Did you know that individuals are not taxed in the Middle East? Taxation primarily applies to oil companies and foreign banks.

This is excellent news for entrepreneurs looking to establish businesses in Dubai. However, it’s important to note that as of January 1, 2018, Dubai implemented a value-added tax (VAT) on most goods and services.

As a business owner in Dubai, you are required to charge VAT on nearly all goods and services, ranging from restaurant meals to hardware supplies. If you’re unfamiliar with VAT and wish to understand it better, this guide will provide you with essential information.

What is Value-Added Tax (VAT)?

Value-added tax, or VAT, is a consumption tax that applies to the purchase of goods and services, rather than being based on income. VAT is added at each stage of the manufacturing and distribution process, reflecting the value added by the business.

Customers pay VAT on their purchases, which businesses are responsible for collecting and remitting to the government. Failure to comply can result in penalties or legal consequences.

VAT is a widely adopted form of consumption tax, with over 150 countries, including members of the European Union, Canada, and New Zealand, implementing it.

Key Facts About VAT in Dubai

Before starting a business in Dubai, it’s crucial to understand your VAT responsibilities, register as required, and ensure timely payment. Ignoring these obligations can result in substantial penalties, with interest rates escalating up to 300% on unpaid VAT.

1. VAT Rate in Dubai is 5%:

VAT in Dubai is uniformly set at a rate of 5%, applicable to all taxable goods and services, including imports. Certain services may be exempt, so it’s essential to identify whether your business offers taxable supplies.

2. Certain Services Have a 0% VAT Rate:

Businesses should determine if any of their supplies qualify for a 0% VAT rate or are exempt. Services with a 0% VAT rate include those exported outside the Gulf Cooperation Council (GCC) member states, international transport, and specific healthcare and educational services.

3. Some Services Are Exempt From VAT:

Unlike zero-rated services, which charge 0% VAT, exempt services are completely free from VAT. The limited number of exempt services includes financial services, supply of residential properties, vacant land, and local public transportation.

4. VAT Applies to Businesses Earning AED 375,000 Annually

Not every business is required to register for VAT; there is a minimum threshold. Businesses making taxable supplies or imports of AED 375,000 or more annually must register for VAT. Those with taxable supplies over AED 187,500 can choose to register voluntarily.

5. Potential to Reclaim Some VAT

As a business, while you charge your customers VAT, you also pay VAT on goods and services you purchase. You may reclaim some of this VAT, known as Input Tax, when filing your VAT return.

6. Registration for VAT Is Mandatory

You must register for VAT with the FTA. This process begins by creating an e-service account using a valid email address. After registration, you’ll receive a unique Tax Registration Number to access your VAT portal.

7. Online Payment Options Available

After each tax period, you are required to file a VAT return online with the FTA. This summary of taxable supplies and VAT collected must be submitted by the 28th of the following month. Failure to meet deadlines can result in penalties, and even zero-rated businesses must file VAT returns.

Ready to Launch Your Business in Dubai?

With a solid understanding of VAT requirements, which began in 2018, you can take advantage of Dubai’s absence of personal or corporate income tax. Ensure compliance with your reporting and VAT obligations as you embark on your entrepreneurial journey.

Now that you are equipped with vital information about VAT in Dubai, consider the overall costs associated with starting a business. Utilize our business cost calculator today to better prepare for your new venture.