All you need to know about VAT registration in the UAE

Can every person (natural or legal person) in UAE, apply for VAT registration? The answer to this question is no. VAT registration of a person depends upon the taxable supplies or taxable expenses for a certain period. Based on the taxable supplies or taxable expenses, persons are liable to or can opt for VAT registration. Once they will be registered for VAT, they are liable to charge VAT on all their taxable supplies. Only taxable persons (person registered or obligated to register for VAT) can claim input tax based on the normal input tax recovery rules.

Every person who has place of residence in UAE or implementing state [there is no implanting state as at today, as implementing state conditions have not been fulfilled] can be categorised into following three sections based on his taxable supplies or taxable expenses, and provisions for VAT registration for each category are different.

• Persons whose taxable supplies are more than Dh375,000 in the past 12 months or next 30 days are compulsory liable to register for VAT [Compulsory VAT Registration].

• Persons whose taxable supplies or taxable expenses are more than Dh187,500 in the past 12 months or next 30 days can opt for VAT registration [Voluntary VAT registration].

• Persons whose taxable supplies or taxable expenses are equal to or less than dirhm 187,500 in the past 12 months or next 30 days cannot opt for VAT registration [Cannot opt for VAT registration]

Compulsory VAT registration

Every natural or legal person who is dealing in taxable supplies is liable to apply tests to assess its obligation to register for VAT, and the compulsory registration tests can be broken down into an historic test and a future test.

Historic test means to assess the taxable supplies of last 12 months at the end of every calendar month. If by the end of any month, taxable supplies of a person of previous 12 months exceeds Dh375,000, then the person is liable to apply for VAT registration within 30 days from the end of the month. Where a person does not apply for VAT registration despite being required to, Federal Tax Authority (‘FTA’) shall register the person with effect from the first day of the month following the month in which the person is required to register or any earlier date.

Future test means to assess the taxable supplies of next 30 days only, and this test required to be applied on daily basis. If a person has sufficient evidence that his taxable supplies will be more than Dh375,000 in the next 30 days, he is liable to apply for VAT registration within 30 days from date he had evidence that his taxable supplies will be more than the above-mentioned threshold. Where a person who is obligated to apply for VAT registration, but did not apply for VAT registration, FTA shall register him from the date, person was required to register or any earlier date with the mutual consent of the person.

A person who is not resident of UAE or an implementing state, and making taxable supplies in UAE where no other person is liable to pay VAT on his behalf, its compulsory for such person to get himself registered for VAT.

Failing to apply for VAT registration on timely basis, will lead to penalties of Dh10,000. The FTA may except a taxable person from mandatory VAT Registration upon his request if his supplies are only subject to the zero rate.

Voluntary VAT registration

VAT registered person can claim input tax and TRN [Tax Registration Number] reflects that he is not very small player of the market. So, to claim input tax and to maintain its status, persons are usually seeking voluntary VAT registration when they are not meeting threshold of compulsory VAT registration. The threshold for the voluntary VAT registration is Dh187,500 in the last 12 months or in the next 30 days based on the historic and future test respectively but the important thing is, while applying the voluntary test, person can consider it taxable expenses as well. So, we can say that if in the last 12 months his taxable supplies or taxable expenses are more than Dh187,500, he can apply for voluntary registration under the Historic test; or by applying future test he can apply for VAT registration, if his taxable supplies or taxable expenses in next 30 days are more than Dh187,500.

For the purpose of voluntary registration, the phrase “Taxable Expenses” means expenses which are subject to the standard rate, and which are incurred in UAE by a person who has a place of residence in the UAE. A Person may not register voluntarily unless he satisfies the FTA that he is carrying on a business in UAE.

Cannot opt for registration

A person whose taxable supplies or taxable expenses in the past 12 months or in the next 30 days are less than Dh187,500, he cannot apply for VAT registration.

Mahar Afzal is a managing partner at Kress Cooper Management Consultants. The above is not an official, but a personal opinion of the writer. For any queries/clarifications, please write him at compliance@kresscooper.com.