Value Added Tax

VAT Services in Dubai , UAE

Value Added Tax

Value Added Tax (VAT) in the UAE was introduced in January 2018 with a standard rate of 5%. For Pakistani businesses, it is helpful to know that VAT is an indirect tax on most goods and services that are bought and sold. It is a general consumption tax, similar to the sales tax systems in other countries, and is used in over 150 nations worldwide.

The UAE government uses the money from VAT to pay for public services like hospitals, roads, schools, and police. This helps the country get a new source of income and rely less on money from oil.

VAT is added at every step of selling a product. Usually, the final customer pays the VAT cost, and businesses collect this tax for the government. Your UAE business will act as a tax collector on behalf of the government.

VAT for Businesses

Registering for VAT

A business in the UAE must register for VAT if the total value of its taxable sales and imports is more than AED 375,000.

A business can also choose to register for VAT voluntarily if its sales and imports are more than AED 187,500.

A new business, like one started by a Pakistani entrepreneur, can also register for VAT voluntarily if its expenses are more than the voluntary limit, even if it has no sales yet.

VAT-related responsibilities of businesses

All Pakistani-owned businesses in the UAE must keep accurate and up-to-date financial records. If your yearly sales meet the minimum limit, you must register for VAT. Even if you think you do not need to register, you should still keep good records in case the FTA needs to check.

VAT-registered businesses generally:

• Must charge VAT on the taxable goods or services they sell.
• Can claim back any VAT they paid on business-related goods or services.
• Must keep business records so the government can check if they are following the rules.

If you have a VAT-registered business, you must report the amount of VAT you charged and the amount you paid to the government regularly. You do this by filing a VAT Return on the EmaraTax portal. If you charged more VAT than you paid, you have to pay the difference to the government. If you paid more VAT than you charged, you can ask for a refund.

Zero-rated sectors

In the UAE, some goods and services are taxed at 0% VAT. This includes:

• Exports of goods and services to countries outside the GCC.
• International transport and related services.
• The sale of certain airplanes and ships.
• High-purity investment metals like gold and silver.
• The first sale of a newly built home within three years of its construction.
• Some education and healthcare services.

VAT-exempt sectors

The following categories of supplies will be exempt from VAT:

• Some financial services.
• Residential properties (after the first sale).
• Bare land.
• Local passenger transport.

Partial exemption

When a VAT-registered business in the UAE pays VAT on its expenses, it can get that money back if the expense was for a taxable sale. But if the expense was for a non-taxable (exempt) sale, the business cannot get the VAT back. 

Sometimes, an expense might be for both taxable and non-taxable sales (like in a bank). In these cases, the business has to split the VAT it paid between the two types of sales. 

Businesses should use a standard method to do this, but they can use other fair methods if the FTA agrees. 

Government Entities and VAT purposes

In the UAE, government bodies usually have to follow VAT rules. This makes sure they do not have an unfair advantage over private businesses. 

Some services provided by the government are not subject to VAT, especially if they are not competing with the private sector. 

When you sell to a government body, the VAT rules depend on the product or service you are selling, not on who is buying it. So, if your 
Pakistani businesses sell something that has a standard VAT rate, you still have to charge VAT, even if the customer is a government entity.