In this article, we are going to analyze the peculiarities of VAT in the UAE and the key features and rules of application of the excise tax in the UAE.
Value Added Tax in the UAE
On 1 January 2018 the UAE introduced VAT at the standard rate of 5%. This event followed an agreement among seven member states of the Gulf Cooperation Council (GCC) on introducing VAT in accordance with the Common VAT Agreement of the States of the Gulf Cooperation Council, which sets out the principles of the Cooperation Council’s regional VAT regime.
There are a number of laws in the UAE that regulate VAT, but the main sources of national legislation are Federal Decree-Law No. 8 (2017), Decision No. 52 of the Cabinet of Ministers (2017), and Decision No. 46 of the Cabinet of Ministers (2020). The Common VAT Agreement of the States of the Gulf Cooperation Council and the UAE national VAT legislation establish specific VAT rules for shipments between the member states of the Cooperation Council.
However, the UAE has decided not to apply these provisions until VAT is more widely implemented in the countries of the Cooperation Council.
Thus, at the moment the member states of the Cooperation Council are regarded for VAT purposes in the UAE in the same way as countries that are not members of the Cooperation Council.
VAT Rates in the UAE
VAT applies to taxable supplies of goods and services to the UAE, as well as to imports of goods into the UAE from outside the countries of the Cooperation Council (and from the interim member states of the Cooperation Council), with limited exceptions.
Some shipments may qualify for either zero VAT or VAT exemption under UAE national law.
Zero-rated shipments are subject to a VAT rate of 0%, but are treated as taxable supplies in all other respects, including the right to a refund of VAT paid on expenses.
There may also be shipments exempt from VAT. VAT-exempt supplies do not require VAT accounting.
Overview of shipments not subject to the standard VAT rate
|Type of Shipment||VAT Rate|
|Qualifying export of goods or services||0% VAT|
|International transport of passengers and goods, including certain related goods and services||0% VAT|
|Qualifying vehicles and individual goods and services supplied for their operation, repair, maintenance or refurbishment||0% VAT|
|Aircraft or sea vessels intended for rescue and assistance||0% VAT|
|Certain investment precious metals||0% VAT|
|First qualifying shipment of a new residential building (or building converted from a non-residential to residential one) or a building specifically designated for use by a charitable organization.||0% VAT|
|Crude oil and natural gas||0% VAT|
|Qualifying educational services and related goods and services||0% VAT|
|Preventive and basic health services and related goods and services||0% VAT|
|Qualifying financial services||Exempt from VAT|
|Residential buildings not subject to the 0% VAT rate||Exempt from VAT|
|Undeveloped plots of land||Exempt from VAT|
|Local passenger transportation||Exempt from VAT|
VAT Registration and VAT Administration in the UAE
VAT registration is compulsory for taxable persons who are UAE residents and have made taxable shipments exceeding in value AED 375,000 (102,180 US dollars) in the previous 12 months, or who are expected to make shipments in excess of AED 375,000 (102,180 US dollars) within the next 30 days.
A supplier exclusively engaged in zero-rate shipments may apply for an exemption from mandatory registration.
A resident business can voluntarily register for VAT if its taxable shipments (or expenses) exceed or are expected to exceed the voluntary registration threshold of AED 187,500 (51,090 US dollars).
The threshold does not apply to non-residents. Non-residents are required to undergo VAT registration in order to remit any tax they are liable to pay on shipments to the UAE, regardless of their value.
The UAE VAT legislation provides for a reverse charge mechanism that in certain cases allows resident taxpayers to account for VAT payable on shipments received from non-residents, resulting in a reduction in the cases of registration of non-residents for VAT purposes in the UAE.
In the UAE it is possible to register as a tax group and be treated as a single taxable person for VAT purposes.
Two or more entities may apply for grouping if they have enterprises in the UAE and meet the relevant ownership and control requirements.
Once registered, taxpayers will be required to calculate the net VAT due and declare this on their VAT return form.
VAT returns are normally required on a monthly or quarterly basis depending on turnover, but the UAE Federal Tax Authority may set a longer or shorter period as it deems appropriate.
Returns must be filed online through the IRS e-services portal by the 28th day (or the next business day if the 28th day falls on a weekend or a national holiday) of the month following the end of the reporting period.
Any VAT that is to be paid for the reporting period is due on the day the return is filed and payments are generally made online via the website or by bank transfer.
Valid tax invoices must be issued for all taxable shipments with a number of mandatory details.
For any VAT deductions, the buyer is required to carry with them a copy of a valid tax invoice issued by the supplier. VAT deductions are not allowed on non-business expenses, and certain purchases, such as entertainment, meals, and the purchase or expense of vehicles for personal use, are specifically excluded from reimbursement.
Taxpayers are required to keep the relevant tax, accounting and other records to confirm the data entered in the VAT return for at least five years from the end of the relevant taxation period and fir fifteen years for activities related to real estate.
Under certain circumstances, the UAE Tax Authority may extend these terms by another four years.
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Excise Tax in the UAE
The framework agreement between the seven GCC member states establishes the principles of the UAE tax regime for excise tax at the regional level.
Under this agreement, the UAE applies an excise tax on the import, manufacture and storage of tobacco, electronic smoking devices and related liquids, carbonated drinks, sweetened drinks and energy drinks.
The main sources of excise tax legislation in the UAE are the Federal Decree-Law No. 7 (2017), Decision of the Cabinet of Ministers No. 37 (2017), Decision of the Cabinet of Ministers No. 38 (2017), Decision of the Cabinet of Ministers No. 42 (2018), Decision of the Cabinet of Ministers No. 52 (2018), Decision of the Cabinet of Ministers No. 55 (2018), Ministerial Decision No. 236 (2019) and Ministerial Decision No. 237 (2019).
Excise Tax Rates and Requirements in the UAE
Excise tax in the UAE is currently applied to the following products: carbonated drinks (50% rate), sweetened drinks (50% rate), energy drinks (100% rate), tobacco and tobacco products (100% rate), electronic smoking devices and tools (100% rate), as well as liquids used in electronic smoking devices and tools (100% rate).
Excise tax is levied on the basis of the tax base for the relevant goods. The tax base is either the stated retail price of a product, or a minimum price set by a regulatory act, or a listed price determined and published by the UAE Federal Tax Authority.
Registration for the excise tax purposes is required for any person who imports, manufactures or stocks excisable goods in the UAE or releases excisable goods from “designated” zones for consumption in the UAE.
There is no threshold for the excise tax, and any person participating or intending to participate in an excisable activity must notify the IRS within 30 days from the end of the month, in which they participated or formulated the intention to participate in an excisable activity.
There are specific limited exceptions to the registration rules, including those related to infrequent imports of excisable goods.
Entities registered for the purposes of excise tax accounting must submit relevant information in relation to their excise transactions.
This information is reflected in the excise report, and it is required to submit reports every calendar month. However, under certain circumstances, a longer tax period may be negotiated directly with the UAE Federal Tax Authority.
The deadline for filing an excise tax return is no later than the 15th day of the calendar month following the end of the taxation period. The excise tax declaration must be submitted online to the Tax Office.
Importers of excisable goods who are not parties to the approved warehousing agreement will be required to pay excise tax to the customs authorities when importing goods.
Tobacco and tobacco products are currently excisable goods, and a digital tax stamp scheme is being phased in for certain goods in this category.
A “designated” zone under the excise tax law is an area that is considered to be outside the UAE for excise tax calculation purposes. The goods entering the UAE that are immediately and properly moved to a “designated” area are not considered to be imported into the UAE at that point.
The excise tax is levied on the release of goods from the “designated” zone for consumption in the UAE.
Digital Tax Stamps
Digital marking and coding of tax stamps allow products to be traced from the place of production to the final distribution point.
The UAE Digital Tax Stamp Scheme requires manufacturers and other designated parties in the supply chain to comply with physical stamping and control requirements when importing and trading certain designated excisable goods in the UAE
Please follow the links to read the previous parts of the articles on the UAE tax system: Part 1 and Part 2.
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What is the standard VAT rate in the UAE?
The standard VAT rate in the UAE is 5%, however, there are shipments of goods and services that are taxed at the zero rate, and there are supplies that are exempt from VAT.
Is there an excise tax in the UAE?
Yes, excise tax is applied to certain types of goods in the UAE.
Is it possible to register a tax group of companies in the UAE for VAT accounting?
Yes, in the UAE it is possible to register a tax group of companies, which will be treated as a single taxable person for VAT purposes.