What happens if you don't register for VAT in Dubai?

[FreedomSearcher]

If I understand it correctly, after $100,000 of revenue a year you will have to register for VAT in Dubai.
But as all the revenue is coming outside of UAE, there wouldn't be any VAT required to be charged.

What's the worst thing that can happen if I decide to not register for VAT?

 

[BlueMist]

But as all the revenue is coming outside of UAE, there wouldn't be any VAT required to be charged.

It is required to charge VAT zero rated, unless you can get an exception which for instance I did not get.

 

[Fred]

If I understand it correctly, after $100,000 of revenue a year you will have to register for VAT in Dubai.
But as all the revenue is coming outside of UAE, there wouldn't be any VAT required to be charged.

What's the worst thing that can happen if I decide to not register for VAT?

For Freezone Company below 100mAED/year - nothing.

 

[BlueMist]

For Freezone Company below 100mAED/year - nothing.

Isn't it compulsory by law to register for VAT above AED 375,000 threshold?

 

[Fred]

Isn't it compulsory by law to register for VAT above AED 375,000 threshold?

Yes but in reality no one really does - at least the average Joe with his FZCO and no local business - just what we see in practice.

 

[Nomad POV]

Basically every entity with turnover exceeding AED 375 000 should either register for VAT or to apply for VAT registration exemption. You can apply for exemption if all transactions are zero rated. For example all customers reside / are established outside UAE (in case customer is individual – he should reside outside Persian Gulf countries). UAE is part of larger VAT system made from Persian Gulf countries, basically it is simplified to EU VAT system.



Since VAT was introduced comparable recently, most free zone entities still do not meet these requirements, i.e. they neither register to VAT, nor apply for VAT registration exemption. Administrative penalty for non compliance with the above is AED 10 000.



It is likely that one day authorities might start paying more attention to this. It might be especially relevant for companies in Free zones which require to submit audited statements (since it is obvious then from turnover, that company did not comply with VAT liabilities, so it is easy to track such companies). Moreover, having a company which does not comply with VAT laws might lead to more issues depending on the case. If such company decide to obtain tax residency certificate or apply for other official document from authorities they might check that company failed to comply with VAT laws. Basically most of the documents are issued only for companies in good standing from legal perspective, so failing to comply with VAT laws is making the company not in good standing from legal point of view.



Having VAT registration number also helps to build more substance (UAE does not issue TIN, so VAT number creates substitute and might be used as tax ID). Moreover, since in UAE there are no corporate income tax reporting having quarterly VAT returns helps to prove that company derived profit and reported everything properly if this is needed in the future.

 

[Fred]

Basically every entity with turnover exceeding AED 375 000 should either register for VAT or to apply for VAT registration exemption. You can apply for exemption if all transactions are zero rated. For example all customers reside / are established outside UAE (in case customer is individual – he should reside outside Persian Gulf countries). UAE is part of larger VAT system made from Persian Gulf countries, basically it is simplified to EU VAT system.



Since VAT was introduced comparable recently, most free zone entities still do not meet these requirements, i.e. they neither register to VAT, nor apply for VAT registration exemption. Administrative penalty for non compliance with the above is AED 10 000.



It is likely that one day authorities might start paying more attention to this. It might be especially relevant for companies in Free zones which require to submit audited statements (since it is obvious then from turnover, that company did not comply with VAT liabilities, so it is easy to track such companies). Moreover, having a company which does not comply with VAT laws might lead to more issues depending on the case. If such company decide to obtain tax residency certificate or apply for other official document from authorities they might check that company failed to comply with VAT laws. Basically most of the documents are issued only for companies in good standing from legal perspective, so failing to comply with VAT laws is making the company not in good standing from legal point of view.



Having VAT registration number also helps to build more substance (UAE does not issue TIN, so VAT number creates substitute and might be used as tax ID). Moreover, since in UAE there are no corporate income tax reporting having quarterly VAT returns helps to prove that company derived profit and reported everything properly if this is needed in the future.

That's the political correct answer.

It's very easy in reality - when the authorities wanna crack down on this they would simply force the banks to request a VAT no from it's clients starting 375.000 AED Turnover on the account.

Again - doesn't happen - that's why we say the VAT is in a soft launch since the very beginning and we expect the same for the upcoming CT.

 

[Nomad POV]

That's the political correct answer.

It's very easy in reality - when the authorities wanna crack down on this they would simply force the banks to request a VAT no from it's clients starting 375.000 AED Turnover on the account.

Again - doesn't happen - that's why we say the VAT is in a soft launch since the very beginning and we expect the same for the upcoming CT.

If local banks start asking about VAT, companies will start to register faster. But then late registration penalties would apply.


Importance of VAT registration in UAE is still different comparing to EU. However, to ensure compliance to legal requirements, building a substance and avoiding potential future issues – VAT registration is advisable.

 

[Martin Everson]

Administrative penalty for non compliance with the above is AED 10 000.

I will add the below which gives accurate details on UAE VAT penalties.

https://www.ey.com/en_gl/tax-alerts/uae-amends-vat-penalty-rules
I would 100% comply with their VAT rules and also right any historic oversights or wrongs asap.

 

[ecool]

This is not legal advice, but my experience:

Better to register if you cross the threshold even if you don't do any business in UAE. I registered late by mistake and had to pay a fine for it.

Filling the VAT every 3 months is very easy if you don't do business in UAE, you just put zeros everywhere except in the field for business with zero VAT. There you put the total money you did in the period in AED. Takes literally 10 minutes to do.

 

[JimBeam]

I would 100% comply with their VAT rules and also right any historic oversights or wrongs asap.

I don't see why would you brake the simple law. Especially if you'll be making more than 100k each year... It costs you nothing to do it. We actually had some local companies we worked with so we had to charge the VAT and pass it to MOF. Now we do pay VAT on some invoices and our balance is negative, meaning MOF owns us money

This is not legal advice, but my experience:

Better to register if you cross the threshold even if you don't do any business in UAE. I registered late by mistake and had to pay a fine for it.

Filling the VAT every 3 months is very easy if you don't do business in UAE, you just put zeros everywhere except in the field for business with zero VAT. There you put the total money you did in the period in AED. Takes literally 10 minutes to do.

Exactly!

 

[BlueMist]

I also find answers from @Fred in this thread very strange. Perhaps it was some kind of Stolichnaya effect from having too many Russians customers lately Breaking the law by not registering with VAT authorities (or applying for the exception from VAT), upon crossing or knowing you will cross the threshold anyway, should not be an advise from professional agent.

The only thing with VAT is to keep track 4x times per year to do it on time. I once filed few mins past midnight and got fined AED 1000 pretty much automatically. 2nd time I filed few days late as I was counting on FTA email reminders wich somehow stopped coming for a few months. Got fined AED 2000. But anyway my VAT surplus was big enough from paying the local VAT invoices, that it covered the fines. I do not intend to request for VAT return at all.

 

[Fred]

I also find answers from @Fred in this thread very strange. Perhaps it was some kind of Stolichnaya effect from having too many Russians customers lately Breaking the law by not registering with VAT authorities (or applying for the exception from VAT), upon crossing or knowing you will cross the threshold anyway, should not be an advise from professional agent.

The only thing with VAT is to keep track 4x times per year to do it on time. I once filed few mins past midnight and got fined AED 1000 pretty much automatically. 2nd time I filed few days late as I was counting on FTA email reminders wich somehow stopped coming for a few months. Got fined AED 2000. But anyway my VAT surplus was big enough from paying the local VAT invoices, that it covered the fines. I do not intend to request for VAT return at all.

Yes you can frame it like this - it's just honesty from my side.

I tell you guys here that 99% are not registered with VAT and nothing happens - not more and not less.

Everyone can make out of it what he wants but framing it as "unprofessional" - well I think it's unprofessional to not tell the people the reality based on experience practice and instead charging them 2000-4000 AED per year for doing what you guys describe here with 10 min work like most service provider does - especially when not dealing at all with local UAE clients.

 

[Cristero]

Hi @Fred. I'm just wondering if the law has been changed and companies in a free-zone owned by individual who don't reside in the UAE needs to apply for VAT even if they don't go above the 375k AED threshold. I recall seeing something like that in the government website but can't find it anymore.
To give you the full picture, I never crossed the 375k threshold and I never sold any of my services in the UAE

 

[ecool]

Hi @Fred. I'm just wondering if the law has been changed and companies in a free-zone owned by individual who don't reside in the UAE needs to apply for VAT even if they don't go above the 375k AED threshold. I recall seeing something like that in the government website but can't find it anymore.
To give you the full picture, I never crossed the 375k threshold and I never sold any of my services in the UAE

Legally, you have to apply for VAT. When doing the VAT declarations, you must put all your sales as sales outside the GCC zone. All those sales will benefit from 0% VAT so you will not have to pay anything. But if you have reached the threshold, better to register now than to register in the future and then maybe you get some fine or something because you registered late.

 

[Cristero]

Legally, you have to apply for VAT. When doing the VAT declarations, you must put all your sales as sales outside the GCC zone. All those sales will benefit from 0% VAT so you will not have to pay anything. But if you have reached the threshold, better to register now than to register in the future and then maybe you get some fine or something because you registered late.

Sorry, I didn't get why I should apply if I never reached the 375k threshold yearly. Is it because I don't have residency in the UAE?

 

[ecool]

Sorry, I didn't get why I should apply if I never reached the 375k threshold yearly. Is it because I don't have residency in the UAE?

ah sorry I understood you reached the threshold already. Then no

 

[JimBeam]

You can apply once you go over 180k I think (voluntarily). We did that as we had bigger invoices ready to be issued so we don't cross that 375k mark.

And it takes time for them to get you registered, they might ask for some invoices etc. so it can take a week or two so depends on the situation. So if you are close to the 375k or you think you can get there soon, better do it sooner.

 

[Cristero]

You can apply once you go over 180k I think (voluntarily). We did that as we had bigger invoices ready to be issued so we don't cross that 375k mark.

And it takes time for them to get you registered, they might ask for some invoices etc. so it can take a week or two so depends on the situation. So if you are close to the 375k or you think you can get there soon, better do it sooner.

There is no risk of crossing the threshold, I'm way below it, since it's just a one man company.
I was asking because I thought I read that for non UAE resident you needed to apply for VAT anyway.

 

[JimBeam]

There is no risk of crossing the threshold, I'm way below it, since it's just a one man company.
I was asking because I thought I read that for non UAE resident you needed to apply for VAT anyway.

If you have a freezone company - you are resident
You have residency visa and emirates ID.
I guess you meant if you're not UAE national.

If you're not cross the limit - no need to apply.