Low taxes bring the UAE, Dubai in particular, to the fore just like a sore thumb on the world map to start a business or invest. But this three-letter word – tax, no matter how little it is, can throw anyone into a tizzy, whether businesses or individuals. And if you are not acquainted with the laws or are not proficient in financial bookkeeping, it can be challenging to decide what you need to file on your tax returns. For business owners, the stakes are even higher because the tax calculation they do has a much larger impact on the future of their company. Appropriate tax planning and compliance is the key to dealing with it and qualified tax advisors in Dubai, UAE can help, whether it is about the newbie corporate tax or the 3-year-old VAT. Taxable persons are able to request a VAT refund at any point when there is a credit or when the input VAT is greater than the output VAT.
Understand Value Added Tax (VAT) in the UAE
Also known as GST or goods and services tax, VAT is a consumption tax levied on goods and services in most countries worldwide, including the UAE. Yes, the UAE started charging businesses a 5% VAT from 1 January 2018 onwards. And we are not complaining. After all, for how long a country like the UAE, which is zeroed on providing high-quality public services, could depend on just one or two sources of income?!
Unlike income tax, Value Added Tax is an indirect tax levied at the point of sale. A business collects VAT from its immediate buyer and then disburses it to the government of the country it is registered in. It is computed as a percentage of the retail sale price of a product or service. Usually, taxes are expenses, but VAT is not (only for businesses)! Why because it is recompensed by the government. A business pays the government with the tax it collects from customers. Consequently, it also receives a refund from the government on the tax that is paid to suppliers. Under the UAE’s national tax systems, not just businesses but also tourists (85% of the total VAT amount paid, though) are eligible to receive a VAT refund. Most non-resident business entities qualify for a VAT refund on expenses with a couple of exceptions, most notably: only foreign businesses from countries that permit VAT refunds to the UAE are privileged. Of course, rebates are subject to additional terms and conditions imposed by the Federal Tax Authority (FTA). Be informed, that refunds on VAT payments are limited to a certain percentage. This is where things can get complicated, however, a VAT consult in Dubai can navigate you through the process of claiming a VAT refund.
What is a VAT Refund?
When the input tax is greater than the output tax on a VAT return, the taxpayer can request a VAT refund after filing their VAT return. After a taxpayer submits a VAT refund request, the FTA takes up to 20 working days from the day of submission to review and process the application. The taxpayer receives the notification regarding the FTA’s decision to accept or reject the claim. In case, FTA requires more than 20 days, the taxpayer will be notified regarding the extension of the deadline.
UAE VAT Refund Claim Process
Taxpayers must follow the below-mentioned steps to submit a refund claim for their UAE-registered business:
- Create an account on FTA’s e-Services portal and sign in
- Click on the “VAT” tab, then the “VAT Refunds” tab, and access the form by going to the “VAT refund request”
- A VAT form pops up with some of the fields already parsed using the details from their account. Populate all the empty fields in the form with correct details and click on ’Submit’ button
The VAT refund form contains the following fields:
- TRN (Tax Registration Number)
- Total amount of Excess Refundable Tax (in AED)
- The amount you wish to have refunded (in AED)
- Remaining amount of eligible Excess Refundable Tax
- Late registration penalty amount (in AED)
- Authorised Signatory and Declaration
Upon submission, you will receive an email from the FTA notifying the result of your refund application. Once the claim is approved, the refund will be processed within 5 business days. You may verify the refund amount by checking your balance from the “My Payment” tab under the “Transaction History” section in the e-Services portal.
Be informed, there are special VAT refund procedures for business visitors, and UAE nationals involved in the construction of new residential buildings.
VAT Returns for Business
VAT registered businesses and the ‘taxable persons’ in the UAE are required to submit a ‘VAT return’ to Federal Tax Authority (FTA) at the end of each tax period. A VAT return abridges the value of the supplies and purchases a taxable entity has made during the tax period, and shows their VAT liability. VAT liability is the difference between the output tax payable (VAT levied on supplies) for a given tax period and the input tax (VAT incurred on purchases) recoverable for the same tax period. The difference must be paid to FTA, if the output tax exceeds the input tax amount. On the other hand, if the input tax exceeds the output tax, a taxable entity will have the excess input tax recovered; they will be allowed to set this off against the following payment due to FTA.
VAT Returns for Tourists in the UAE
The UAE officially allows eligible tourists to request refunds on VAT for the purchases during their stay in the country. The process is all paperless and pretty smooth. Thanks to the lately established self-service kiosks at departure points across the country that enables departing tourists to claim back VAT themselves. However, not every tourist can claim VAT refunds on purchases made in the country. To qualify for Planet VAT refund UAE under current regulations, the travelling tourists must not be:
- A UAE resident (GCC nationals are allowed to claim VAT refunds, though subject to additional regulations if they are residing in foreign countries for study purposes)
- Below 18
- A crew member on flights departing from the United Arab Emirates
Tourists must know that:
- They can receive only 85% of the total VAT amount paid at the point of sale (the remaining 15% is charged as administration fee by Planet) minus a fee of 4.80 AED per Tax Free tag validated
- Only retailers that are registered in the “Tax Refund for Tourists Scheme” and connected to the system are eligible for refunds. Currently, over 13,800 stores in the country are registered in the electronic system —identifiable with posters displayed at shopfronts visible to visitors
- At the time of purchase, they have to request for a VAT refund claim from the retailer and present the necessary travel documentation (travel passport or GCC National ID card) used to enter the country. The retailer then feeds the required information to Planet’s electronic system to issue the claim and sticks a Tax-Free tag on the back of the original sales receipt presented by the shopper
- The Tax-Free tag or the QR code is scanned in order to link the purchase to the shopper’s GCC National ID card or travel passport
- The Tax-Free tag can be in the form of a QR code as well, printed on the purchase bill
- With a minimum spend of AED 250, the fully digital process prints shopper’s a Tax-Free tag in the matter of just 2 minutes or so
- They can claim VAT refund only on the goods that are with them at the time of leaving the Emirates, taxable (barring motor vehicles, boats and aircrafts) and have not been consumed, fully or partly, in the UAE or any Implementing State are not eligible for VAT refunds
- They must leave the United Arab Emirates within 90 days from the day products are purchased
- Cash (with a limit of 7,000 AED) and credit card (Visa, Mastercard, Amex, CUPS) are their refund options
- At the time of refund process, they have to present (to the validation staff) their sales receipt with the tax refund tag intact, purchased items, passport and boarding pass
VAT Return Filing in the UAE
One can file for tax return online through the FTA portal. It is important to meet all tax returns requirements before filing the VAT return form (VAT 201) on the portal. The FTA portal can accept the returns only through online mode as offline capabilities to file VAT return through XML, EXCEL or any other utility are currently not available. This implies that the taxpayer is required to manually provide the values of Sales, Purchase, Output VAT and Input VAT, etc. in the appropriate boxes of the VAT return form available in FTA portal. Incorrect filing of VAT return by the tax registrant can attract mainly two types of penalties –
- A fixed penalty of AED 3000 in the first instance and AED 5000 in the second
- A percentage-based penalty on the amount unpaid to the FTA due to the miscalculations
Furthermore, a taxable person who fails to voluntarily disclose errors in the tax return will be subject to:
- A fixed penalty of AED 3000 in the first instance and AED 5000 in the second
- 50% of the amount unpaid to the Authority due to the error, resulting in a tax benefit for the Person/Taxpayer
VAT Registration in the UAE
Businesses can register for VAT through the eServices section on the FTA website by creating an account. To be able to register on the VAT system, voluntarily or mandatorily, the entities must meet the following criteria:
- A business with taxable supplies and imports surpassing AED 375,000 per annum must register for VAT
- A business with supplies and imports exceeding AED 187,500 per annum may register for VAT if they wish to
A VAT-registered business pays all the tax that it collects from its customers to the government and receives a refund from the government on tax that it has paid to its suppliers at the same time. Foreign businesses may also recuperate the VAT they incur when visiting the UAE.
When businesses in the UAE file tax returns?
Taxable entities are mandated to file VAT returns with FTA periodically and usually within 28 days of the end of the ‘tax period’ as specified for each business type. A ‘tax period’ is a specific period of time for which the payable tax shall be calculated and paid. The typical tax period in the UAE is:
- quarterly for businesses with an annual turnover below AED150 million
- monthly for businesses with an annual turnover of AED150 million or more
It is to be noted that the FTA may, at its intention, assign a different tax period for particular type of businesses. Failure to file a tax return within the stipulated time frame will make the violator liable for fines as per the provisions of Cabinet Resolution No. 40 of 2017 on Administrative Penalties for Violations of Tax Laws in the UAE.
Process & Documents Required for VAT Filing
There is just one option available at present in the UAE to file a VAT return, and that is FTA’s online portal. Businesses must be registered for VAT in the UAE in order to file the VAT return.
The portal provides a VAT 201 form which the taxpayer needs to duly fill and submit in order to complete the VAT return filing. The form can be used by all the VAT registrants as soon as the tax period expires. To access the VAT Return Form 201, you have to log in to the FTA e-Services portal first using your registered username and password. You may file it by yourself or hire a VAT specialist in Dubai, UAE to file the VAT return correctly on your behalf. If you are a DIY kind of business person, you must know that the UAE VAT return filing process is simple and straightforward. Just log into your account on the FTA portal, pull up the VAT 201 form, submit it after duly filling in the required details correctly, and voilà. The Form VAT 201 contains the below-mentioned 7 sections, featuring some boxes for detailed information about the tax-registrant and their business:
- Taxable person details
- VAT return period
- VAT on sales and all other outputs
- VAT on expenses and all other inputs
- Net VAT due
- Additional reporting requirements
- Declaration and Authorized Signatory
Before populating the above-mentioned fields on the form, the VAT registrants must check:
- Standard rated supplies
- Tax refunds that are given to tourists
- Supplies subject to Reverse Charge Mechanism Provisions
- Zero-rated Supplies
- Exempt Supplies
- Goods imported into the UAE
- Adjustments to the goods imported into the UAE
- Standard-rated expenses
- Calculation of due tax
- Refund of recoverable tax
VAT Return Filing Preparation
A little prep work doesn’t harm. In fact, it will save your valuable time, efforts and money. Not only will it save you from digging out for essential documents and information at the eleventh hour, but also cut down the load on your VAT consultant and their fees. To be able to furnish the details in the VAT form accurately, the taxpayer needs to:
- Gather all the annual tax documents they’ve received that record their taxable income and deductible expenses, most of which will arrive by the end of January
- Collect all your receipts and organize them by category, if they itemize their deductions. No need to bother with the receipts if the standard deduction is being used
- Have a copy of last year’s taxes for reference
- Approach an experienced tax consultant in the UAE who is pro in the field if they don’t know how to apply tax deductions while filing VAT return/refund
Why choose Adam Global for VAT returns services in Dubai, UAE?
When you are doing business in Dubai or any part of the UAE, you have to deal with a million things to run the company successfully. Whether you are running a real estate business, digital marketing firm, e-commerce company, a beauty salon, a supermarket or a daycare, it is important for you to ensure that your business remains tax compliant. As a business owner, you must know when is the right time to register for VAT and the benefits of voluntary VAT registration in the UAE. Furthermore, dealing with VAT return filing in Dubai, UAE is a simple-looking complicated process. Even a tiny error or a mistake can lead to hefty penalties. An experienced UAE VAT consultant in Dubailike Adam Globalcan help by identifying tax deductions that you may be missing. Adam Global’s VAT agents in Dubai are highly qualified to execute the UAE VAT return filing process for businesses of all types and sizes. One of the t business setup consultants in Dubai, we offer not just business setup assistance in Dubai and other emirates of the UAE but also efficient VAT return filing services in Dubai, UAEalong with VAT registration, VAT deregistration, VAT training, VAT refund request filing, VAT reconsideration services. Consult with our tax experts as soon as possible to avoid non-compliance with VAT in the UAE. Book your free consultancy today with one of the best tax consultants in Dubai to get VAT ready.