Understanding VAT

VAT is an indirect tax applied on the consumption of most goods and services. VAT is levied by VAT-registered businesses which make supplies of goods and services in the course or furtherance of their business. VAT will also apply on the importation of goods & services.

The UAE Federal and Emirate governments provide citizens and residents with many different public services – including hospitals, roads, public schools, parks, waste control, and police services. These services are paid for from the government budgets. VAT will provide our country with a new source of income which will contribute to the continued provision of high quality public services into the future. It will also help government move towards its vision of reducing dependence on oil and other hydrocarbons as a source of revenue.

VAT will apply to the majority of transactions of goods and services unless specifically exempted or excepted by the law. VAT is ultimately incurred and paid by the end consumer. Although VAT will apply to most goods and services there are some exceptions: this includes supply of crude oil and natural gas, exports of goods, international services, healthcare and education which are zero rated supplies.

Furthermore, other supplies such as sale or lease of residential property are exempt from VAT.

A business must register for VAT if their taxable supplies and imports exceed the mandatory registration threshold of AED 375,000.

Furthermore, a business may choose to register for VAT voluntarily if their supplies and imports are less than the mandatory registration threshold, but exceed the voluntary registration threshold of AED 187,500. Similarly, a business may register voluntarily if their expenses exceed the voluntary registration threshold. This latter opportunity to register voluntarily is designed to enable start-up businesses with no turnover to register for VAT.