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.

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.