Value Added Tax

VAT Services For UK Businesses in Dubai , UAE

Value Added Tax in the UK

Value Added Tax (VAT) was introduced in the UAE in January 2018 at a standard rate of 5%. For UK businesses, it is important to understand that VAT is an indirect tax applied to most supplies of goods and services that are bought and sold. It is a general consumption tax, similar to the UK’s VAT system, and is one of the most widely used consumption taxes worldwide, with over 150 countries implementing VAT or an equivalent system.
 

The UAE federal and emirate governments provide citizens and residents with a range of public services, including hospitals, roads, schools, parks, waste management, and police services. These services are funded through government budgets, and VAT provides an additional revenue source to help maintain and improve these services in the future. It also supports the government’s goal of reducing reliance on income from oil and other hydrocarbons.
 

VAT is applied at each stage of the supply chain. While the ultimate cost is generally borne by the end consumer, businesses are responsible for collecting and remitting the tax. Essentially, your UAE business acts as a tax collector on behalf of the government.

VAT for Businesses

Registering for VAT

In the UAE, a business must register for VAT if its taxable supplies and imports exceed the mandatory registration threshold of AED 375,000.
 

UK businesses operating in the UAE may also choose to register voluntarily if their taxable supplies and imports are below the mandatory threshold but exceed the voluntary registration threshold of AED 187,500.
 

Voluntary registration is also available if a business’s expenses exceed the voluntary threshold. This is particularly beneficial for start-up businesses, including UK entrepreneurs, as it allows them to register for VAT even if their turnover is not yet substantial.

VAT-related responsibilities of businesses

VAT-registered businesses in the UK are required to:

• Charge VAT on taxable goods and services supplied.

• Reclaim VAT paid on eligible business-related goods and services.

• Maintain accurate financial records for at least six years.

• Submit VAT Returns (usually quarterly) via Making Tax Digital (MTD) compatible software to HMRC.

• Pay any VAT due to HMRC or reclaim any overpaid VAT.

If your UK business is registered for VAT in the UAE, you are required to report the VAT you have charged and the VAT you have paid to the government on a regular basis. This is done by filing a VAT Return through the EmaraTax portal.
 

If the VAT collected from your customers exceeds the VAT you have paid on purchases, you must pay the difference to the UAE authorities. Conversely, if you have paid more VAT on your business expenses than you have collected from sales, you can reclaim the excess by submitting a VAT Refund application.

Zero-rated sectors

These supplies are taxable but at a 0% rate, allowing businesses to reclaim input VAT:

1. Most food items (excluding catering and certain luxury items).
2. Children’s clothing and footwear.
3. Books, newspapers, and printed publications.
4. Passenger transport services (e.g., trains, buses, ferries, flights within the UK).
5. Certain exports outside the UK.
6. Supply of certain education services, and supply of relevant goods and services.
7. Supply of certain healthcare services, and supply of relevant goods and services.

VAT-exempt sectors

Some supplies are exempt from VAT, meaning no VAT is charged and input VAT generally cannot be reclaimed:

1. Financial and insurance services.

2. Education and training provided by eligible bodies.

3. Healthcare services provided by registered professionals.

4. Sale or lease of residential property (with certain exceptions).

5. Postal services provided by Royal Mail.

Partial exemption

For UK businesses registered for VAT in the UAE, input tax incurred on business expenses can generally be recovered in full if it relates to a taxable supply made by the business. However, if the expense is connected to a non-taxable or exempt supply, the business cannot recover the input tax paid.
 

In some cases, an expense may relate to both taxable and non-taxable supplies, such as in certain financial or banking activities. In these situations, the business must apportion the input tax between taxable and non-taxable (exempt) supplies.
 

Businesses are expected to use the input tax ratio, which compares recoverable input tax to total input tax, as the primary method for apportionment. Alternative methods may also be used if they are fair and approved by the Federal Tax Authority.

Government Entities and VAT purposes

Government entities in the UAE are generally subject to VAT, ensuring that they do not have an unfair advantage over private businesses.
 

Certain supplies made by government entities may fall outside the scope of VAT, particularly if they are not in competition with the private sector or if the entity is the sole provider of the service. Some government entities are also eligible to claim VAT refunds to prevent budgeting issues and to maintain a level playing field between outsourced and in-house activities.
 

For supplies made to government entities, the VAT treatment depends on the nature of the supply rather than the recipient. This means that if your UK business provides goods or services that are subject to the standard VAT rate, the same treatment applies even when supplying to a government entity.