New UAE VAT Rules 2023: Business Exemptions and Registration for 5% Tax Explained
VAT in UAE Latest Guidelines – dispensation & 5% registration for 2023 for Businesses
The UAE VAT law determines the indirect tax on products and services, also known as a general consumption tax. This tax applies to certain products and services, both for sale, as well as for purchase. VAT (Value Added Tax) is the most common consumption tax worldwide. The national government introduced this tax with a UAE VAT rate of 5% in January 2018.
However, the Ministry of Finance will put some modifications in place from January 1, 2023. These reforms, specifically 24, appeared in the Official Gazette on September 28, 2022 (Edition No. 736). Some of the UAE VAT law changes include exception requests by registered persons. However, it only applies if the supplies have a rate of 0% or only supply inputs with said rate. Among the products with 0% tax are: certain foods and drinks; exported goods; donated goods sold by charity shops; equipment for the disabled, and prescription medicines. Apart from that the introduction of a Corporate Tax of 9% on the profits of the businesses effective from June 2023.
In this article, we will talk about UAE VAT law. In addition, the UAE tax authority determines each of these 0% taxable products or services. On the other hand, the law for VAT in UAE establishes 14 days for the issuance of tax credit notes. This is to settle the tax charged in line with the term of issuance of the fiscal invoices. In addition, the Federal Tax Authority (FTA) will now be able to remove the record by force of persons if necessary. These and other modifications are according to the CCG Unified VAT Agreement and past experiences.
Let us see:
- Explanation of VAT registration UAE and other changes
- VAT registration and other regulations for companies
- UAE VAT Exemptions
1. Explanation of VAT registration UAE and other changes
Previous challenges and experiences enabled the changes in the VAT rules in UAE introduced by the local government. In addition, the authorities took into account many of the recommendations received by interested parties. Also, all these changes are part of the effort of the UAE to diversify the economy and reduce oil dependence.
Some of the most relevant changes to the UAE VAT law are described below:
-Persons with VAT registration in UAE with deliveries subject to this tax may request an exemption. However, this only applies if the supplies must be at zero rates or they no longer carry out transactions other than at zero rates.
-The issuance of the tax credit note for the settlement of the VAT charged will be within 14 days. Therefore, this rule is in line with the term established for the issuance of fiscal invoices.
-Another provision for the VAT in UAE is that the FTA will be able to forcefully deregister individuals in certain cases.
Each of these amendments is under GCC VAT-related international laws and practices. As we mentioned before, these changes will start rolling out in January 2023.
On the other hand, concerning taxes, as of said date, the application of a corporate tax will begin. This consists of a 9% federal tax on the commercial profits of the companies in the year. However, it will begin to be applied to earnings in the fiscal year beginning June 1, 2023.
2. VAT registration and other regulations for companies
In addition to the provisions mentioned above, the UAE VAT law also establishes the following rules for business.
-Those companies whose supplies and imports exceed AED 375,000 must register for VAT.
-Also, if the company wishes, it can register for this tax in case its imports and supplies exceed AED 187500.
-In addition, companies can choose to register for the tax if their profits exceed the voluntary VAT registration limit. In this way, new businesses, without business volume, will be able to register for this tax.
Apart from this, companies in the UAE have to record their financial transactions and update their records constantly.
3. UAE VAT Exemptions
For their part, the authorities also established various categories of supplies that are exempt from VAT. The list of these companies included in this exemption is the following:
- Some financial services
- Residential properties
- Bare land
- Local passenger transport
However, supplies carried out by government entities are subject to VAT in UAE regularly. Thus, the government guarantees that there is no unfair favoring of said companies concerning the private sector.
