VAT registration in the UAE: when it is mandatory and when it is voluntary

Registering for VAT at the right time is one of the first compliance decisions a UAE business makes. Register too late and the business still owes VAT on its past sales, with penalties on top; register voluntarily without meeting the conditions and the application can be refused. This article sets out, from the VAT Law and its Executive Regulation, when registration is mandatory, when it is voluntary, and what counts towards the thresholds.

The two thresholds

• Mandatory Registration Threshold: AED 375,000.
• Voluntary Registration Threshold: AED 187,500.

Both amounts are set in the Executive Regulation of the VAT Law (Cabinet Decision No. 52 of 2017, Articles 7 and 8).

When registration is mandatory

A person with a place of residence in the UAE (or in an Implementing State) must register in either of two situations:

• Looking back: the total value of its supplies exceeded AED 375,000 over the previous 12-month period;
• Looking forward: it is anticipated that the total value of its supplies will exceed AED 375,000 in the next 30 days.

The look-back test is a rolling 12 months, not a calendar or financial year, and the obligation arises when the total actually passes the threshold, which can happen in the middle of a month. In practice this means keeping a running 12-month total: check it at least at every month-end, and again whenever a large sale is coming.

What counts towards the threshold

Article 19 of the VAT Law adds together:

• the value of taxable goods and services supplied;
• the value of goods and services received that are subject to the reverse charge (the “Concerned Goods and Services”), unless already counted;
• the value of taxable supplies of a business the person has acquired, wholly or partly, from another person who made those supplies;
• the value of taxable supplies made by related parties, in the cases set out in the Executive Regulation.

Exempt supplies are not taxable supplies, so they do not count. Zero-rated supplies are taxable supplies, so they do. And under Article 20, the supply of the person’s own capital assets, such as selling its used equipment or vehicles, is not taken into account for either threshold.

Deadline and the date registration takes effect

A person required to register must file the registration application with the FTA within 30 days of becoming required to register. The effective date depends on the test that was met:

• Look-back test: registration takes effect from the first day of the month after the month in which the person became required to register, whether or not it applied, or from an earlier date agreed with the FTA.
• Look-forward test: registration takes effect from the date on which there were reasonable grounds to believe the person would be required to register, or from an earlier date agreed with the FTA.

What happens if you register late

If a person does not apply despite being required to, the FTA registers it with effect from the date on which it first became liable to register, and imposes penalties under the Tax Procedures Law. A business that registered late must also account for and pay the VAT due on all the taxable supplies and imports it made before registering, even though it charged no VAT to its customers at the time. You can see the applicable penalty in our tax penalties table.

Non-residents: no threshold

A person without a place of residence in the UAE or an Implementing State must register if it makes supplies of goods or services in the UAE and no other person is obliged to pay the VAT due on those supplies in the UAE. There is no minimum amount for this obligation. The FTA registers a non-resident with effect from the date it started making supplies in the UAE.

A non-resident may not count goods and services imported into the UAE when deciding whether it can apply for registration, if the importer is responsible for calculating the tax on them.

When registration is voluntary

A person that is not required to register may apply voluntarily in either of two cases:

• at the end of any month, it can show that its supplies, or its expenses subject to tax, over the previous 12 months exceeded AED 187,500;
• at any time, it anticipates that its supplies, or its expenses subject to tax, in the next 30 days will exceed AED 187,500.

Three conditions in the Executive Regulation matter in practice:

• “Taxable expenses” means expenses subject to the standard rate that are incurred in the UAE by a person with a place of residence in the UAE. This lets a new business that is still spending, but not yet selling, register voluntarily.
• The applicant must prove that it carries on a business in the UAE and intends to make supplies of the kinds listed in Article 54(1)(a) to (c) of the VAT Law: taxable supplies; supplies made outside the UAE that would have been taxable if made in the UAE; and certain supplies made outside the UAE, specified in the Executive Regulation, that would have been exempt if made in the UAE.
• If the application relies on the next 30 days, the applicant must be able to provide evidence of its intention to make taxable supplies or incur taxable expenses above the threshold.

Voluntary registration takes effect from the first day of the month after the month of the application, or from an earlier date requested by the applicant and agreed by the FTA. A business registered voluntarily may not apply to deregister within 12 months of its registration date.

Only zero-rated supplies?

The FTA may, on request, except a taxable person from registration if its supplies are only subject to the zero rate. If its business later changes so that the reason for the exception no longer applies, it must tell the FTA.

Mandatory and voluntary at a glance

A simple monthly routine

• Keep a running total of the taxable supplies of the last 12 months, including the items in Article 19 and excluding sales of your own capital assets. Check it at least at each month-end and before any large invoice.
• Look at signed contracts and orders for the next 30 days.
• If either test is met, prepare the application straight away: the 30-day clock has already started.
• Keep the calculation and its evidence on file; the FTA can ask how and when you assessed the threshold.

Tags VAT registration