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Taxes in the UAE:
VAT and Excise Tax

What are the taxes you have to pay when you start business in the UAE? And how much will you have to pay? Read the article to find answers and learn more about UAE Taxation system.
There is an opinion, UAE is a tax-free country. Well, it is not completely so, as there are only no personal income and corporate taxes here. However, companies still have to pay, and the range of taxes depends on a type of business.

In general, there are two Tax Regimes in UAE: Value Added Tax (Federal Decree-law No.8 of 2017) and Excise Tax (Federal Decree law No.7 of 2017).
VAT info
Value Added Tax or VAT is a consumption tax that is levied from each stage of goods supplied, and services bought and sold. The organization which controls VAT payments in UAE is the Federal Tax Authority (FTA).

The VAT may be charged from customers by the business. This type of tax is also called "Output tax".
The type of VAT, which is incurred on expenses, is considered as "Input tax".

The taxpayer (business) can deduct the Input tax from the value of the Output tax. It results in the net VAT paid to the FTA in each tax return period.

By the way, not every established company should be registered under VAT. VAT registration is only obligatory after the moment the company's turnover exceeds the government mandatory threshold of 375,000 AED for any rolling 12-month period.

There is also a voluntary threshold of 187,500 AED. Once your company's turnover exceeds this value, you can register as well. In case you do not, be attentive to your expected revenue. You should apply for VAT registration before crossing the threshold, so take into account some future contracts. If you cross the revenue sum mentioned above without registration, you can find up to 20,000 AED by FTA.
VAT rates
But how much to pay? And what if your goods or services cannot be qualified as a taxable supply?

Always keep in mind that VAT is calculated from the items you buy and sell within your business. A standard VAT rate is 5%, and it is applied to the most supply of goods and services.

At the same time, some services and products have a 0% VAT rate. They are certain means of transportation (trains, trams, airplanes, etc.), healthcare and educational services, all export of goods and services.

Remember that if your services/goods are exempt, you cannot recover the tax incurred on business purchases.

But what is the difference between 0% rate supplies and exempt supplies? They seem to be similar, but the real difference is huge. If your supplies are 0%, you can claim back the Input tax. In another case, with exempted goods, you have no such opportunity.

It often happens so that company provides goods/services which get into all three categories. In this situation, you have to mention each category separately in the VAT return form.
How to get registered?
Sometimes, registration is the most complicated and time-consuming part of the whole process. The easiest way to get registered is via FTA Online Portal.

The main steps of VAT registration:

  1. Go to FTA Online Portal
  2. Get a new account or login into existing one
  3. Fill in information about an applicant
  4. Fill in the name and identification of the applicant (Trade License & certificate of Incorporation)
  5. Provide the details and attach the documents of the owner and manager (Passport & EID)
  6. Provide Business Contact details (P.O Box number and Contact number)
  7. Provide the banking details (Bank Name/Bank Account number/IBAN number)
  8. Provide the details of senior management relationship with other entities (are they involved in a capacity of director with any other entity in last 5 years)
  9. Provide the details about primary activities of the business

For your convenience and to speed up the process, you better have all the documents in hands.

After you upload all the necessary information, FTA needs at least 21 working days to process the application. Once they approve it, you will receive a unique TRN number. Please, note, you can only start charging Taxes from the customers since the first day of Tax Return period mentioned on the TRN certificate.
How and when to pay VAT?
Commonly, companies pay VAT on a quarterly basis, however, the FTA may assign a different Tax Period to a certain group of Taxpayers. a Tax Return must be submitted no later than the 28th day after the end of the Tax Period.

At the end of each VAT period a company has to complete a VAT return form in FTA online portal with the proper payment. There are 3 ways to do it:

  1. E-Dirham Credit Card
  2. Local Bank Transfer with GIBAN (GIBAN is a unique International bank account number given to every taxpayer)
  3. Direct cash transmission through currency exchange offices
Excise Tax information
The Excise Tax was introduced by the UAE government in 2017 in order to support Public health system.

This Tax is indirect and levied on specific types of goods. Commonly, they are products harmful for people's health or the environment.

The list of goods in the UAE, the Excise Tax is applied on:

  • Tobacco & Tobacco products - 100%
  • Carbonated drinks (except for sparkling water) - 50%
  • Energy drinks - 100%
  • Sweetened drinks - 50%
  • Electronic smoking devices and tools - 100%
  • Liquids used in electronic smoking devices and tools - 100%
Registration
You have register for Excise Tax if your business is involved in any of the following activities:

  • Importing of excise goods
  • Production of excise goods
  • Releasing goods from an excise tax designated zone
  • Stockpilers of excise goods in UAE, in certain cases
  • Warehouse keepers in certain cases

According to the FTA, a Stockpiler is a person or business which holds a stock of excise goods for business purposes and cannot prove that Excise Tax has been previously paid on these goods.

Unlike the VAT case, here you would not see any registration threshold. All the business units taking part in the activities mentioned above have to get registered.

THe registration process is similar with the VAT's one. The only difference is you have to note whether you import, produce or storpile the goods, and what type of goods you deal with.

The documents required are:

  • Trade license
  • Certificate of incorporation
  • Share certificate
  • Documents which show the info about the business manager (passport copy, Emirates ID, and visa page)

One more important thing to mention is that inly importers, producers of stockpilers have to register for Excise Task. Retailers and consumers are not required to register and pay.
Excise Tax Return and Payment
No later than 15 day following the end of each Tax Period, you have to upload your Excise Tax Returns on the Portal. Excise Tax Returns are automatically filled in according to information you provide in the declaration forms (the list below):

  • Excise Tax import declaration forms
  • Excise Tax production declaration forms
  • Excise Tax release from designated zone not requiring customs clearance declaration forms
  • Deductible Excise Tax declaration forms

The options of paying your Tax Liability, based on the provided declaration forms, are:

  • E-Dirham Credit Card
  • Bank Transfer (GIBAN) - Local Transfer (GIBAN is a unique International bank account number that is given to every taxable person)
Tax Invoice
Some words about the way your Tax Invoice should look like.

In the upper part there goes the heading "Tax Invoice". Under it there has to be Tax Registration Number (TRN) displayed. Additionally, the prices for goods/services should be written including the VAT. In the lower part you have to show the amount of tax charged for every item in the Invoice. All the information must be both in English and Arabian.

How iiko POS helps calculating VAT
VAT balance report. The first line is VAT from sales. The remaining lines are VAT that you paid to the suppliers when purchasing goods. VAT total - the total amount that must be paid to the state.

iiko shows the total amount, you no longer need to manually calculate VAT, taking into account payment to suppliers, everything is done in one click.

Find out how to calculate VAT
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Find out how to calculate VAT
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