Chapter Seventeen: Accounting, Auditing and VAT Requirements in Dubai
The United Arab Emirates introduced a general consumption tax in 2018, in a move to establish an additional source of income to fund government works. As it does in other countries, the value added tax (VAT), applies to the majority of goods and services transactions and is levied at each point of sale.
The level of VAT in developed countries can be high. In the UK, the VAT is applied at 20% while places like Australia have a similar consumption tax levied at 10%. In the UAE, however, the rate of VAT is only 5% of the transaction value. A lower VAT helps stimulate business by facilitating consumption within the country and keeping the UAE more competitive on a global scale which serves to put the UAE at the forefront of places to do business.
The VAT is imposed on tax registered businesses, and they must submit a VAT return to the FTA each year. Entities must register for VAT if their taxable supplies, including imports, exceed AED 375,000 a year, and there is a voluntary threshold of AED 187,500 whereby a business may also choose to register.
Businesses must collect the tax at each step of the supply chain, with the end-consumer ultimately bearing the cost. The collected funds must be forwarded to the government, so in effect, they are acting as tax collectors on behalf of the government.
There are some VAT exempt sectors that do not have to register for VAT collection. These include:
- Some financial services
- Residential buildings
- Vacant land
- Transportation for local passengers
The UAE government has determined some free trade zones, called designated zones. For tax purposes, these areas are treated as being ‘outside the UAE’ and the consumption of goods and services within these territories is VAT tax-free.
There are provisions for VAT refunds that can be claimed in specified circumstances. Refunds can apply for:
- Foreign tourists and visitors
- Foreign businesses or firms
- UAE citizens who are building a new residence
- Foreign governments, international organizations and diplomatic authorities
- Exhibitions and conferences
Accounting and Auditing in the UAE
The UAE’s open economy enjoys a high per capita income, and this has contributed to an enviable annual trade surplus. However, there are regulated taxes and reporting requirements applicable to businesses. The Federal Tax Authority (FTA) in the UAE manages and collects the relevant taxes and related fines, distributes tax-generated revenues, and applies all tax-related procedures.
Business owners starting out in the UAE need to be very careful to register their company with the FTA not later than 20 days after they reach the regulated threshold. We advise you to be fully aware of your obligations and register as soon as you reach the voluntary threshold. At Turnkey Family Office, we work with very proactive accountants that can help you monitor your revenue generation, which will ensure that you declare as soon as eligible.
It is also very important to understand the role of your invoicing mechanism. You will need to understand how your invoices must be structured and what information they are required to contain. You need to ensure that you have these requirements in place as soon as you are registered and your Tax Certificate is provided with your Tax Return Number (TRN).
Our office can recommend these reliable, professional accounting firms that will guide you right from the start, which in the long term will prevent your business possibly facing penalties and fines as a result of non-compliance.
We also partner with accredited and independent financial auditors who perform mandatory statutory audits for Dubai businesses, and they ensure that the enterprise is operating and reporting within the regulated guidelines. These audits are performed under the International Financial Reporting Standards (IFRS), to ensure transparency and objectivity in a company’s trading activities and confirm the true status of their annual financials.
The benefits of regular audits reveal any risks or weaknesses in a company’s systems and help in the formulation of solutions and stronger procedures going forwards. In effect, these auditing procedures help companies trading in the UAE identify areas of improvement and aid in developing their financial potential.
Investors operating in Dubai’s free trade zones or offshore zones might also perform financial statement audits for submission to the appropriate authorities. While some enterprises may not have been required to audit, nevertheless the introduction of VAT now makes it compulsory.
When you are establishing a new business in the UAE, or growing your existing business, you can rely on us at Turnkey Family Office to guide you every step of the way. Get in touch at https://www.turnkeyfo.com/
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