VAT is a transaction based tax which is imposed on most supplies of goods and services. However, the obligation to charge VAT only extends to persons who are registered for VAT or are required to register for VAT. These persons are known as “taxable persons”. A taxable person who is registered for VAT receives a tax registration number (‘TRN’) and is referred to as a “registrant”.
It should be noted that the definition of a ‘person’ is very wide and includes any legal or natural person. As such, all types of persons – including individuals, companies, partnerships, clubs, associations, and so forth – may be able, or be required, to register for VAT and charge tax on their supplies.
In addition to the obligation to charge VAT on applicable supplies, taxable persons may also be able to recover VAT incurred on their expenses. This ensures that in the majority of situations, VAT is not a cost to registered businesses.
A person may either be required to register mandatorily or may do so voluntarily. In addition, two or more legal persons may be registered as a tax group under a single VAT registration.
If a person is a resident in the UAE or any other GCC state that has implemented VAT in accordance with the Common VAT Agreement of the States of the Gulf Cooperation Council, the person is required to register for VAT if:
- the total value of their taxable supplies and imports made within the UAE exceeds the Mandatory Registration Threshold of AED 375,000 over the previous 12-month period; or
- the person anticipates that the total value of their taxable supplies or imports will exceed AED 375,000 in the next 30
This means that businesses must monitor the value of their supplies and imports on an ongoing basis to understand whether they are required to register for VAT.
If the person is not a resident in any GCC country that has implemented VAT, they may be required to register for VAT if the person makes any taxable supplies or imports in the UAE, unless there is another person in the UAE who is responsible for accounting for VAT on such activities.
The main categories of supplies and imports that need to be taken into account for the purposes of VAT registration thresholds are:
- Supplies of goods or services made in the UAE in the course of
- Any goods or services that the person has imported into the UAE that would have been subject to VAT had they been supplied in the
The person should not include the value of any supplies which are exempt from VAT in this calculation.
The person should also not include the value of any one-off supply of a capital asset when calculating the total value of taxable supplies for VAT registration purposes.
Check an example below to make registration concepts clear.
On 15 January, ABC LLC, a business resident in the UAE, made AED 275,000 of taxable supplies and AED 135,000 of exempt supplies in the previous 12- month period.
Since the total value of their taxable supplies is less than the Mandatory Registration Threshold, they would not be obliged to become VAT registered.
On 20 January ABC LLC sold additional AED 200,000 of taxable supplies. As the combined value of their taxable supplies in the previous 12-month period exceeds the Mandatory Registration Threshold, ABC LLC is required to register for VAT.
ABC LLC exceeds the Mandatory Registration Threshold of AED 375,000 and they would be required to notify the FTA of their requirement to register for VAT.