VAT registration of new companies or new business in the UAE
If a new business is registered in the UAE and wants to obtain the tax registration, it’s mandatory that they should satisfy the registration requirements regarding the taxable threshold.
A newly started business whose taxable turnover is not exceeding the registration threshold can apply for the registration if their taxable expenses are exceeding AED 187,500 and are expecting taxable turnover or revenue in the future.
This helps the new businesses to obtain tax registration number (TRN) in the initial months of operations itself as they may need TRN for participating in tenders or supplier/customer registration or listing in certain e-commerce platforms.
VAT registration as per UAE VAT law
When VAT Law was implemented in the UAE beginning 2018, most of the businesses or persons doing commercial activities have obtained registration for VAT as per the regulatory requirements. According to the UAE VAT law, VAT registration is required for every taxable person who has a taxable income more than the threshold as set by the Law.
According to the Provisions of the Law, a person or business who has a taxable turnover of more than AED 375,000 (USD 100,000) in the previous 12 months period or in the next 30 days, should mandatorily register for UAE VAT. Also, registration is optional or voluntary if the taxable income is less than AED 375,000 but more than AED 187,500 in the last 12-month period.
So, it's important to understand that those businesses who have taxable turnover less than AED 187,500 in the previous 12 months cannot register for VAT unless they are expecting to exceed the threshold in the next 30 days or they have taxable expenses exceeding the voluntary registration threshold.
How to calculate taxable income for VAT?
Taxable income as per UAE VAT law includes all business income which is subject to standard rate (5%), zero-rated, and those supplies that are subject to tax under reverse charge mechanism (like for import of goods or services). Those supplies which are exempted from VAT in the UAE like local passenger transport, bare land supply, residential property supply (other than newly constructed which are zero-rated supply), and certain supply in financial service, which shall not be considered for calculating the taxable income. Hence, it is important to understand that any business, having only a zero-rated supply like export of goods or services, specific health care or education supply, etc. should register for VAT or apply for Exemption from VAT registration to the Federal Tax authority (FTA)
VAT registration for non-residents: Should a non-resident or a person residing outside the UAE need to register for the UAE VAT?
As per the provisions of the UAE VAT Law, any non-resident who is making taxable supplies in the UAE must register for VAT or obtain TRN, if no other person in the UAE has taken the responsibility for VAT on that transaction. It is important to understand that there is no minimum threshold for registering for VAT in the case of a non-resident and hence should register even if there is only a single supply.
Let us understand the case through an example.
Mr. Paul is a resident of the UK, and he is providing advisory services in the UAE. If he is having a client from Dubai, who is not VAT registered in the UAE then Mr. Paul should register for VAT in the UAE even if the invoicing in the UAE is less than AED 375,000 in the last 12 months (like even if the invoice is EURO 1,000 or EURO 5,000 etc..). But at the same time if the client in the UAE is a VAT registered person, then he will account for the service received from Mr. Paul under Reverse Charge Mechanism in the UAE. In that case, Mr. Paul need not register for VAT in the UAE as his client takes the responsibility for the VAT on that supply.
VAT registration for individuals:
Whether VAT is applicable only for businesses or should individuals register for VAT? This is one of the burning questions raised by persons having income from different sources in the UAE. As per the Law, VAT is applicable to the taxable income of individuals as well. Only for such income that is generated in his independent capacity and not falling in the exempted category as per the UAE VAT Law will be taxable.
So, if an individual earns income such as commission, director fees (in independent capacity), advisory fee, consultancy income, influencer or artist income, income from property leasing, income from small business at home, freelancer income, photography, etc will be considered as taxable income and must obtain VAT registration if such income exceeds AED 375,000/- in past 12 months. Whereas any income earned by an individual as a salary or incapacity of the employment, it will not be considered as taxable income. Individuals who have registered for VAT must also comply with the other provisions like submission of VAT return in the respective tax period, maintaining the records as per UAE VAT Law, etc.
VAT registration for e-commerce:
In the current trade practices, e-commerce platforms have a significant role in connecting sellers with customers. We can say that the e-commerce trade can happen through platforms like Amazon, Noon, Shein, DOD UAE, etc, or through own mobile apps and websites or through social media like Instagram or Facebook, etc. Many times, business gets confused about the requirement for VAT registration if it is conducted by a foreign entity or individuals or start-ups, etc. So, if the business has taxable income through e-commerce, they should consider them to calculate the registration threshold along with other taxable income if any and must obtain TRN if exceeding AED 375,000/- in the past 12 months.
Process of VAT registration in UAE:
The VAT registration applications can be made through the e-services portal of the FTA by submitting the application online. A person should create a login in the e-services portal and should fill in the VAT registration application along with the supporting documents like trade license or legal documents, passport copy and identification documents for the owner or signatory or manager, bank details, details of taxable turnover and supporting documents, etc. Once the application is filled in and applied, the FTA will review it and Tax Registration Number (TRN) will be provided once approved.
Late VAT registration:
Any taxable person who has a taxable turnover exceeding the mandatory registration threshold (AED 375,000/-) in the past 12 months must register for VAT within 30 days of reaching the threshold. FTA will review each registration application and will change the fine of AED 10,000/- as per the provisions of cabinet decision no. 49 of 2021 for late application. Also, as per article 7 of Federal Decree Law No. 8 of 2017, If a taxable person is late for applying for the VAT registration, he is liable to remit the taxes on all supplies and imports done by him before the registration.
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