The Gulf Countries is now introduced to a new kind of Tax Reform since 2018. The GCC group has worked jointly on various public policies for the betterment of the nations and now they have designed a collaborative VAT agreement for the member states. This is a framework agreement that all six countries of the GCC have signed. The framework of the agreement contains provisions for trades within the Gulf Countries. It allows countries to decide treatment in some sectors where there is no effect in trade for intra-GCC. It is a mutual agreement on provisions like the standard VAT rate and registration threshold.

This value-added tax is applicable in the Gulf Cooperation Council member states like the United Arab Emirates, KSA, Kingdom of Bahrain, State of Qatar,Sultanate of Oman and the State of Kuwait.

So what is this VAT? Many other countries apart from the GCC ones have already introduced VAT long time back. VAT is a tax levied on the consumption of services and goods that are taxable. This is charged by a taxable individual and then remitted to the authority of tax. We can call an individual or entity taxable when they carry out economic activity through a VAT registered business. The full form of VAT is Value Added Tax which is levied on different phases of the supply chain. This tax is collected by businesses for the Government and is ultimately paid by the final consumer.

There are three-Federal tax laws applicable for the KSA and UAE- Executive Regulation of Federal Law on Procedures of Tax, Federal Decree Law on Excise Tax and Federal Decree Law on VAT.

Determination of VAT registration threshold in UAE

Any business whose taxable turnover meets or exceeds the registration threshold for VAT should register for VAT.

To know further, we have to know the term ‘taxable supplies’ according to the UAE VAT Law because not all services or sales will be considered taxable according to UAE VAT Law. This means only supplies that have the place of supply in the UAE and are not an exemption in the VAT Law of UAE, is considered as taxable supply eligible for VAT. Likewise, the supplies that have the supply destination outside of UAE are taken into consideration as the outside provision of UAE VAT. So this is not included in the calculation of the registration threshold for VAT. To be more clear, let us take an instance if the goods move from China to America and it does not reach into UAE i.e. direct shipment but the invoice for the transaction is made from UAE, then this supply is to be considered not within the scope for VAT in UAE because the goods did not arrive physically to the UAE.

Therefore from the above explanation, we can conclude that only the resident of UAE or any implementing state, with a taxable turnover of previous 12-months or the following 30 days reaches beyond the registration threshold for VAT will have to get registered for VAT in UAE. Such an individual or entity will be required to get registered for VAT and will have to mandatorily apply for Tax Registration with the Federal Tax Authority in 30 days. The VAT registration limit stated by the UAE VAT Law follows as:

  • Compulsory registration limit- AED 375,000
  • Voluntary registration limit- AED 187,500

The above taxable turnover limits are applicable for residents of the state and not the ones residing out of implementing state. The non-residents or anyone outside of implementing state, the UAE VAT registration is compulsory only if they do any taxable supply inside UAE and where no other person is to be held responsible for account VAT in the Emirates. Therefore if we take an example, a person or company from Germany does a supply that is taxable in UAE where the service is offered in UAE to a person or company resident of UAE but who is not UAE registered for VAT, then the person who is not a resident will have to get VAT registration in UAE. GCC Filings is one such firm that can help in all matters related to VAT incorporation in the UAE

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