Since its implementation in 2018, Value Added Tax (VAT) has become an integral part of the UAE's financial landscape. VAT is a consumption tax levied at a rate of 5% on most goods and services. It is essential for businesses to understand their VAT obligations. Registration is mandatory for businesses whose value of taxable supplies and imports exceeds AED 375,000 per year. There is also a voluntary registration option for businesses whose supplies exceed AED 187,500, allowing them to reclaim input VAT on their expenses.
Once registered, a business has ongoing responsibilities. It must charge 5% VAT on its taxable supplies, issue compliant tax invoices, and maintain detailed financial records for at least five years. Crucially, businesses must file a VAT return with the Federal Tax Authority (FTA) periodically, usually on a quarterly basis, reporting both their output VAT (collected from sales) and input VAT (paid on purchases). The difference between the output and input tax represents the net VAT due to or reclaimable from the FTA. Meticulous adherence to these obligations is critical to avoid penalties and ensure a sound financial standing.