VAT and Corporate Tax Registration in UAE

Understanding taxes is essential for any business in the UAE, especially with the introduction of VAT and Corporate Tax. For years, the UAE was known for its tax-free environment, but these new taxes are now an important part of the country’s effort to build a more stable economy. VAT, or Value Added Tax, is a tax on goods and services that affects almost every business and transaction. Corporate Tax, which applies to business profits, ensures that companies contribute to the country’s growth.

While these taxes may seem challenging, they also provide businesses with an opportunity to align with global standards and contribute to the UAE’s growth and development. Whether you’re just starting out or have been in business for a while, it’s crucial to understand how VAT and Corporate Tax affect you. In this blog, we’ll break down the key details of these taxes and explain why registering for them is a vital step for your business. Let’s take a closer look at what you need to know to stay compliant and thrive in this evolving market.

What is VAT and Corporate Tax?

Value Added Tax (VAT) is an indirect tax introduced in the UAE on 1st January 2018, set at a standard rate of 5%. It applies to most goods and services, making it a general consumption tax. This means that VAT is added to the price of products and services at each stage of the supply chain, from production to final sale.

Corporate Tax, on the other hand, was announced to be effective from 1st June 2023. This tax is applied to the profits of businesses operating within the country. The standard rate is 9% for profits exceeding AED 375,000, while any profits below this amount are taxed at 0%.

Understanding the Registration Requirements

When it comes to VAT and Corporate Tax registration in the UAE, it's important to understand the criteria to ensure compliance. Here’s a breakdown of what you need to know.

Criteria for Mandatory VAT Registration: Businesses must register for VAT if your taxable supplies (sales of goods and services) exceed AED 375,000 over the past 12 months. This applies to both local and international transactions. It includes any goods or services your business sells that are subject to VAT, whether you're selling to customers within the UAE or abroad. If you expect your taxable supplies to exceed this threshold in the next 30 days, you also need to register. Failure to do so can lead to penalties, so it’s essential to keep track of your sales regularly.
Criteria for Voluntary VAT Registration: If your taxable supplies fall between AED 187,500 and AED 375,000, you have the option to register for VAT voluntarily. This can be a good choice for small businesses that want to reclaim VAT on their purchases, helping improve cash flow. Voluntary registration also boosts your credibility with clients and suppliers, as it shows you are compliant with tax regulations and can handle VAT-related processes professionally.
Corporate Tax Registration Prerequisites: All businesses in the UAE must register for Corporate Tax if their profits exceed AED 375,000. This applies to both mainland companies and those in free zones unless they qualify for specific exemptions. To complete the registration, you’ll need a Tax Registration Number (TRN) from the Federal Tax Authority (FTA). Be sure to have your trade license and financial records on hand when you apply.

Documents Required for Tax Registration

When registering for VAT and Corporate Tax in the UAE, it’s important to have the right documents to ensure a smooth process. Here’s what you’ll need to prepare.

List of Necessary Documents for VAT Registration

To register for VAT in the UAE, you will need the following documents:

Valid Trade License: A copy of your trade license, which must not be expired.
Bank Account Details: Information such as account number, account name, bank name, branch name, and IBAN.
Passport Copies: Copies of the passports of all owners, shareholders, or managers associated with the business.
Company Contact Details: This includes a complete address and P.O. Box number.
Emirates ID Copies: Valid Emirates IDs of the owners or partners.
Memorandum of Association (MOA): Required for most business types, except sole establishments.
Turnover Declaration: A signed and stamped declaration of your turnover for the last 12 months on company letterhead.
Additional Documentation: Depending on your business activities, you may need to provide supporting documents like a customs letter if dealing with imports/exports or financial statements (audited or non-audited)

Documentation Required for Corporate Tax Registration

For Corporate Tax registration, the following documents are typically required:

Trade License: This verifies that your business is legally registered and allowed to operate in the UAE.
Proof of Authorisation: Documentation such as a Power of Attorney if someone is acting on behalf of the company.
Identification Documents: Emirates IDs or passports of all owners or partners involved in the business to confirm ownership and control.
Tax Registration Number (TRN): If applicable, this number is essential for identifying your business in tax matters.
Financial Statements: Recent financial statements help determine your taxable income and compliance status.
Business Address Proof: Documentation that verifies your physical business location

VAT and Corporate Tax Registration Process in the UAE

You have to register for both VAT and Corporate Tax through the Federal Tax Authority's EmaraTax portal. Here’s a combined step-by-step guide to help you complete both registrations effectively.

Create an Account on EmaraTax: Visit the EmaraTax portal and sign up using your email ID and phone number. If you already have an account, log in using your existing credentials.
Create or Select Your Taxable Person Profile: Once logged in, either create a new taxable person profile or select an existing one from your list of taxable persons. This profile will be linked to your business for tax purposes.
Complete the Registration Forms: After selecting the relevant taxable person, you will see options to register for both VAT and Corporate Tax. Choose the appropriate option based on your business needs. For VAT, fill out the registration form with details about your taxable supplies, financial activities, and contact information. For Corporate Tax, provide information about your business structure, trade license number, and financial performance.
Submit Your Application: Review all entered information for accuracy before submitting your applications through the EmaraTax portal.
Await Confirmation: The Federal Tax Authority (FTA) will review your applications. The processing time is typically 20 business days from the date the FTA receives the completed application.
Receive Your Tax Registration Number (TRN): Upon approval, you will receive a TRN for both VAT and Corporate Tax, which is essential for compliance and reporting purposes.

Maintaining Compliance Post-Registration

Once your business is registered for VAT and Corporate Tax, maintaining compliance is crucial to avoid penalties. Here are best practices for VAT compliance and the requirements for Corporate Tax compliance.

Best Practices for VAT Compliance

Maintain and Review Records: Keep detailed records of all sales, purchases, VAT invoices, and receipts. Regularly audit these records to identify and correct discrepancies early.
File VAT Returns on Time: Submit VAT returns electronically through the FTA portal on the scheduled dates. Late submissions can lead to significant penalties, so set reminders for deadlines.
Use VAT-Compliant Software: Adopt accounting software that automates VAT calculations and streamlines record-keeping to minimise errors and save time.
Stay Informed on Regulations: Regularly check FTA updates or consult experts to keep up with any changes in VAT regulations.
Claim Input VAT Correctly: Understand and document eligible business expenses to reclaim input VAT and reduce your overall tax liability.

Corporate Tax Compliance: Key Requirements

File Corporate Tax Returns on Time: Submit annual Corporate Tax returns detailing your income and expenses before the FTA deadline to avoid penalties.
Maintain Accurate Financial Records: Keep detailed records of your business’s income, expenses, and profits to calculate taxable income correctly and stay compliant.
Respond Promptly to FTA Requests: If the FTA seeks additional details about your tax filings, provide accurate information quickly to avoid penalties or delays.
Understand Eligible Deductions: Learn which expenses qualify as deductions under the Corporate Tax framework to reduce your taxable income legally.
Pay Taxes by the Due Date: Settle any tax liabilities within the given timeframe to avoid interest charges or late payment penalties.

Consequences of Non-Compliance with VAT

Non-compliance with VAT and Corporate Tax regulations in the UAE can result in heavy financial penalties and legal actions. Adhering to tax laws is essential to avoid such risks.

1. Late VAT Registration Penalty: Businesses failing to register for VAT within 30 days of exceeding the AED 375,000 taxable supply threshold face a penalty of AED 10,000.

2. Penalties for Late VAT Payments:

A 2% penalty applies immediately after the payment deadline.
An additional 4% penalty is charged if the VAT remains unpaid after seven days.
From the 30th day onward, a 1% daily penalty is imposed until total fines reach 300% of the unpaid VAT amount.

3. Penalties for Late or Incorrect VAT Returns: Filing VAT returns late or submitting incorrect information results in fines of AED 1,000 for the first offence and AED 2,000 for repeated violations within 24 months.

Consequences of Non-Compliance with Corporate Tax Laws

Non-compliance with Corporate Tax laws in the UAE can result in substantial penalties and operational setbacks. The Federal Tax Authority (FTA), under Cabinet Decision No. 75 of 2023, has outlined strict measures to enforce adherence to these regulations.

Penalty for Late Registration: Businesses that fail to register for Corporate Tax within the specified timeframe face a penalty of AED 10,000, emphasising the importance of timely registration.
Penalties for Late Filing: Missing the deadline for filing Corporate Tax returns incurs a penalty of AED 500 per month during the first year, increasing to AED 1,000 per month thereafter.

Alaan's Role in Tax Compliance for UAE Businesses

Our platform helps businesses in the UAE maintain compliance by addressing both VAT and Corporate Tax requirements in the following ways:

Simplified Compliance and Receipt Management: Alaan assists in validating receipts to align with VAT standards by verifying essential details such as the Tax Registration Number (TRN), accurate invoice information, and appropriate VAT amounts. This real-time validation helps businesses maintain compliance with UAE VAT regulations and reduces the risk of errors during VAT reporting.
Automated Expense Tracking: Alaan simplifies expense tracking by providing its own corporate cards, which integrate seamlessly with the platform and accounting software. This eliminates the need for manual data entry, ensuring all transactions are accurately categorised for compliance with both VAT and Corporate Tax requirements.

Real-Time Spend Visibility: Alaan provides real-time visibility into company spending, enabling businesses to track cash flow effectively. This feature ensures that the correct tax rates are applied, invoices comply with regulations, and any potential cash leakages are identified.
Customizable Approval Workflows: Alaan offers customizable workflows designed to meet a business’s specific needs for expense management and invoicing. This flexibility ensures that all expenses comply with internal policies and regulatory requirements.

Conclusion

VAT and corporate tax registration are crucial for businesses in the UAE. These taxes play a vital role in supporting the country’s economic growth and stability. By staying compliant with the tax rules, businesses can avoid penalties and maintain smooth operations. Keeping accurate records, filing timely returns, and following the correct procedures are key to managing your tax obligations effectively.

At Alaan, we understand how complex this can be, which is why we offer tools to help you manage your expenses and stay compliant with ease. Our platform automates expense tracking, simplifies receipt management, and gives you real-time visibility into your spending. To see how Alaan can streamline your tax compliance, schedule a free demo today and take the first step towards efficient financial management.