Direct and Indirect Tax FAQ
1.For how many years must a taxable person retain VAT invoices and related documents? A taxable person must retain VAT invoices and related documents for a minimum of 5 years. This retention period is crucial for ensuring compliance with VAT regulations and for any potential audits or reviews conducted by the Federal Tax Authority (FTA). 2. How should VAT be handled if a business’s taxable supplies fall below the mandatory registration threshold during a tax period? If taxable supplies fall below the threshold, the business must still comply with VAT obligations until the end of the tax period. It may apply for deregistration if supplies remain below the threshold for a full 12-month period. 3.What should a business do if it discovers it has overclaimed VAT on its input tax? The business should adjust the overclaimed VAT amount in its next VAT return. It must also correct any previous returns if the overclaim is significant and notify the FTA if necessary. 4.If a VAT-registered business provides a service to a customer outside the UAE, how should VAT be applied? Services provided to customers outside the UAE are generally zero-rated, meaning the VAT rate is 0%. The business must ensure it maintains proper documentation to support the zero-rating of the service. 5.How should VAT be accounted for if a business provides a service to a customer in a designated zone? If the service is provided to a customer outside the designated zone or to a mainland entity, VAT is typically applicable at the standard rate of 5%. Services within a designated zone may be treated as outside the UAE for VAT purposes depending on the nature of the service. 6.Are individuals required to pay 5% VAT on all goods imported into the UAE from outside the country? No, such imports are considered exempt from the UAE’s value-added tax. 7.Are all free zones in the UAE considered designated zones for VAT purposes? No, not all free zones in the UAE are designated for VAT purposes. Only those free zones that have been officially recognized by the UAE Cabinet as designated zones are treated as such under VAT regulations. Businesses operating in these designated zones must adhere to specific VAT rules applicable to them. 8.Does the supply of services in designated zones incur VAT? Yes, VAT is charged at a rate of 5% on services provided in designated zones. 9.How frequently are businesses required to submit VAT returns in the UAE? Most businesses are required to file VAT returns on a quarterly basis, although larger businesses with higher taxable supplies may be required to submit their returns monthly. 9.How frequently are businesses required to submit VAT returns in the UAE? Most businesses are required to file VAT returns on a quarterly basis, although larger businesses with higher taxable supplies may be required to submit their returns monthly. 10.What is the VAT treatment of an advance payment made for a service that will be supplied over multiple periods? VAT should be accounted for at the time of receiving the advance payment. If the service spans multiple periods, VAT is recognized on the portion of the service provided in each period.
UAE VAT Appeal Process
When dealing with Value Added Tax (VAT) in the UAE, businesses may sometimes find themselves in disagreement with the decisions made by the Federal Tax Authority (FTA). In such cases, understanding the VAT appeal process is crucial. Understanding the Right to Appeal Under UAE VAT law, taxpayers have the right to challenge decisions made by the FTA if they believe an error has been made. Common grounds for appeal include disputes over tax assessments, administrative penalties, and refund claims. The appeal process allows taxpayers to present their case and seek a review or reversal of the decision. Initial Reconsideration Request Timeframe:A taxpayer must submit a request for reconsideration to the FTA within 20 business days from the date of the decision they wish to contest. Submission:The request must be made in writing, using the prescribed forms available on the FTA’s official website. It should include all relevant details, such as the decision being contested, the reasons for the appeal, and any supporting documentation. FTA Review:Upon receiving the request, the FTA will review the appeal and issue a decision within 20 business days. The decision will be communicated to the taxpayer in writing. Tax Disputes Resolution Committee (TDRC) If the taxpayer is not satisfied with the outcome of the reconsideration request, they can escalate the appeal to the Tax Disputes Resolution Committee (TDRC). Filing the Appeal:The appeal must be submitted to the TDRC within 20 business days from the date of receiving the FTA’s reconsideration decision. Required Documentation:The appeal should include a copy of the FTA’s decision, the taxpayer’s arguments, and any evidence supporting the appeal. Hearing Process:The TDRC will review the case and may request additional information or conduct hearings if necessary. The committee aims to provide a fair and impartial resolution to the dispute. Decision:The TDRC’s decision will be communicated to the taxpayer, and if the decision is unfavorable, further legal action may be considered. Judicial Review If the taxpayer disagrees with the TDRC’s decision, they have the option to seek a judicial review. Court of First Instance:The taxpayer can escalate the matter to the UAE Federal Courts by filing a case with the Court of First Instance. This must be done within 20 business days of receiving the TDRC’s decision. Legal Representation:It is advisable for taxpayers to seek legal representation when taking the matter to court, as the process involves complex legal proceedings. Final Verdict:The Court of First Instance will issue a verdict after reviewing all evidence and hearing both parties. Depending on the outcome, further appeals can be made to higher courts. Important Considerations Adherence to Deadlines:The appeal process is time-sensitive, with strict deadlines at each stage. Failure to meet these deadlines may result in the forfeiture of the right to appeal. Detailed Documentation:Providing comprehensive and accurate documentation is crucial for a successful appeal. This includes maintaining detailed records of all communications with the FTA and any other relevant information. Professional Assistance:Given the complexity of the appeal process, seeking professional assistance from tax consultants or legal experts can significantly improve the chances of a favorable outcome.
VAT REFUND
In the UAE, if the input tax on a VAT return exceeds the output tax, a VAT refund request can be made. This request can be initiated through the VAT 311 form available on the Federal Tax Authority (FTA) portal. Taxable persons have the option to request a refund either during the VAT return filing process or after the return has been submitted. There is no specified deadline by the FTA for making a refund request. Taxable persons can apply for a refund whenever they have a credit balance due to them. When a refund claim is submitted, the FTA will review it within 20 business days and inform the claimant of their decision to approve or deny the request. If additional time is needed, the FTA will communicate this to the applicant. Once a refund claim is approved, the refund will be processed and paid within 5 business days.
VAT RETURN FILING
VAT return filing involves submitting periodic reports to the tax authorities detailing the VAT collected on sales and the VAT paid on purchases. Businesses must file VAT returns, usually on a quarterly or annual basis, depending on their size and the jurisdiction’s regulations. The return includes calculations of output VAT (collected from customers) and input VAT (paid on business expenses), determining the net VAT liability or refund due. Accurate record-keeping is crucial for VAT returns, ensuring that all taxable transactions, zero-rated supplies, and exempt supplies are correctly reported. The timely and precise filing of VAT returns is essential to comply with tax laws and avoid penalties. Filing VAT returns in the UAE involves several key steps: Submit Required Documents: Gather and prepare all necessary documentation, including invoices, receipts, and records of sales and purchases. Document Review: Examine the submitted documents to ensure all information is accurate and complete. Identify Discrepancies: Check for any inconsistencies or errors in the VAT calculations and rectify them. Make Corrections: Address any identified issues by making the necessary corrections to the VAT return. File the Return: Complete and submit the VAT return through the Federal Tax Authority’s online portal. Conduct Follow-ups: Regularly check for any updates or notices from the tax authority and ensure ongoing compliance. DUE DATE FOR VAT FILING – In the UAE, the VAT filing due dates are as follows: Small Businesses: Typically file VAT returns quarterly.(Small businesses in the UAE are those whose taxable turnover is below AED 1 million per annum.) Large Businesses: Usually file VAT returns monthly.(Large businesses are those with a taxable turnover exceeding AED 1 million per annum) The exact due dates for filing are specified by the Federal Tax Authority (FTA) and are generally within 28 days after the end of each tax period. Consequences for Delayed Submission and Payment of VAT Returns in the UAE– Late Submission of VAT Returns: First Instance: AED 1,000 Subsequent Instances: AED 2,000 Late Payment of VAT: If VAT remains unpaid the day after the deadline, a 2% penalty is immediately charged. Following that, an additional 4% penalty is applied monthly until the tax is settled. Should the tax remain unpaid for over a month beyond the payment deadline, the penalty can escalate up to 300% of the outstanding amount.
TYPES OF VAT REGISTRATION
In the UAE, businesses must determine their eligibility for Value Added Tax (VAT) registration based on specific criteria outlined by the Federal Tax Authority (FTA). The registration requirements are as follows: Mandatory Registration: Annual Taxable Supplies:Businesses are required to register for VAT if their annual taxable supplies and imports exceed AED 375,000. This threshold includes all taxable sales of goods and services made by the business. Economic Activity by Government Entities:Government entities that engage in economic activities must also register for VAT, regardless of their revenue levels. Voluntary Registration: Annual Taxable Supplies Between AED 187,500 and AED 375,000:Businesses with taxable supplies and imports between AED 187,500 and AED 375,000 can opt for voluntary registration. This option allows them to reclaim VAT on their business expenses and benefit from VAT credits. Group Registration: Related Entities:Entities that are closely related and meet specific criteria can apply for VAT group registration. This allows businesses within the same group to consolidate their VAT reporting and payments, simplifying compliance. Non-Resident Businesses: Engaging in Taxable Supplies:Non-resident businesses that conduct taxable activities in the UAE must register for VAT, regardless of their turnover. This ensures they comply with UAE VAT regulations for any business conducted within the country. SECTORS EXEMPTED FROM VAT- 1st VAT exemptions apply to various goods and services in the UAE, including: Certain Financial Services:Specific financial activities are exempt as outlined in the VAT legislation. Residential Properties:The sale and lease of properties used solely for residential purposes are not subject to VAT. Undeveloped Land:Transactions involving bare land are exempt from VAT. Local Passenger Transport:Public transportation services within local areas are exempt from VAT. These exemptions are designed to reduce the tax burden on essential sectors and services. DOCUMENTS NEEDED TO REGISTER FOR UAE VAT – Trade License Identification Documents (passport or Emirates ID) Bank Account Details (recent statement or bank letter) Financial Statements Memorandum of Association (if applicable) Proof of Business Address Business Activities Description When calculating turnover for VAT registration in the UAE, you need to consider the following types of supplies: – Standard Rate Supplies: Sales of goods and services charged at the standard VAT rate of 5%. Zero-Rated Supplies: Transactions where VAT is applied at a 0% rate. Imported Goods: The value of goods brought into the UAE. Reverse Charge Services: Services subject to VAT under the reverse charge mechanism. Non-taxable supplies should not be included in the turnover calculation. Record Keeping for VAT in the UAE- Legal Requirements Under UAE VAT Law, businesses are required to maintain comprehensive records and documents related to their VAT transactions. The Federal Tax Authority (FTA) mandates that these records be kept for a minimum of five years. This period starts from the end of the year in which the records were created. Types of Records to be Maintained Invoices (issued and received) Contracts and agreements VAT returns and supporting documents Receipts and payment records Import/export documents Accounting records
Corporate Tax Filing in the UAE
Corporate tax filing in the UAE involves the submission of a tax return to the Federal Tax Authority (FTA) for each tax period, typically aligned with the entity’s financial year. Taxable entities, including those in Free Zones, must file their tax returns within nine months after the end of their financial year. The return must accurately report the entity’s taxable income, including detailed financial information and any applicable deductions. It is essential for businesses to ensure that their tax returns are submitted on time and reflect all required data to avoid penalties. The filing process is managed through the EmaraTax platform, where entities can also track their filing status and manage any tax payments due. How to File Corporate Tax Returns in the UAE Verify Registration:Ensure your company is registered with the Federal Tax Authority (FTA) and has a valid Tax Registration Number (TRN). Register if necessary. Gather Documents:Collect all required documents, including company registration and financial records, for the relevant tax period. Prepare Return:Use the FTA’s online forms or authorized tax software to complete your tax return, detailing financial information and claiming any deductions or exemptions. Submit Return:Submit the completed tax return through the FTA’s online portal and confirm accuracy. Payment:After submission, make any necessary tax payments as directed by the FTA, and keep a record of your payment receipt. Maintain Records:Retain all related documents for at least five years for possible audit purposes. Timeline for Corporate tax return submission and payment in UAE- In the UAE, businesses must file their corporate tax returns within 9 months after the conclusion of their financial year or designated tax period. This timeline ensures that all taxable income is reported and any tax obligations are fulfilled promptly. Additionally, the payment for any taxes due must be completed by the same deadline to avoid penalties and interest charges. Adhering to these deadlines is essential for regulatory compliance and to prevent any potential issues with the Federal Tax Authority. Penalty for late filing of corporate tax filing – In the UAE, late filing of corporate tax returns incurs penalties to encourage timely compliance. Initially, a penalty of AED 1000 per month is charged for the first twelve months of delay. Beyond this period, the penalty increases to AED 2,000 per month or any part thereof. While there is a maximum limit on the total penalty, this amount can vary based on updates from the Federal Tax Authority (FTA). These measures are put in place to enforce punctual filing and maintain tax compliance. FAQ FOR CORPORATE TAX IN UAE– you can load in any way to look better Are individuals required to pay corporate tax in the UAE? No, corporate tax is not imposed on individuals in the UAE. It applies mainly to businesses and legal entities. Individuals only face tax obligations if they are involved in business activities or have other forms of income beyond regular employment. Specific regulations may apply to sole proprietors or business partners. Which types of income are exempt from corporate tax in the UAE? In the UAE, the following types of income are typically exempt from corporate tax: Dividends: Income from dividends received from UAE or foreign companies may be exempt under certain conditions. Interest Income: Interest earnings are generally exempt unless they come from financial institutions or related financial activities. Income from Government and Charitable Entities: Revenue from designated government entities and charitable organizations is not subject to corporate tax. Free Zone Income: Companies based in UAE free zones may be exempt from corporate tax if they meet specific regulatory requirements. What is the corporate tax treatment for Limited Liability Companies (LLCs)? LLCs are subject to corporate tax on their taxable income. They must comply with the UAE Corporate Tax Law, which includes obligations such as filing annual tax returns and maintaining accurate accounting records. How are partnerships taxed under the UAE corporate tax system? The tax treatment of partnerships varies based on their structure. General partnerships are taxed similarly to LLCs, while limited partnerships might face different tax implications. Partnerships should consult the UAE Corporate Tax Law and seek professional advice to understand their specific tax responsibilities. When are corporate tax returns due in the UAE? Corporate tax returns must be submitted within 9 months after the end of the financial year. For instance, if a company’s financial year ends on December 31, the tax return is due by September 30 of the following year. Do businesses in free zones benefit from special tax rates? Yes, businesses located in UAE free zones can benefit from a 0% corporate tax rate if they adhere to specific conditions, such as operating solely within the free zone and avoiding mainland activities. It is important to review the regulations of each free zone for detailed requirements. Are businesses allowed to deduct expenses under the corporate tax system? Yes, businesses can deduct expenses that are ordinary and necessary for earning taxable income. This includes operational expenses, salaries, and certain capital costs. There are specific rules on what expenses can be deducted, so it is advisable to consult the UAE Corporate Tax Law or a tax expert. What are the requirements for transfer pricing under UAE corporate tax law? The UAE Corporate Tax Law includes transfer pricing rules that require companies to use arm’s length principles for transactions with related entities. Businesses must maintain proper documentation and justification for their transfer pricing practices to ensure compliance. What are the consequences of failing to comply with corporate tax regulations? Failing to comply with corporate tax regulations can result in penalties such as fines for late filings, inaccuracies, or failure to keep adequate records. Severe cases of non-compliance might also lead to legal action or damage to the company’s reputation.
Corporate Tax Registration in the UAE
Under the Federal Decree-Law No. 47 of 2022, all taxable entities, including those operating within Free Zones, are required to register for Corporate Tax and obtain a unique Registration Number from the Federal Tax Authority (FTA). Registration Requirements: Mandatory Registration:All taxable entities and certain exempt persons must complete the registration process with the FTA to receive their Corporate Tax Registration Number. This applies to businesses across various sectors, including those in Free Zones. Registration Procedure: Pre-Registration:Begin the registration process through the EmaraTax platform, which serves as the centralized online system for managing tax-related tasks, including registrations, returns, and payments. Account Setup:Create a new account on EmaraTax or transfer an existing FTA account to this platform. Document Submission:Provide all required documentation as specified by UAE corporate tax regulations. This typically includes business registration details, financial records, and identification documents. Exemptions and Special Cases:Entities that are excluded from standard corporate tax obligations, as permitted by the Minister, must adhere to specific guidelines and timelines for registration as outlined by the FTA.
Exemptions from Corporate Tax in the UAE
Automatically Exempt Entities: Government Entities: All entities fully owned and operated by the UAE government are automatically exempt from corporate tax. Government-Controlled Entities: Entities specified in a cabinet decision and controlled by the government are also automatically exempt. Exempt with Notification and Conditions: Extractive Industries: Businesses engaged in the extraction of natural resources are exempt, provided they notify the Ministry of Finance and meet specific conditions. Non-Extractive Natural Resource Businesses: Entities involved in natural resource activities other than extraction are eligible for exemption if they meet certain conditions and notify the Ministry of Finance. Exempt with FTA Approval: Qualifying Public Benefit Entities: Entities providing public benefits and approved by the Federal Tax Authority (FTA) are exempt, subject to meeting certain conditions. Public and Private Pension and Social Security Funds: Pension and social security funds, both public and private, qualify for exemption if they meet the conditions set by the FTA. Qualifying Investment Funds: Investment funds that meet specific qualifying criteria and are approved by the FTA are exempt from corporate tax. Wholly Owned Subsidiaries: UAE subsidiaries wholly owned and controlled by a government entity, government-controlled entity, qualifying investment fund, or pension/social security fund are exempt from corporate tax. Dividends and Capital Gains: Corporate tax does not apply to dividends or capital gains received by a UAE business from qualifying shareholdings. Intra-Group Transactions and Reorganizations: Qualifying intra-group transactions and reorganizations are not subject to corporate tax, provided they meet necessary conditions. Additional Exemptions: Individual Employment Income: Earnings from salaries and other employment-related income, whether from public or private sector employers, are not subject to corporate tax. Personal Bank Income: Interest and income from personal bank deposits or savings accounts are exempt from corporate tax. Foreign Investment Income: Income from dividends, capital gains, interest, royalties, and other investment returns earned by foreign investors is not subject to UAE corporate tax. Individual Real Estate Investments: Investments in real estate made by individuals in their personal capacity are not subject to corporate tax. Personal Investment Returns: Dividends, capital gains, and other returns from personal ownership of shares or securities are exempt from corporate tax. What are the Conditions to be fulfilled to get exemption from corporate tax in a freezone area?- 2nd Conditions for Corporate Tax Exemption in a Free Zone Audited Financial StatementsBusinesses must maintain accurate financial records and have their accounts audited by a certified auditor to ensure transparency and compliance with reporting standards. Income from Qualifying ActivitiesTo qualify for tax exemptions, businesses must generate income from activities that are officially recognized by the Free Zone’s regulations, such as trading, manufacturing, or services aligned with the Free Zone’s focus. Substantial PresenceBusinesses must have a significant operational presence within the Free Zone, including a physical office, local staff, and substantial business activities, to prove genuine operations in the UAE. Arm’s Length Principle and Transfer PricingTransactions between related entities must follow the arm’s length principle, meaning they should be priced as if conducted between unrelated parties. Proper transfer pricing documentation must be maintained to demonstrate compliance with international standards. Items Disallowed from Corporate Tax Deductions in the UAE Personal Expenses: Fines and Penalties: Non-Commercial Gifts and Donations: Excessive or Unreasonable Compensation: Depreciation on Non-Eligible Assets: Interest on Loans from Related Parties: Expenses Related to Exempt Income: Unsubstantiated Expenses: Entertainment Expenses:
Eligibility for Corporate Tax in the UAE
Resident Taxable Persons:All businesses and entities considered residents of the UAE are subject to corporate tax. This includes companies established in the UAE mainland, branches of foreign companies, and other legal entities conducting business within the country. Qualifying Free Zone Persons:Entities operating within designated Free Zones are also liable for corporate tax. To benefit from specific tax regimes, these entities must meet the Free Zone criteria, such as adhering to economic substance regulations and ensuring their operations align with Free Zone requirements. Entities with Taxable Income Above AED 375,000:Corporate tax applies to entities whose taxable income exceeds AED 375,000. Income up to this threshold is tax-exempt, while income above it is subject to a standard rate of 9%. Government-Related Entities:Certain government-related entities may be subject to corporate tax depending on their activities and operations. This includes entities that operate commercially or engage in activities outside of their governmental functions. Specific Sectors and Activities:Businesses engaged in specific sectors, such as oil and gas, and financial services like foreign banks, may have tailored tax treatments or specific regulatory requirements. Entities with Foreign Income:Entities with foreign income may be subject to corporate tax based on the nature of their income and compliance with international tax agreements and regulations.
