Businesses are required to register for VAT if their supply exceeds AED 375,000, with certain exceptions. VAT groups combine returns; penalties for noncompliance reach AED 50,000. Effective June 2023, the corporate tax rate will be from 0 to 9% under specific conditions. For tax reporting, accurate bookkeeping is essential to IFRS compliance; for accuracy under MoF requirements, audited reports are a must.
Businesses are required to register for VAT if their taxable supply is expected to exceed AED 375,000 in the next 30 days or if they exceeded this threshold in the previous 12 months. Penalties may be taken if this commitment is not adhered to.
Entities can also choose to voluntarily register if their taxable supply and imports are more than AED 187,500 but less than AED 375,000. Startups and small businesses can maximize their input tax credits by using this route.
VAT exemption can be applied to some sectors with services such as certain financial services, life insurance, certain real estate transactions, and local passenger transport. Unless your products are exempt or zero-rated, any supplies you make after registering for VAT must be subject to VAT (output tax). You must also account for the VAT your customers pay on tax returns filed with the FTA. As long as you have a tax invoice or some other proof of the import or supply and that you have already paid the VAT that you want to claim, you can claim it on your tax returns. This is called input tax.
In addition to fines and possible legal consequences, non-compliance with UAE VAT regulations may result in penalties of up to AED 50,000. Potential consequences may include:
Many different types of businesses and individuals will be subject to corporate tax in the United Arab Emirates. Foreign entities and persons regularly conducting business within the UAE, financial operations, real estate businesses, and businesses operating under commercial licenses in free zones all fall under this category, as long as they match particular conditions.
There are specified exceptions to the corporate tax:
On incomes up to AED 375,000, there is no tax.
In order for stakeholders to make educated decisions regarding operations, investments, and future plans, accurate bookkeeping is crucial. Manual bookkeeping using ledgers and spreadsheets is still an option, but many companies nowadays utilize dedicated accounting software to cut down on wasted time and effort.
Financial statements that have undergone auditing by a Certified Accountant from the Ministry of Economics are known as audited financial reports. The accuracy of the document and its contents, as well as their conformity to applicable accounting principles and auditing standards, are guaranteed by this external audit. Assistance in auditing the company’s financial records for a given fiscal year is provided by this service.
A Taxable Person may only utilize the International Financial Reporting Standards (IFRS) to calculate their Taxable Income, as stated in the Decision. No other accounting standards are applicable. This implies that in order to establish their Taxable Income, entities that are liable for corporate taxes must utilize the IFRS to compute their accounting profit/loss. Note that IFRS for small and medium-sized enterprises (IFRS for SMEs) can be used by Taxable Persons whose revenue does not surpass AED 50 million.
FAQs
If a company’s taxable supply is likely to surpass AED 375,000 in the next thirty days or if it has above this threshold in the preceding twelve months, they must register for VAT in the United Arab Emirates.
Penalties may arise for noncompliance with VAT registration requirements. These sanctions could carry fines and perhaps legal repercussions, with penalties reaching up to of AED 50,000.
Certain industries and services, like some financial services, life insurance, specific real estate transactions, and local passenger transport, could be excluded from VAT. Nonetheless, registered enterprises are required to charge VAT on taxable supplies unless their products are exempt or zero-rated.
Businesses that share control structures and have connections to the UAE economy, might altogether register as a single entity for VAT purposes by forming a VAT group. All group members share equal responsibility for their VAT responsibilities, and one person, referred to as the representative member, makes a combined VAT return on their behalf.
A type of direct tax known as corporate tax is imposed on the net income or profit that corporations and other entities make from their operations.
In the United Arab Emirates, tax returns are electronically filed through the Federal Tax Authority (FTA) website. Businesses are given quarterly or monthly tax periods based on their turnover, and returns must be filed by the 28th of the month that ends with each tax period.
Under certain circumstances, a range of firms and individuals engaged in business activities within the United Arab Emirates (UAE) may be liable to corporate tax. These include foreign entities, financial operations, real estate businesses, and individuals operating under commercial licenses in free zones.
Businesses must register with the Federal Tax Authority (FTA), keep correct records of their activities, determine their VAT liabilities, and submit their VAT returns online via the FTA’s portal by the designated deadlines in order to file tax returns in the United Arab Emirates.
The International Financial Reporting Standards (IFRS) must be used by taxable individuals in the United Arab Emirates to determine their taxable income. To ensure uniformity and adherence to UAE tax laws, other accounting standards can be used to calculate taxable income as long as they are accepted by FTA.
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