Shuraa Tax Blog

Category: Value Added Tax

  • Penalty for Late Payment of VAT in UAE

    Penalty for Late Payment of VAT in UAE

    VAT (Value Added Tax) was introduced in the UAE on January 1, 2018, at a standard rate of 5%. It applies to most goods and services, with some exemptions. Businesses must register for VAT if their taxable revenue exceeds AED 375,000 annually. Those earning between AED 187,500 and AED 375,000 can register voluntarily.

    Paying VAT on time is crucial to avoid penalties and maintain a good standing with the Federal Tax Authority (FTA). VAT Late payments can lead to financial fines and disrupt business operations. It’s essential for companies to stay compliant by meeting deadlines and keeping accurate tax records.

    Failure to comply with VAT payment deadlines can result in significant penalties. As of 2026, the structure for VAT late payment penalty in UAE is as follows:

    • 2% penalty on the unpaid amount immediately after the due date.
    • 4% additional penalty if the tax is not paid within seven days after the due date.
    • 1% daily penalty, starting from one month after the due date, up to a maximum of 300%.

    To avoid this penalty for VAT late payment, businesses should set reminders, maintain proper records, and seek expert tax assistance.

    Understanding VAT in UAE

    Value Added Tax (VAT) is a consumption tax levied on most goods and services within the country. Businesses registered for VAT collect the tax at a rate of 5% on their taxable supplies and account for it to the Federal Tax Authority (FTA).

    Consumers ultimately bear the cost of VAT as a 5% increase in the price of goods and services they purchase.

    Here are some key points about VAT in UAE: 

    • The general VAT rate is 5% on most goods and services.
    • A 0% VAT rate applies to exports, international transportation, certain medical and educational services, and the first supply of residential real estate.
    • Some goods and services are completely exempt from VAT, such as financial services, local passenger transport, and bare land.
    • Businesses with taxable supplies exceeding AED 375,000 in the past 12 months or expected to exceed that amount in the next 30 days must register for VAT.
    • Voluntary registration is possible for businesses exceeding AED 187,500.

    Who Needs to Pay VAT in UAE?

    • Mandatory Registration: Businesses with taxable supplies and imports exceeding AED 375,000 per year must register for VAT.
    • Voluntary Registration: Businesses earning between AED 187,500 and AED 375,000 can register voluntarily.
    • Foreign Businesses: Non-resident businesses providing taxable goods or services in the UAE may also need to register and pay VAT.

    Late Payment of VAT in UAE

    Late payment of VAT in the UAE occurs when a registered business fails to pay their due VAT amount to the Federal Tax Authority (FTA) within the specified timeframe. This timeframe is typically 29 days from the end of the tax period.

    Late payment of VAT in the UAE can have several negative consequences for businesses, including:

    1. Penalties

    The FTA imposes steep VAT late payment penalty in UAE. These penalties are calculated as follows:

    • Immediate Penalty: A 2% penalty on the unpaid tax amount is applied immediately after the due date.
    • One Month Later: An additional 4% penalty is levied if the tax is not paid within seven days after the due date.
    • Daily Penalty: A 1% daily penalty accrues on the outstanding amount starting from one month after the due date, up to a maximum of 300% of the unpaid tax.

    2. Administrative Fines

    In addition to penalties, the FTA may impose administrative fines for non-compliance, such as late submission of tax returns or failure to maintain proper records.

    3. Reputational Damage

    Repeated late payments can damage a business’s reputation and relationships with clients and suppliers.

    4. Legal Action

    In extreme cases, the FTA may take legal action against businesses with significant outstanding VAT amounts.

    Deadline for VAT Payment in UAE

    The FTA assigns businesses a monthly or quarterly VAT filing schedule based on their annual turnover:

    Quarterly Filing: Most businesses file their VAT returns every three months.

    Monthly Filing: Large businesses with high turnover may be required to file VAT returns every month.

    VAT returns and payments must be submitted by the 28th day of the month following the tax period. If the deadline falls on a weekend or public holiday, payment should be made on the last working day before the due date.

    VAT Violations and Penalties in UAE

    The VAT penalties in the UAE can be severe, depending on the nature of the violation and the frequency of offenses. Here are some of the common violations along with their penalties in 2025:

    VAT Violation  VAT Penalty in UAE
    Failure to Register for VAT  AED 10,000
    Late Submission of VAT Return  – First offense: AED 1,000
    – Repeated offense within 24 months: AED 2,000
    Late Payment of VAT  – 2% of the unpaid tax immediately after the due date
    – 4% additional penalty if the tax is not paid within seven days after the due date
    – 1% daily penalty on the outstanding amount starting one month after the due date, up to a maximum of 300% of the unpaid tax
    Failure to Maintain Proper Records  – First offense: AED 10,000
    – Repeated offense within 24 months: AED 50,000
    Failure to Issue Tax Invoice or Credit Note  AED 5,000 per missing document
    Submission of Incorrect Tax Return  – First offense: AED 3,000
    – Repeated offense within 24 months: AED 5,000
    Failure to Submit Required Records Upon FTA Request  AED 20,000
    Failure to Notify FTA of Charge of Tax Based on the Margin  AED 2,500
    Not Displaying Prices Inclusive of VAT  AED 15,000
    Failure to Comply with Procedures for Transfer of Goods in Designated Zones  The higher of AED 50,000 or 50% of the tax unpaid on the goods as a result of the violation
    Tax Evasion Up to 300% of the tax evaded

    Please note VAT late payment penalty in UAE may vary depending on the specific nature and severity of the violation. It is recommended to consult with a tax professional such as Shuraa Tax for accurate and up-to-date information.

    Late VAT Deregistration Penalty in UAE

    UAE businesses are required to apply for VAT deregistration within 20 business days if they no longer meet the criteria for VAT registration. Failing to do so results in penalties imposed by the Federal Tax Authority (FTA).

    Late VAT Deregistration Penalties:

    • Initial Penalty: A fine of AED 1,000 is imposed if the deregistration application is not submitted within the stipulated 20-business-day period.
    • Recurring Penalty: An additional AED 1,000 is charged for each month the delay continues, up to a maximum of AED 10,000.

    Common Reasons for Late VAT Payment in UAE

    Several reasons may contribute to the late payment of VAT in the UAE. Some common factors include:

    1. Cash flow issues

    Businesses may struggle to pay their VAT on time if they are experiencing cash flow difficulties due to slow sales, unexpected expenses, or other financial challenges.

    2. Accounting errors

    Mistakes in calculating or recording VAT can lead to late payments.

    3. Lack of awareness

    Some businesses may not be fully aware of their VAT obligations and deadlines, resulting in unintentional late payments.

    4. System failures

    Technical issues with the FTA e-Services portal or a business’s internal accounting software can sometimes delay VAT payments.

    VAT Fines Discount in UAE

    VAT Fines Discount in the UAE refers to various incentives offered by the Federal Tax Authority (FTA) to encourage timely VAT compliance and reduce the financial burden on businesses facing penalties. These discounts apply specifically to administrative penalties, not the actual VAT liability you owe.

    There are currently two main ways to access VAT Fines Discounts:

    1. Penalty Redetermination Scheme

    This scheme allows for a significant reduction of previously imposed administrative penalties. You can get 70% of your past fines waived by paying only 30% of the original amount. The business must have a clean record of VAT compliance.

    2. Early Payment Discount

    The FTA offers a 5% discount on late payment penalties if the outstanding VAT amount is paid within 15 days of the due date. This discount can be combined with the penalty redetermination scheme for potentially significant savings.

    How to Avoid VAT Fine for Late Payment

    Avoiding late VAT payments in the UAE can save you from unnecessary penalties and maintain good standing with the Federal Tax Authority (FTA).

    Here are some key strategies to keep in mind:

    • Familiarize yourself with the VAT registration threshold, filing deadlines, and record-keeping requirements.
    • Maintain accurate records of your taxable supplies and input VAT to accurately calculate your VAT liability each month.
    • Mark your calendar with important deadlines for filing and payment to avoid missing them.
    • Utilize accounting software or platforms to automate VAT calculations, filing, and payment wherever possible.
    • Take advantage of the 5% discount offered by the FTA for early VAT payments.
    • Ensure your accounting system accurately reflects all VAT transactions and calculations.
    • Before submitting your VAT return, carefully review your calculations and ensure they are correct.

    And most importantly, seek professional advice!

    Choose Smart Compliance with Shuraa Tax

    Timely VAT payments are crucial for businesses in the UAE to maintain compliance and ensure their financial well-being. VAT late payment penalty in UAE can significantly impact a company’s bottom line.

    Therefore, it is highly beneficial to seek assistance from a leading tax consultant like Shuraa Tax. With our team of knowledgeable and qualified accountants, auditors, and tax advisors in Dubai, we offer comprehensive VAT solutions to businesses of all sizes.

    From registration and filing to consultations and dispute resolution, we guide you through every step with expertise. We help you understand your obligations, minimize risks, and optimize your VAT compliance to ensure your business operate seamlessly and efficiently.

    Call us Today and get your queries answered in no time. Let’s simplify taxation together.

    📞 Call: +(971) 44081900

    💬 WhatsApp: +(971) 508912062

    📧 Email: info@shuraatax.com

    Frequently Asked Questions

    1. What is the penalty for late VAT registration in the UAE?

    Businesses that fail to register for VAT within the required timeframe are subject to a penalty of AED 10,000.

    2. How much is the penalty for late VAT payment?

    The penalty structure for late VAT payment is as follows:

    • 2% of the unpaid tax immediately after the due date.
    • 4% additional penalty if the tax remains unpaid after seven days.
    • 1% daily penalty on the outstanding amount starting one month after the due date, up to a maximum of 300%.

    3. Are there penalties for incorrect VAT return submissions?

    Yes, submitting an incorrect VAT return can result in a penalty of AED 3,000 for the first offense and AED 5,000 for subsequent offenses.

    4. Can VAT penalties in the UAE be waived or reduced?

    The Federal Tax Authority (FTA) may consider waiving or reducing penalties under specific circumstances. Businesses must submit a request through the FTA’s e-services portal, providing valid reasons and supporting documentation for the non-compliance.

  • Reverse Charge Mechanism under VAT in UAE

    Reverse Charge Mechanism under VAT in UAE

    The reverse charge mechanism in UAE VAT is a vital yet often overlooked aspect of VAT compliance. Unlike the conventional VAT process, where the seller collects VAT from the buyer and remits it to the Federal Tax Authority (FTA) the reverse charge mechanism shits this responsibility to the buyer.

    This is particularly relevant for cross-border transactions or supplies from foreign vendors, where the buyer in the UAE is required to account for VAT directly to the FTA. Ignoring this mandatory requirement can lead to significant compliance issues for businesses. In this blog, you’ll get a clear understanding of what the reverse charge mechanism in UAE VAT entails, when it applies, and how to ensure your business remains compliant.

    What is the Reverse Charge Mechanism in VAT?

    The reverse charge mechanism in UAE VAT plays an important role in cross-border transactions by exempting foreign businesses from registering for VAT within the country. Instead of the traditional VAT process where the supplier collects tax from the customer, the reverse charge mechanism in UAE VAT shifts the responsibility to the buyer.

    This means the buyer directly accounts for and pays the VAT to the UAE government. The supplier, particularly if based outside the UAE, is exempt from VAT and does not charge VAT on imported goods or services. In such cases, UAE residents receiving these goods or services must report and pay VAT under the reverse charge mechanism, ensuring accurate input and output VAT entries in their quarterly VAT returns.

    What is the Need for Reverse Charge?

    The need for the reverse charge mechanism (RCM) arises primarily to ensure VAT compliance in cross-border transactions and prevent tax evasion. Here’s a clear breakdown of why it’s necessary:

    1. Simplifies Compliance for Foreign Suppliers

    • Without RCM, foreign businesses would have to register for VAT in every country where they supply goods or services, resulting in increased administrative burdens.
    • The reverse charge removes this burden by shifting the tax obligation to the local buyer, making it easier for non-resident suppliers.

    2. Ensures VAT Is Collected on Imports

    • When goods or services are imported, the UAE government still needs to collect VAT.
    • RCM ensures this by making the local recipient responsible for accounting and paying VAT, even if the supplier is outside the UAE.

    3. Reduces Tax Evasion

    • Since the responsibility is on the local buyer, the government has better oversight and control over VAT collection.
    • It helps in tracking taxable transactions more efficiently, especially those involving international vendors.

    4. Streamlines VAT Reporting

    • Local businesses record both input and output VAT in their VAT returns, allowing for accurate and transparent reporting.
    • Often, if the buyer is eligible for input VAT recovery, the VAT under RCM may be fully reclaimable, resulting in no net tax liability.

    5. Supports Fair Market Practices

    • It levels the playing field for UAE-based businesses by ensuring that imports are taxed at the same rate as domestic supplies, thereby preventing unfair advantages for foreign suppliers.

    Application of Reverse Charge Mechanism in UAE VAT Law

    The reverse charge mechanism (RCM) in the UAE is applicable in specific scenarios where the recipient of goods or services — rather than the supplier — is required to account for and pay VAT to the government. Here’s when reverse charge is applicable under UAE VAT law:

    1. Import of Goods into the UAE

    When goods are imported from a supplier outside the UAE, the local recipient (importer) must apply the reverse charge mechanism and pay 5% VAT directly to the UAE Federal Tax Authority (FTA).

    2. Import of Services

    If a UAE-based business receives services from a foreign supplier (who has no place of residence in the UAE), it must apply reverse charge and account for VAT on that service.

    Example: Purchasing software licenses or consultancy services from abroad.

    3. Supply of Certain Goods or Services Within UAE (in specific cases)

    RCM also applies to specific domestic transactions involving:

    • Gold and diamonds
    • Hydrocarbons for resale
    • Crude or refined oil
    • Natural gas or energy

    In these cases, VAT responsibility is shifted from the supplier to the registered buyer (if both are VAT registered).

    4. Supply Between Designated Zones

    If goods move between designated free zones and certain conditions aren’t met, reverse charges may apply to ensure proper VAT treatment.

    5. Supply of Electronic Services

    Suppose a non-resident supplier provides electronic or digital services (such as software, streaming, or cloud hosting) to a UAE-based business or end-user. In that case, VAT must be applied by the recipient under the reverse charge mechanism.

    6. Agency Transactions (In Some Cases)

    If an agent acts on behalf of a non-resident and supplies goods or services to a UAE resident, RCM may apply, depending on the contractual terms and structure.

    What is the Purpose of VAT Reverse Charge Mechanism?

    The VAT Reverse Charge Mechanism is implemented to guarantee the collection of VAT on the supply of goods or services when the supplier is not a taxable person, and the supply occurs within the UAE. This concept designates the recipient or buyer as a party making taxable supplies to themselves, making them responsible for remitting VAT to the government.

    How Does the Reverse Charge Mechanism on Services Work?

    The reverse charge mechanism on services is a VAT concept that shifts the responsibility of tax payment from the service provider to the recipient. This mechanism is particularly relevant in cross-border transactions where the supplier is based outside the UAE and the recipient is a UAE-registered business.

    Under the reverse charge mechanism in UAE VAT, when a foreign supplier provides services to a UAE-based company, the local business must account for VAT as if it had supplied the service itself. This means the UAE recipient reports both the input and output VAT in their VAT return, resulting in no net VAT liability, provided the service is for business purposes and input VAT is recoverable.

    Example of VAT reverse charge mechanism UAE

    An Italian company, XYZ, dispatched goods valued at AED 8,500.0 to ABC, a VAT-registered entity in the UAE. As this constitutes a taxable supply of goods, VAT must be addressed. Since the goods were imported from Italy, XYZ does not impose VAT on ABC, as it is not registered in the UAE. ABC pays only the goods’ cost, with the VAT liability settled directly with the government.

    During VAT return filing, ABC asserts the 5% VAT-liable amount as input tax, offsetting it against the output tax liability. The reverse charge mechanism UAE VAT simply shifts the responsibility to pay VAT from the supplier (ABC) to the recipient (XYZ).

    What are the Requirements for Reverse Charge Mechanism?

    To apply the reverse charge mechanism UAE VAT, specific requirements must be met:

    1. Recipient Must Be VAT-Registered in the UAE: Only businesses registered under the UAE VAT regime are eligible to apply for the reverse charge.
    2. Supplier Must Be Outside the UAE: The service provider should not have a fixed place of establishment or residency in the UAE.
    3. Import of Services Must Be for Business Use: The services acquired must be used for taxable business activities in the UAE.
    4. Proper Invoicing and Record-Keeping: The UAE recipient must maintain appropriate records of the imported services and account for the VAT accordingly in their tax filings.
    5. No VAT Charged by Supplier: The foreign service provider should not include VAT on the invoice, as the responsibility for VAT payment shifts to the UAE recipient.
    6. Compliance with Article 48 of the UAE VAT Decree-Law: This article outlines the legal basis for applying the reverse charge mechanism in the UAE.

    In summary, the reverse charge mechanism UAE VAT simplifies compliance for international service transactions by placing the onus on the recipient to report and pay VAT. It ensures that UAE businesses are taxed fairly on imported services, aligning with the principles of local VAT regulations.

    What conditions must be met for the reverse charge mechanism?

    Below are the conditions that must be met for the reverse charge mechanism, UAE VAT:

    1. The recipient of the goods or services must be VAT registered.
    2. Every registered business owner is obligated to maintain accurate records of supplies subject to reverse charge.
    3. Invoices, receipt vouchers, and refund vouchers must explicitly indicate whether the tax payable for a specific transaction is through reverse charge.

    Why Engage a Trusted Tax Firm for Handling Reverse Charge Mechanism Transactions?

    Engaging a reputable tax firm is advisable to ensure accurate and successful handling of transactions subject to the reverse charge mechanism of UAE VAT. This involves organising and collecting import records, maintaining precise VAT filing for such transactions, and correctly claiming VAT using the appropriate forms.

    Our in-house FTA-registered tax agents are highly skilled and ready to assist you in every aspect.

    Feel free to contact us:
    📞 Call: +(971) 44081900
    💬 WhatsApp: +(971) 508912062
    📧 Email: info@shuraatax.com

  • VAT on Free Zones in UAE – Dubai

    VAT on Free Zones in UAE – Dubai

    Value Added Tax (VAT) has become an important part of running a business in the UAE since it was introduced in January 2018. With a standard rate of 5%, VAT applies to many goods and services, meaning businesses need to be aware of the rules and how to comply with them. One of the unique features of the UAE is its free zones.

    Free Zone is a term for free trade zones that encourage foreign ownership of businesses. Businesses in Free Zones must follow the rules set by the Free Zone Authority to do business in this area. Under UAE law, certain Free zones are known as “designated zones.” According to Article 51 of the Executive Regulations, the following meet the description of marked zones:

    • A particular geographic region that is enclosed and secured.
    • Security measures and customs rules are in place to keep track of who comes and goes and what moves in and out of the area.
    • It has internal rules about how things should be kept, stored, and worked on in the area.
    • The person in charge of the Designated Zone must follow the rules set by the FZ Authority.

    Therefore, any Free zone that satisfies the requirements and is listed on the cabinet’s list will be considered a Designated zone. Some of the famous free zones include IFZA, JAFZA, DIFC, and RAKEZ.

    While free zones provide great opportunities, they also have specific VAT rules that businesses need to understand, especially regarding VAT for free zone companies in UAE. For example, knowing the difference between designated and non-designated zones, what qualifies for zero-rated supplies, and the steps for VAT compliance can all affect a company’s finances. That’s why it’s essential for businesses operating in Dubai’s free zones to get a clear grasp of VAT implications.

    Is there VAT for Freezone Companies in the UAE?

    Yes, VAT can apply to Free Zone companies in the UAE, but it depends on several factors. Some people think that only limited companies can sign up for VAT in the UAE. Any business that meets the minimum requirement for VAT registration in the UAE must go through the FTA’s VAT registration process. A free zone company in the UAE can register independently if it makes between AED 187,500 and AED 375,000.

    For free zone companies, understanding whether they reach this threshold is crucial, as it determines their VAT registration requirements. If they exceed the threshold, they must comply with all VAT obligations, including charging VAT on their taxable supplies and filing regular VAT returns. This is an important aspect of VAT registration for free zone companies in UAE.

    Distinction Between Designated Zones and Non-Designated Zones

    One of the key concepts in VAT for free zone companies is the distinction between designated zones and non-designated zones.

    Designated Zones

    Designated free zones in the UAE are specific free zones that have been designated by the Federal Tax Authority (FTA) as being outside the territorial scope of the UAE for VAT purposes. This means that goods and services supplied within these zones are generally exempt from VAT.

    However, there are some exceptions:

    • Supply of Services to Mainland Businesses: If a free zone company supplies services to a mainland business, VAT is applicable at a standard rate of 5%.
    • Supply of Goods or Services to Non-Business Consumers: If a free zone company supplies goods or services to non-business consumers within the zone, VAT may be applicable.

    Non-Designated Zones

    On the other hand, non-designated zones do not enjoy the same VAT benefits as designated zones. Businesses operating in these areas are subject to the standard VAT rates. Therefore, it’s important for companies to know which category their free zone falls into to understand their VAT obligations better.

    VAT Treatment in the UAE Free Zones

    The standard VAT rate in the UAE Free Zone is set at 5%. This rate applies to most goods and services that do not qualify for any exemptions or special treatment. However, there are also zero-rates supplies and tax-exempt supplies.

    Tax-Exempt VAT

    Tax-exempt supplies are goods and services that are not subject to VAT. This means that businesses do not charge VAT on these supplies, and they also cannot claim any input tax credits on related purchases. Examples of tax-exempt supplies include certain healthcare and educational services.

    Zero-Rated VAT

    Zero-rated VAT means that the VAT rate charged on a good or service is 0%. Businesses can still recover the VAT incurred on their purchases related to these supplies. This treatment often applies to exports and specific goods and services that meet certain criteria. In designated free zones in the UAE, goods that are moved outside the zone may also qualify for zero-rated VAT.

    Specific VAT Treatments for Goods and Services within Free Zones

    The VAT treatment of goods and services in free zones can vary, with several important considerations:

    Import and Export

    In designated zones, imported goods can be stored without VAT until they are moved outside the zone. This can significantly reduce the cash flow burden for businesses. Exports from these zones are typically zero-rated, allowing companies to sell goods to international customers without adding VAT.

    Services

    When it comes to services, VAT may apply depending on the nature of the service and where it is supplied. For instance, services provided within a designated zone may not incur VAT, while services supplied to customers outside the zone might be subject to VAT.

    VAT Refunds

    Free zone companies may also be eligible for VAT refunds on certain expenses incurred within the zone. This can provide a financial advantage and enhance cash flow management.

    How to Register for VAT in UAE Free Zone?

    While most free zones in the UAE are designated zones, exempting them from VAT, some may require VAT registration depending on their specific activities and the nature of their supplies. Here’s a general process on how to register for VAT in a UAE Free Zone:

    1. Determine VAT Registration Requirement

    Not all free zones are designated. Designated zones are generally exempt from VAT. However, if you supply goods or services to non-business consumers within the zone or to entities outside the zone, you may need to register.

    Companies in non-designated zones are subject to VAT and must register if they meet the standard VAT registration threshold i.e. AED 375,000 per year. However, businesses below this threshold can still register voluntarily if they choose.

    2. Prepare Required Documents

    Gather the necessary documents before beginning the registration process. Commonly required documents include:

    • Trade license of the free zone company
    • Copy of the owner’s passport or identification
    • Proof of business address in the free zone
    • Bank account details
    • Financial statements (if applicable)
    • Information about taxable supplies and imports

    3. Access the Federal Tax Authority (FTA) Website

    Visit the official website of the Federal Tax Authority (FTA) of the UAE. This is the government body responsible for managing tax matters, including VAT registration.

    4. Create an Account on the FTA Portal

    If you do not already have an account, you will need to create one on the FTA portal. Click on the registration section and follow the instructions to set up your account. You’ll need to provide your email address and set a password for your account.

    5. Complete the VAT Registration Application

    Once logged in, navigate to the VAT registration section and fill out the application form. You’ll need to provide details about your business, including:

    • Business activities
    • Estimated annual turnover
    • Details about your free zone

    Ensure all information is accurate and complete, as any discrepancies can delay the registration process.

    6. Submit the Application

    After filling out the application form, review all the information and submit it through the FTA portal.

    7. Review and Approval

    The FTA will review your application. If they require any additional information or documentation, they will contact you. Upon approval, you will receive a Tax Registration Number (TRN).

    What happens if a company does not register for VAT?

    If a company that works in and out of a free zone in the UAE doesn’t register for VAT in time though required as per law, the FTA will register the business from the date it should have been registered for VAT.

    So, Businesses failing to comply with VAT registration rules will receive fines and must retroactively apply the correct VAT rate to all past sales. If your yearly sales hit the threshold, you can hire a licenced tax agent in the UAE to help you. This is very important if you don’t know when your business needs to be registered or if it has already reached the required size.

    VAT Registration in Freezone with Shuraa Tax

    Understanding VAT for free zone companies in UAE is essential for businesses operating in these areas. Whether you’re in a designated or non-designated zone, knowing the VAT rules helps you stay compliant, avoid fines, and make informed financial choices. Since VAT regulations can be tricky, it’s smart to get professional guidance to ensure your business follows all the rules.

    Shuraa Business Setup not only help business owners set up their companies in mainland, free zone, and overseas areas, but we also help you get our in-house finance teams ready for accounts reporting, auditing, UAE tax support like VAT, Corporate tax, Excise Tax, Tax Residency Certification.

    Our qualified tax team of advisors and UAE tax agents assist businesses to be UAE tax compliant and to have effective documentation which is required by UAE authority. Contact us today at +971508912062 or info@shuraatax.com to make the process simple and hassle-free.

    Frequently Asked Questions

    1. What is VAT for freezone companies in UAE?

    VAT for freezone companies in the UAE is the value-added tax that businesses operating in free zones must comply with, depending on whether they are in a designated or non-designated zone. The standard VAT rate in the UAE is 5%, but designated zones enjoy special VAT treatment, such as exemptions or zero-rated supplies for certain transactions.

    2. What are Designated Free Zones in UAE?

    Designated free zones are specific free zones that have been designated by the Federal Tax Authority (FTA) as being outside the territorial scope of the UAE for VAT purposes. This means that goods and services supplied within these zones are generally exempt from VAT.

    3. Do freezone companies need to register for VAT in the UAE?

    Yes, freezone companies must register for VAT if their taxable supplies and imports exceed AED 375,000 per year. Even if they don’t meet this threshold, companies can voluntarily register for VAT to benefit from input tax recovery on their purchases.

    4. How does VAT impact goods moving in and out of free zones?

    In designated free zones in UAE, goods moving in and out of these areas can be VAT-free, particularly when they are exported outside the UAE. However, if goods are transferred into the UAE mainland from a designated zone, VAT will be charged at the standard rate.

  • VAT For E-Commerce Businesses in UAE

    VAT For E-Commerce Businesses in UAE

    E-commerce in the UAE has been growing at lightning speed. Back in 2019, there were around 4.5 million online shoppers, and by the last year, this number jumped to 6.5 million (roughly a 20% increase). The retail sector itself is now worth about AED 306.6 billion. In 2024, the UAE’s e-commerce market reached AED 32.3 billion and is expected to cross AED 50.6 billion by 2029. A young, tech-savvy population, reliable internet, and fast delivery services are all driving this boom.

    But with this growth comes responsibility. Since January 1, 2018, the UAE has applied Value Added Tax (VAT) at a standard 5% rate, managed by the Federal Tax Authority (FTA). For e-commerce businesses, whether you sell products, digital services, or operate through marketplaces, it’s essential to know if there’s a VAT for e-commerce businesses in the UAE.

    This includes when you need to register, how to charge VAT, and how to handle cross-border sales.

    Staying VAT compliant protects your business from penalties, builds customer trust, and shows that you’re running a professional setup.

    VAT for E-commerce Businesses in the UAE

    E-commerce businesses in the UAE are fully covered under VAT regulations. Doesn’t matter if you’re selling physical products or digital services; VAT applies in most cases. Therefore, it’s important to know how it works in different situations.

    1. Online sales to UAE residents (B2C transactions)

    If you sell goods or services directly to individual customers in the UAE, you must charge the standard 5% VAT at checkout (once your business is registered for VAT). This applies to everything from clothing and electronics to subscriptions and e-learning platforms.

    2. Online sales to businesses (B2B transactions)

    For B2B e-commerce transactions within the UAE, the standard 5% VAT rate generally applies. The business selling the goods or services charges VAT to the business customer. The purchasing business, if it is VAT-registered, can typically reclaim this VAT as input tax in its own VAT return.

    The key difference in B2B transactions often comes into play in cross-border scenarios where the reverse charge mechanism may apply.

    3. Cross-border transactions (imports/exports)

    The VAT treatment for cross-border e-commerce depends on whether the transaction is an import or an export.

    • Imports into the UAE: Goods imported for sale online are subject to VAT at the point of import. The seller is responsible for accounting for this VAT, which may later be recovered if the goods are resold.
    • Exports outside the UAE: Sales to customers abroad are generally zero-rated, meaning VAT is not charged, but you must keep proper documentation to prove that the goods or services were exported.

    Who Needs to Register for VAT?

    Not every e-commerce business in the UAE has to register for VAT right away. It depends on your turnover (the total value of your taxable supplies and imports) in a 12-month period.

    1. Mandatory VAT Registration

    If your taxable turnover is AED 375,000 or more, you must register for VAT. This applies whether you’re an online store, marketplace seller, or even a freelancer running a digital service business.

    2. Voluntary VAT Registration

    If your turnover is AED 187,500 or more, you can choose to register voluntarily. This is useful for small e-commerce businesses that want to look more professional and be able to claim back VAT on business expenses.

    3. Marketplace Operators

    If you sell through online platforms or marketplaces, you should check whether VAT collection is your responsibility or handled by the platform. In most cases, the seller is responsible for VAT compliance, not the platform.

    4. Freelancers and Small Businesses

    Even if you’re just offering services online (like digital design, tutoring, or software subscriptions), the same VAT thresholds apply.

    VAT on E-commerce Transactions

    VAT applies differently depending on the type of product or service being sold online. Here’s a breakdown to make it simple:

    1. VAT on Sales of Goods Online:

    If you’re selling physical goods (like clothes, electronics, or home items) to customers in the UAE, you must charge 5% VAT at the point of sale. The same applies whether you’re selling through your own website, social media, or an online marketplace.

    2. VAT on Digital Services:

    Digital products and services are also taxable. This includes things like:

    • Online subscriptions (music, streaming platforms, etc.)
    • Software and mobile apps
    • Online courses and e-learning platforms
    • Digital consulting services
    • If your business offers these, you must add 5% VAT for UAE customers.

    VAT on Imported Goods Sold Online:

    When goods are imported into the UAE for online sale, VAT is charged at the point of import. The seller pays this VAT to customs but can often reclaim it later as input tax when filing returns. For the customer, the price they pay should already include the VAT.

    For Non-Registered Businesses: A business that is not VAT-registered must still pay the 5% VAT on the imported goods at customs before the goods are released. Since they are not VAT-registered, they cannot reclaim this tax.

    How VAT is Charged at Checkout:

    For e-commerce transactions within the UAE, VAT is usually added to the final bill at checkout. For example, if an item costs AED 100, the customer will pay AED 105 (including 5% VAT). Businesses must clearly show the VAT amount on the invoice or receipt to stay compliant.

    VAT Compliance Requirements for E-commerce Businesses

    Running an e-commerce business in the UAE means following certain VAT rules set by the Federal Tax Authority (FTA). Here’s what you need to keep in mind:

    VAT Registration:

    If your sales cross the mandatory threshold of AED 375,000, you must register for VAT. Registration is done online through the FTA portal.

    Issuing VAT-Compliant Invoices:

    Every sale must be supported by a proper VAT invoice. Invoices should clearly show:

    • Seller and buyer details
    • A unique invoice number
    • Item/service description

    Net price, VAT amount, and total price (including 5% VAT)

    Record Keeping:

    Keep detailed records of all sales, purchases, imports, and exports for at least 5 years (in some cases, 15 years for real estate). Proper bookkeeping helps in case of FTA audits.

    Filing VAT Returns:

    Most businesses need to file VAT returns quarterly (every 3 months). Returns must show total sales, VAT collected, and VAT paid on purchases (input VAT). Returns are submitted online through the FTA portal, and payment must be made before the deadline.

    Accounting for Cross-Border Sales:

    Ensure correct treatment for exports (usually zero-rated) and imports (VAT charged at customs). Keep proof of export to claim zero-rating.

    Note: VAT rules can change, especially for e-commerce and digital services. Regularly check FTA updates or work with a tax consultant to avoid mistakes.

    Penalties for Non-Compliance

    For e-commerce businesses, mistakes can quickly become costly. Here are some key penalties to be aware of:

    • Late VAT Registration: If you fail to register for VAT on time after crossing the mandatory threshold, the penalty can start from AED 10,000.
    • Late VAT Return Filing: Missing the VAT return deadline can result in penalties starting at AED 1,000 for the first time, and AED 2,000 for repeated delays within 24 months.
    • Late VAT Payments: If you don’t pay VAT on time, a percentage-based fine is applied (2% of unpaid tax immediately, 4% monthly, and up to 300% maximum).
    • Incorrect or Incomplete Records: Not keeping proper invoices, sales records, or import/export documents can lead to fines of AED 10,000 – AED 50,000, depending on the violation.

    How Shuraa Tax Can Help

    E-commerce is booming in the UAE, and following VAT rules is a big part of running a successful online business. Registering for VAT, VAT return filing on time, and keeping proper records not only helps you avoid fines but also shows customers that you run a trustworthy business.

    If you’re unsure where to start, don’t worry, you don’t have to do it alone. Shuraa Tax can guide you through the entire process, from VAT registration and compliance support to bookkeeping and VAT return filing. Reach out to Shuraa Tax today and let us make VAT simple for your business.

    Frequently Asked Questions

    1. Is VAT applicable to e-commerce businesses in the UAE?

    Yes. VAT for e-commerce business in the UAE applies just like traditional businesses. Most online sales and digital services are subject to 5% VAT.

    2. Do I need to charge VAT on digital services like subscriptions or e-learning?

    Yes, digital services are considered taxable supplies. If your business is VAT-registered and sells digital products to a customer in the UAE, you must charge the standard 5% VAT on the sale.

    3. Do freelancers or small online sellers need to register for VAT?

    Yes, if their turnover crosses AED 375,000. Below this, registration is voluntary but can still be beneficial.

    4. Do I need to charge VAT on online sales to customers in the UAE?

    Yes, VAT on online sales to UAE residents (B2C) is 5%, which must be added to the product or service price at checkout.

    5. How is VAT handled on imported goods sold online?

    A VAT-registered business pays the 5% VAT on imported goods at customs but can then reclaim this tax as input tax in its VAT return. The business then charges 5% VAT on the final sale to the customer.

  • UAE VAT Amendment Highlights w.e.f 1.1.2023

    UAE VAT Amendment Highlights w.e.f 1.1.2023

    The President of the UAE issued Federal Decree-Law No. 18 of 2022, amending the VAT Law. A new article on the Statute of Limitations is included in the VAT Law amendment, which also updates 25 other existing articles. On January 1, 2023, the revised provisions are supposed to go into effect. 

    It is noteworthy that various Articles of the VAT Law have been revised. Some of these will significantly affect how businesses are currently handling their VAT obligations. The addition of a new article on the statute of limitations, the deadline for the issuance of a tax credit note, the deadline for the issuance of an invoice for continuous supplies, the definition of hydrocarbons, the valuation of a deemed supply in the case of related parties, etc. are a few of these. 

    Although some amendments will not have a significant impact on the VAT positions previously adopted, they are included to add clarity. These amendments relate to wording changes, incorporating all relevant provisions in one place, etc., which are irrelevant to many businesses. 

    UAE VAT amendment highlights w.e.f 1st Jan 2023

    The following is a summary of some significant amendments and their significance for taxpayers to be aware of: 

    Definitions

    New definitions for Relevant Charitable Activity, Pure Hydrocarbons, Tax Evasion, Tax Audit, Tax Assessment, and Voluntary Disclosure were added to the new Decree-Law. 

    Supplies explicitly regarded as outside the scope of VAT

    A new clause has been added to Article 7 that states the Executive Regulations may specify any other supplies (aside from the provision of vouchers and the transfer of business). 

    VAT registration exemption

    Both registered and non-registered individuals are covered by Article 15’s exception to registration requirements. 

    Date of supply in special cases

    According to Article 26(1), one of the events used to determine the date of supply in special cases is the day one year has passed since the day the goods or services were provided. 

    Place of supply in special cases

    Article 30(8) now specifies that the location where transportation begins will serve as the location of supply of services related to transportation. 

    Place of residence of a principal

    According to Article 33, a principal’s residence is where the agent resides. The place of residence of the agent must be the same as the principal’s, according to the current VAT Law. 

    Value of supply

    Article 37 will now take precedence over Article 36, which deals with the specific anti-avoidance rule for the value of supply or import of goods and services between related parties (value of deemed supply). 

    Goods subject to zero-rate VAT

    Additional goods are listed in article 45 (clauses 4, 5, and 6) as being subject to zero-rate VAT. This covers the import of vehicles, the import of accessories for vehicles, and the import of rescue ships and planes. 

    Reverse charge

    Clause 3 of Article 48 states that Pure Hydrocarbons (defined in the new Decree-Law as “any kind of different pure combinations of a chemical equation made only of hydrogen and carbon”) are subject to the domestic reverse charge. 

    Recovery of Input VAT

    Two new clauses that outline the requirements for the taxable person to recover VAT paid or declared on the import of goods or services have been added to Article 55 regarding the recovery of input VAT. 

    Recovery of Input VAT by Government Entities and Charities

    Article 57 now mentions that government entities are permitted to recover Input VAT incurred for the performance of sovereign activities. Similarly, charitable organisations may claim input VAT paid for qualifying charitable activities. 

    Output VAT adjustment

    The scenario where the taxable person applies an incorrect tax treatment is now covered by the output VAT adjustment mentioned in Article 61(1). The taxable person should now issue a tax credit note to modify the output tax in such circumstances. 

    Timeframe for issuing a tax credit note

    Article 62(2) pertaining to the output VAT adjustment mechanism now includes a requirement that the taxable person issue a tax credit note within 14 days of the date that any of the occurrences listed in Article 61(1) occur. 

    Tax payment

    Under Article 65(4), a taxable person who issues a tax invoice with a VAT declaration or who receives money marked up as VAT is required to pay the VAT to the Federal Tax Authority (FTA). 

    Timeline for issuing a tax invoice

    According to Article 67(1), a tax invoice issued in accordance with Article 26 (date of continuous supply) must be issued no later than 14 days after the date of the supply. 

    Adding a New Article on the Statute of Limitations 

    Along with the changes, a new article (Article 79 bis) was also included in the VAT Law. This section is comparable to the one about the statute of limitations that was recently added to the Excise Tax Decree-Law. 

    The following topics are covered in the new article on statute of limitations: 

    •  If the FTA has given the taxable person a notice to be audited, the 5-year statute of limitations will not apply if the audit is finished within 4 years of the notice’s issuance date. 
    • The statute of limitations will be extended by one year if the taxable person makes a voluntary disclosure within five years of the conclusion of the applicable tax period. 
    • The taxable person cannot submit a voluntary disclosure after five years have passed since the conclusion of the pertinent tax period. 

    The article also states that these prolonged periods may be modified further through a separate Cabinet Decision. 

    Final Words 

    By the start date of January 1, 2023, taxpaying entities must review any changes to the VAT Decree-Law and ensure that they are prepared for implementation. This would entail a change in how VAT is applied for specific supplies (such as the supply of hydrocarbons and the importation of transportation equipment), the timing of the issuance of tax invoices and tax credit notes, and the practises for maintaining books and records for a longer period.

    Our in-house FTA registered tax agents are well-equipped and proficient to assist you in all necessary ways. All you need to do is get in touch with us on info@shuraatax.com or call us on +971 508912062.

  • Tax Compliances in UAE: Latest Updates

    Tax Compliances in UAE: Latest Updates

    Tax compliance in the UAE has become an important part of running a business. Over the years, the country has introduced structured tax systems such as VAT, Corporate Tax, and Excise Tax. Even though the UAE is still known as a business-friendly destination, companies are now expected to follow clear tax rules and meet regular reporting requirements.

    Staying compliant helps businesses avoid penalties, reduce risks, and keep their operations running without interruptions. Simple mistakes like late filings, incorrect returns, or missing updates can create unnecessary problems. Understanding how UAE taxes work and what’s currently required can save both time and money in the long run.

    UAE tax regulations are updated from time to time, with new rules, clarifications, and compliance deadlines announced by the Federal Tax Authority (FTA). These changes can affect how you file returns, keep records, or calculate taxes.

    What are the Different Kinds of Taxes Applicable in the UAE?

    Over the past few years, the UAE has introduced new tax laws to align with global standards while maintaining its position as an attractive place to do business. Knowing which taxes apply to you is the first step toward staying compliant.

    1. Corporate Tax (CT)

    Corporate Tax is a direct tax on business profits. While the 9% rate is low by global standards, the rules around who pays what are becoming more detailed.

    The 9% Threshold:

    You only pay the 9% rate on profits above AED 375,000. If your profit is below this, your rate is 0%, but you still must register and file a return.

    Small Business Relief (SBR):

    If your annual revenue (total sales, not just profit) is AED 3 million or less, you can elect to be treated as having zero taxable income until the end of 2026. This means no tax and much simpler paperwork.

    Free Zone Rules:

    Companies in Free Zones can keep their 0% tax status on “Qualifying Income.” However, they must now maintain “Substance” (having a real office and employees in the zone) and have their accounts audited by a certified firm.

    2. Value Added Tax (VAT)

    VAT is a consumption tax charged on most goods and services in the UAE. Businesses that cross the mandatory registration threshold must register for VAT, charge it on taxable supplies, and file regular VAT returns with the Federal Tax Authority. Some supplies are zero-rated or exempt, depending on the nature of the activity.

    The Mandatory Limit:

    You must register for VAT if your taxable sales/imports hit AED 375,000 over the last 12 months.

    3. Excise Tax

    Excise Tax is applied to specific goods that are considered harmful to health or the environment, such as tobacco products, energy drinks, and sugary beverages. Businesses involved in manufacturing, importing, or storing excise goods must comply with strict registration, reporting, and payment requirements.

    Sugar-Based Tiers: Instead of a flat 50% tax on all sweet drinks, the tax is now based on grams of sugar per 100ml:

    • High Sugar (8g+): AED 1.10 per litre.
    • Medium Sugar (5g–8g): AED 0.80 per litre.
    • Low/Zero Sugar: 0% tax (though artificial sweeteners must still be registered).

    The 100% Club: Tobacco products, electronic smoking devices, and energy drinks remain taxed at a flat 100% of their retail price.

    4. Withholding Taxes (WHT)

    Withholding tax is a tax collected by the payer (like a business) on behalf of the recipient (like a foreign supplier). Currently, the UAE has set the WHT rate at 0%. This is a major advantage for companies that hire foreign consultants or pay royalties abroad, as it keeps cash flow moving freely.

    For very large multinational groups (earning over €750 million globally), a new Domestic Minimum Top-up Tax ensures they pay at least a 15% effective tax rate in the UAE, aligning with global efforts to prevent tax avoidance.

    5. Other Relevant Levies

    While not always called taxes, these fees are part of your ‘cost of doing business’ in the UAE:

    • Customs Duties: Most goods imported from outside the GCC face a 5% duty. Note that many Free Zone companies are exempt from this unless they sell their goods into the local UAE market.
    • Property Transfer Fees: In Dubai, for example, there is a 4% fee on the sale value of property. This is usually split 50/50 between the buyer and seller, though contracts can vary.
    • Digital Transformation Fees: The FTA has cancelled fees for paper certificates. Tax Registration Certificates are now issued as free digital copies with QR codes for instant verification.

    Recent Corporate Tax Updates in the UAE (As of 2026)

    The UAE’s corporate tax system has been rapidly evolving since its introduction in 2023.

    The First Major Filing Deadlines are Here:

    For many businesses, 2026 is the year the first tax return is actually due. The deadline is strictly nine months after the end of your financial year.

    • January–December Financial Year: If your first tax period ended on December 31, 2025, your filing and payment deadline is September 30, 2026.
    • April–March Financial Year: If your period ends March 31, 2026, your deadline is December 31, 2026.

    Note: Even if your profit is zero or you qualify for relief, you must still file a return.

    Small Business Relief (SBR):

    The Small Business Relief remains the most vital tool for startups, but it has a built-in expiration date. Resident businesses with revenue of AED 3 million or less can elect to be treated as having “zero taxable income.” This relief is currently set to apply only for tax periods ending on or before December 31, 2026.

    If you choose SBR, you cannot carry forward any tax losses or net interest expenses to future years. Businesses expecting high growth in 2027 should weigh whether it’s better to pay a little tax now to save their losses for later.

    Latest VAT Compliance Changes in the UAE (As of 2026)

    The UAE has introduced a set of important updates to its Value Added Tax (VAT) rules to make compliance clearer, strengthen enforcement, and align the system with international standards.

    Five-Year Deadline for VAT Credits & Refunds:

    A major compliance update is the introduction of a five-year limitation period to claim or use excess VAT credits and refunds. After this period, any unused VAT credit will expire permanently if not claimed or offset.

    This means that VAT refunds must be claimed within 5 years from the end of the relevant tax period. Legacy VAT credits that will expire soon may need immediate action.

    Launch of the E-Invoicing System (EIS):

    The UAE is moving away from PDFs and paper. Starting in July 2026, the government will begin testing a national e-invoicing system. Invoices will be sent to the FTA in real-time as they are issued, making manual errors much riskier. If an invoice is not issued through the approved system once it becomes mandatory for your tier, it may be considered invalid, and the buyer will be denied the right to recover input VAT.

    No More Self-Invoicing for Reverse Charge:

    Under the updated rules, businesses applying the reverse charge mechanism no longer need to issue internal self-invoices for these transactions. This reduces a significant administrative step, especially for importers and companies receiving cross-border services.

    Stronger Anti-Evasion Controls:

    To protect the tax base, the FTA now has clearer powers to deny input tax deductions that are linked to fraudulent or artificial transactions. This aligns with global efforts to tighten anti-avoidance measures and promotes honest reporting.

    Updates on Excise Tax in the UAE (As of 2026)

    Excise Tax in the UAE continues to evolve in 2026, with key changes aimed at improving public health outcomes, tightening compliance, and making the tax system more transparent and predictable for businesses.

    Introduction of a Tiered Sugar-Based Excise Tax:

    As of January 1, 2026, the old 50% flat tax on all sweetened drinks has been replaced. The tax is now volumetric, meaning it is charged as a fixed amount of Dirhams per litre, depending on how many grams of sugar are in the drink.

    Category Sugar Content (per 100ml) 2026 Tax Rate
     High Sugar  8 grams or more AED 1.10 per litre
     Moderate Sugar  5 to 7.99 grams  AED 0.80 per litre
     Low / Zero Sugar  Less than 5 grams 0% (Exempt)

    Artificial sweeteners (like Stevia or Aspartame) do not count as sugar in this calculation. If a drink uses only artificial sweeteners and has 0g of real sugar, it qualifies for the 0% tax rate.

    Category Shift for Carbonated Drinks:

    In a big change for 2026, Carbonated Drinks are no longer a separate excise category. Previously, all sodas were taxed at 50% just for being bubbly. But now, they are simply treated as Sweetened Drinks. If a brand reformulates a soda to have less than 5g of sugar, it can now be sold excise-free, even if it is still carbonated.

    Mandatory Lab Certification:

    You can no longer just claim your drink is low sugar. To benefit from the lower tax tiers, businesses must:

    • Obtain a Lab Report: All products must be tested by a MOIAT-accredited laboratory (such as Dubai Central Lab or SGS).
    • Register the Certificate: This report must be uploaded to the FTA’s EmaraTax portal.

    Transitional Relief and Excise Tax Deductions:

    The UAE’s tax authorities have also introduced specific provisions under FTA Decision No. 11 of 2025 that allow businesses to claim limited deductions where excise tax was previously paid under the old rules, but the new tiered model results in a lower tax amount – provided certain conditions are met (e.g., products remain unsold and proper documentation is supplied).

    Tips for Smooth Tax Compliance in the UAE

    Here are some expert-backed tips to help you stay on track.

    1. Don’t Treat Compliance as a One-Time Task: Tax and regulatory compliance is ongoing, not something you handle only at year-end. Track deadlines throughout the year for VAT, Corporate Tax, and UBO. Review compliance requirements whenever there’s a business change (new activity, revenue growth, expansion).
    2. Maintain Accurate and Updated Records: Clean and well-organised records form the backbone of tax compliance. Keeping proper invoices, contracts, bank statements, and accounting records makes filings smoother and protects businesses during audits or reviews.
    3. Use the Right Accounting and Compliance Tools: Reliable accounting software helps businesses track transactions accurately, prepare tax returns efficiently, and meet deadlines with confidence. With digital initiatives such as e-invoicing gradually rolling out, preparing systems early can save time and prevent disruptions later.
    4. Conduct Periodic Internal Reviews: Regular internal reviews help identify gaps or errors before they become serious issues. Reviewing tax returns, compliance filings, and supporting documents from time to time allows businesses to correct mistakes proactively and stay aligned with regulatory expectations.

    Bonus Tip: Get Professional Support to Stay Fully Compliant

    Even with the best internal processes, tax compliance in the UAE can become complex, especially with regular updates to Corporate Tax, VAT, Excise Tax, UBO, and reporting requirements. This is where professional support can make a real difference. Shuraa Tax supports businesses with end-to-end taxation services in the UAE. From Corporate Tax and VAT registration to return filing, compliance reviews, advisory, and audit support, the team helps businesses stay aligned with UAE tax laws at every stage.

    With expert guidance, businesses can avoid costly mistakes, stay updated with regulatory changes, and focus more on growth instead of compliance stress.

  • New Economic Substance Regulations for UAE Companies

    New Economic Substance Regulations for UAE Companies

    The UAE is a popular destination among investors and entrepreneurs to start or conduct their business due to its favourable tax regime. However, a European Union (EU) review of the UAE’s tax framework in early 2019 resulted in the UAE being included in the EU Blacklist. The EU Blacklist is a list of non-cooperative jurisdictions for tax purposes. In response to the review and to remove itself from the EU Blacklist, the UAE introduced new Economic Substance Regulations for UAE companies. Since then, the audit firms in UAE, tax consultancies have been helping businesses comply with this new structure.

    The Economic Substance Regulations (the Regulations) was issued on April 30, 2019, and further Guidance on the application of the Regulations was released on September 11, 2019. By implementing these Regulations, the UAE is making positive progress towards meeting the EU’s requirements to be removed from the EU blacklist.

    What are Economic Substance Regulations (ESR)?

    Economic Substance Regulations are introduced by countries that have low or no corporate taxes. This is done to prevent harmful tax practices such as unlawful avoidance or evasion of tax by entities operating within these countries. The purpose of ESR is to address concerns around the shifting of profits collected from certain activities that do not correspond to local economic activities undertaken in countries with low or no corporate taxes.

    Who does Economic Substance Regulations UAE apply to?

    The UAE Economic Substance Regulations apply to all businesses that covers one or more “Relevant Activities” listed by the UAE government. These include onshore, free zone, and offshore companies, branches, partnerships, and other business forms that have a license to operate in the UAE. However, companies that are directly or indirectly owned (at least 51%) by a UAE Government body or authority are exempt from the Regulations.

    The following businesses are considered as “Relevant Activities” under the Regulations:

    • Banking Business
    • Insurance Business
    • Investment Fund management Business
    • Lease – Finance Business
    • Headquarters Business
    • Shipping Business
    • Holding Company Business
    • Intellectual property Business (“IP”)
    • Distribution and Service Centre Business

    What are the compliance requirements of an entity carrying out Relevant Activities?

    • Notification form to Regulatory Authority
      Businesses should submit a notification form to their respective Regulatory Authority within the prescribed deadline.
    • Filing of annual ESR Return
      Businesses earning an incoming from any of the above-mentioned Relevant Activities, during the financial period, must show proof of Economic Substance in the UAE and must file an ESR return within 12 months from the end of the financial period. They are also required to meet the Economic Substance Test (EST).

    These requirements must be filed with the relevant Regulatory Authority. The Regulatory Authorities set their respective requirements, deadlines, and formats for notification filing. Delay or failure to submit notification form and ESR returns will incur heavy penalties. To avoid any penalty or fine, you can partner with a Tax Consultant in Dubai for ESR compliance.

    For the financial year ending on 31st December 2021, the date of Notification Filing was 30th June, 2022 & the last date of Report Filing is 31st December, 2022. For the next fiscal year which ended on 31st March, 2022, the last day of Notification Filing is 30th September, 2022 & the last date of Report Filing is 31st March, 2023. 

    Get assured services with Shuraa Tax

    To know more about the new Economic Substance Regulations for UAE companies or to get assistance with ESR compliances, feel free to contact Shuraa Tax Consultants and Accountants, the most renowned tax agency in UAE. Our UAE tax expert team will review the applicability of the Regulation to your company and will assist you through compliance fulfilment and reporting on time.

    Call us at +971508912062. You can also drop us an email at info@shuraataxintl.ae and get your queries answered in no time.

  • Treatment of VAT in Free zones of UAE

    Treatment of VAT in Free zones of UAE

    The VAT in UAE was introduced from 1 January 2019 and applies to those supplies of goods and services which take place within the territorial boundaries of the UAE. As in the case of goods and services supplied within free zones in the UAE, the rules of VAT are applicable to undergo a certain change.

    Free zones are defined as those areas which are specifically designed to promote international businesses in the UAE by providing attractive incentives to foreign investors and businesses. In the UAE, there are currently more than 37 Free Zones such as:

    • Jebel Ali Free Zone
    • Dubai Airport Free Zone
    • Dubai Cars and Automotive Zone and many more

    As per UAE VAT law and Executive Regulations, not all Free zones are ‘VAT Free Zones’ and only those listed in a Cabinet Decision are eligible for the special VAT treatment. These Free Zones are referred to as Designated Zones for VAT purposes, according to Cabinet Decision No. 59 of 2017.

    Few supplies occurring within the Designated Zones will not invite the standard rate of VAT i.e. 5% under circumstances mentioned in VAT regulations. This is only in the case of a supply of goods. However, suppliers of services in the designated zone will be subjected to the usual VAT rate at 5%. It’s important to understand the conditions which businesses need to follow for the VAT-free supply of goods between the Designated Zones as prescribed by UAE VAT Executive Regulations.

    Following are the conditions which are mandatory to consider any UAE free zone as a Designated Zone to

    1. It should be enclosed within a specific fenced geographical area.
    2. It should have security measures and customs controls in place for monitoring the entry and exit of individuals and goods to and from the area.
    3. There should be laid out internal procedures related to the method of keeping, storing and processing goods within the Designated Zone.
    4. The operator of the Designated Zone should show support or comply with the procedures laid down by the Federal Tax Authority (FTA) of UAE.

    If any free zone no longer fulfills the above conditions, it cannot be then treated as a designated zone. It will be considered and treated as a part of the UAE And general VAT rules will be applicable to such free zones.

    Below are few examples of Free zones which are designated zones:

    • Jebel Ali Free Zone (North-South)
    • Dubai Cars and Automotive Zone (DUCAMZ)
    • Free Zone Area in Al Quoz
    • Umm Al Quwain Free Trade Zone in Ahmed Bin Rashid Port
    • FOIZ (Fujairah Oil Industry Zone)
    • Khalifa Industrial Zone

    As per the registration for VAT is considered, these businesses within the Designated Zone have to register, report and account for VAT as per the UAE laws. In case of failing to register for VAT within the due date, a penalty of AED 20,000/- will be levied as per the UAE Federal Cabinet Decision No.40.

    Consult Shuraa Tax Consultants and Accountants to get assured and accurate help on the VAT laws related to the Free Zones in the UAE. We are a group of FTA approved tax agents in Dubai with a goal to provide accurate services of VAT in UAE (VAT registration and implementation, Tax compliance & VAT Return Filing). Contact us to get complete assistance and guidance on the VAT registration in UAE. All you need to do is reach out to us at info@shuraatax.com or call us at +971 508912062.

  • Impact of UAE VAT on Business-to-Business supplies of Healthcare Services

    Impact of UAE VAT on Business-to-Business supplies of Healthcare Services

    The Federal Tax Authority (FTA) in UAE recently issued a public clarification on business-to-business supplies of healthcare facilities & services. According to it, healthcare services that are necessary to be supplied to patients in need will be subjected to zero-rated VAT in UAE. Below conditions must be fulfilled in order to treat supply of healthcare services at zero rate: –

    • Services must be made by a healthcare body or institution, doctor, nurse, technician, dentist, or pharmacy, licensed by the Ministry of Health or by any other competent authority.
    • Relate to the wellbeing of a human being.

    However, VAT @zero rate on healthcare services is applicable only if the provider is supplying its healthcare services directly to the patient. If in any case, the “recipient of supply” of healthcare services are different people other than end patient then the supply will no longer be qualified as zero-rated and a standard rate of VAT will be charged.

    Let’s understand a little better about VAT implications on healthcare services:

    As per the UAE VAT law, healthcare services are defined as any service supplied that is accepted in the medical profession for the treatment of the patients or “recipient of supply” of the treatment. It also includes preventive healthcare services. The recipient of the healthcare services must be the patient receiving the treatment and if that’s not the case then 5% VAT will be levied on the supply of these services. As a result of this, healthcare providers need to make sure who is on the receiving end of the treatment to determine if the supply shall be zero-rated, else a standard rate of VAT will be charged.

    Here are some of the examples of different health scenarios to help you better understand under what conditions will the supply of healthcare services be zero-rated. Each supplier of healthcare services should consider the VAT rules while supplying their healthcare services.

    1st situation: A doctor has contracted with the hospital to provide its healthcare services to the patient within the hospital premises. This will involve two kinds of supply/transaction situation-

     A) Supply by the doctor to the hospital: The doctor is seen supplying its services to the hospital and not directly to the patient. Even though it’s related to the health of patients, it won’t be treated as “healthcare services” taxable at zero rate. Now, as the doctor has contracted with the hospital to provide its services to the patients, the services will be subjected to 5% UAE VAT

     B) Supply by the hospital to the patients: The hospital is supplying its healthcare services directly to the “recipient of supply” of the services. Therefore, these are subjected to zero-rated VAT.

    1. A hospital suggests a laboratory to a patient for conducting its medical test. As a result, the patient enters into a separate and direct contract with the laboratory for the supply of medical tests. Because the laboratory is directly supplying its services to the “recipient of the supply” it will be subjected to zero-rated VAT as per the UAE VAT laws.
    2. A hospital needs to perform a specialized test/procedure on its patient and therefore enters into a contract with another hospital to perform the test/procedure. It will involve two different supply situations:

     A) Supply of services by hospital 2 (specialist hospital) to hospital 1: The hospital 2 is supplying its specialist healthcare services to hospital 1 and not the patient directly so the cannot be marked as “zero-rated”.

     B) Supply of services by hospital 1 to the patients: Hospital 1 is treating the patient directly so the supply of services from it to the patient will be constituted as a part of the definition of “healthcare services” as defined by UAE law of VAT and therefore will be treated as “zero-rated”.

    To get the best tax consultants in UAE contact Shuraa Tax Consultants and Accountants which is the leading tax agency of Dubai. Their team of dedicated experts promise to resolve all VAT related queries of various businesses. Speak to our tax agents and consultants and get professional guidance and support on managing taxation and VAT issues at affordable rates. Contact us today:

    Email: info@shuraatax.com

    Phone: +971 508912062

  • Refund Policies for VAT levied on goods and services

    Refund Policies for VAT levied on goods and services

    The Federal Tax Authority (FTA) of the UAE made an official declaration regarding the refund scheme for VAT paid on goods and services connected with Expo 2020 (20 October 2020 to 10 April 2021) in Dubai. The Bureau Expo 2020 is a governing body responsible for taking care of the VAT refund procedure.

    According to the statement released by the FTA, an official participant (any country or intergovernmental organization) holding a valid Expo trade license number will be eligible for a VAT refund under the following conditions:

    1. The participant has no intention of using more than 20% of the exhibition space
    2. It does not use the space for unofficial or commercial purposes at the Expo 2020.

    Eligibility for the VAT Refund

    An official participant can claim the VAT incurred on the supply or imports of goods and services used in-

    1. Constructing, installing, altering, decorating and dismantling of their exhibition space 
    2. Operating their exhibition space and any kind of presentation at the Expo 2020 site
    3. Connection with the actual operation of the official participant’s office, given that the value of goods and services that are claimable is not less than the limit set by higher authorities. 
    4. Relation to the personal use by the official participant’s Section-Commissioner-General, Section Staff and the Beneficiaries. 

    The official participants irrespective of their registration for VAT have to obtain the Certificate of Refund Entitlement from the Bureau to claim the refund. Also, they cannot sell or transfer the goods and services on which the refund is to be claimed to other parties free of charge without the consent of FTA’s and Bureau’s established law and; without paying the taxes. The Bureau Expo receives the refund claims from the official participants, and if found correct, has to initiate a request to the FTA to refund the VAT amount. 

    Conditions for VAT Refund

    Any person or official participant who is eligible for claiming the VAT refund should be well versed with the procedures and verification requirements as set by two of the most important authorities- FTA and Bureau Expo 2020. In case an official participant does not fit the criteria of eligibility for claiming the VAT refund, the participant shall inform the Bureau about the same. 

    Powers of the Federal Tax Authority(FTA)

    FTA has the power to review or audit any action or activity of the Bureau Expo and make sure that the rules and procedures are being followed by all the official participants and the Bureau. If it finds any claim violating its set rules, it can cancel the ongoing VAT refund procedure. 

    Get in touch with Shuraa Tax Consultants and Accountants to know more about the VAT Refund scheme as set under Expo 2020 Dubai. We are a group of certified tax agents and consultants who promise to hear all your queries and concerns related to finance and taxes.