The United Arab Emirates (UAE) has built a robust framework of indirect taxes aimed at fiscal sustainability and supporting its growing economy. These taxes, including VAT and excise tax, affect businesses and individuals alike. Here’s everything you need to know about the UAE’s indirect tax system.

1. Value-Added Tax (VAT)

Key Features

Standard Rate: 5%, applicable to most goods and services.

Zero-rated Supplies: Includes exports, healthcare and educational services, international transportation, crude oil, natural gas, and first supplies of residential buildings.

Exempt Supplies: Examples are financial services, subsequent supplies of residential properties, bare land, and local passenger transport.

Registration Requirements

• Mandatory Threshold: AED 375,000 (total supplies in the past 12 months or anticipated in the next 30 days).
• Voluntary Registration: Threshold lowered to AED 187,500. Businesses can register based on taxable expenses alone.
• Non-Established Businesses: Must register immediately upon making taxable supplies without any threshold.

VAT Compliance and Deductions

• Filing Returns: Usually quarterly; the FTA may require monthly submissions for certain businesses.
• Deductions: VAT incurred for business purposes is recoverable, except for non-business-related employee benefits, personal use expenses, and entertainment for non-employees.

2. Excise Tax

Taxed Goods and Rates

• 100% Tax: Tobacco products, electronic smoking devices, and energy drinks.
• 50% Tax: Carbonated and sweetened beverages.

Purpose: Excise tax aims to reduce consumption of harmful goods while generating additional revenue for public welfare. Businesses dealing in excise goods must register, file monthly returns, and comply with strict reporting requirements.

3. Customs Duty

• Standard Rate: 5% of the CIF (Cost, Insurance, and Freight) value of imports.
• Exemptions: Goods imported into designated zones (DZs) may be exempted but are subject to VAT when moved to mainland UAE.

4. Business Visitor Refund Scheme

• Non-registered overseas businesses can claim VAT refunds if they meet the conditions set under the FTA’s Business Visitor Refund Scheme.

5. Special Rules for Designated Zones (DZs)

• Supplies within DZs are outside the scope of VAT, subject to conditions.
• Goods moved to mainland UAE are treated as imports and attract VAT and customs duty.

6. Digital Transformation in Tax Compliance

The UAE is embracing technology in tax administration:

• Electronic Invoicing: Businesses must provide real-time VAT data to tax authorities.
• Digital Audits: Authorities leverage analytics to identify discrepancies and enforce compliance.

Why Businesses Should Pay Attention

The UAE’s indirect tax framework ensures fairness, transparency, and fiscal responsibility. By understanding VAT, excise tax, and customs duties, businesses can:

• Avoid penalties through proper compliance.
• Optimize costs by leveraging VAT refunds.
• Stay competitive by aligning with global tax trends.