its supplies or pay VAT on its imports and will no longer be required to file VAT returns. However, the business may still be required to retain certain records for a period in case they are needed for audit or verification purposes.

VAT Return Filing in UAE

VAT Return filing is a process by which businesses report the amount of VAT they have charged on sales and the amount of VAT they have paid on purchases. VAT returns are typically filed on a regular basis, such as monthly or quarterly, depending on the rules of the country where the business is located.

In the United Arab Emirates (UAE), VAT is administered by the Federal Tax Authority (FTA). Businesses that are registered for VAT must file VAT returns with the FTA on a regular basis. VAT returns must be filed electronically through the FTA’s e-Services portal.

To file a VAT return in the UAE, businesses will need to:

1.    Gather all the necessary documentation, including invoices, receipts, and other records of sales and purchases made during the relevant period.

2.    Use this documentation to calculate the total amount of VAT that has been charged on sales and the total amount of VAT that has been paid on purchases.

3.    Log in to the FTA’s e-Services portal and navigate to the VAT return filing section.

4.    Enter the required information, including the total amount of VAT charged on sales and the total amount of VAT paid on purchases.

5.    Submit the VAT return.

It’s important to note that businesses must file their VAT returns by the deadline set by the FTA. If a business fails to file its VAT return on time, it may be subject to penalties and fines.

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Deadline for submitting VAT returns

What is VAT Return Submission?

Submitting the VAT Returns in uae will be a necessary process after implementing the Value Added Tax. The VAT RETURNS would be filed on a quarterly basis every year. The FTA adopts no manual method.

However, the returns will be filed using the online portal of the Federal Tax Authority. Every taxable person registered with the FTA will have to file the VAT return submission on a quarterly basis within the time specified by the authorities. It is essential to file your business returns timely and accurate to avoid hefty penalties.

Why Choose ARC Associates?

ARC Associates, Auditors, and Consultants in UAE will help the businesses in filing the vat returns to the FTA (Federal Tax Authority). ARC Associates will provide your business with all services and guidance related to the filing of the returns.

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If you own a business and will be carrying out any transactions with other businesses, or serving customers domestically or internationally, then you should know about VAT.

This guide highlights the exciting facts about VAT in the UAE that one should know before incorporating a company in the UAE.

UAE is also planning to introduce excise tariffs of 100% on tobacco and energy drinks, as well as 50% on sugary drinks.

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VAT Returns Submission Deadline Announced by FTA

FTA Announces Final Deadline for submitting VAT Returns: After implementing the Value Added Tax, submitting the VAT Returns will be necessary. The VAT RETURNS would be filed every quarter of every year.

Visit ARC Associates to submit VAT Returns in Dubai, UAE.