VAT Return Filing for Startups in UAE 

All the VAT-registered businesses in UAE must file VAT returns with the Federal Tax Authority (FTA) to avoid penalties. UAE VAT registration is mandatory if your business exceeds AED 375,000 in taxable supplies or imports (past year or expected in the next 30 days). Voluntary registration is an option for businesses exceeding AED 187,500. Startups might not reap the annual turnover necessary for mandatory VAT registration, but they can still register for VAT voluntarily. This article presents information regarding the VAT return filing for startups in the UAE, benefits, and the procedure.

Filings.ae helps startups file VAT returns in an FTA-prescribed format with expert assistance!!

What is VAT return filing in UAE?

VAT return filing in UAE is the process where registered businesses electronically submit a summary of their taxable activities to the Federal Tax Authority (FTA) at prescribed intervals. This report details the Value Added Tax (VAT) collected on sales (output tax) and the VAT paid on business purchases (input tax) during a specific tax period (usually quarterly or monthly). Based on this information, the return calculates the net VAT liability, the difference between output tax and reclaimable input tax. Businesses must then settle any outstanding VAT amount to the FTA by the due date to comply with UAE tax regulations.

When to file VAT returns in UAE?

In the United Arab Emirates, the frequency of filing Value Added Tax (VAT) returns depends on the business. Most businesses fall under the category of quarterly returns, meaning they file their VAT returns every three months. However, the Federal Tax Authority (FTA) may require certain businesses to file monthly returns. Regardless of the filing frequency, all VAT returns must be submitted electronically through the FTA's eServices portal by the 28th day of the month following the end of the tax period. The deadline is extended to the next business day if the due date falls on a weekend or public holiday.

Why startups should file VAT returns in UAE?

The following points emphasize why filing VAT returns for startups in UAE is useful and beneficial:

• Builds Credibility and Trust: A Tax Registration Number (TRN) through VAT registration signifies your commitment to compliance and financial transparency. This can be a major advantage when attracting investors, securing business partnerships, or winning contracts from larger companies.
• Recovers Input Tax: VAT is a tax on consumption, not business activity. By filing VAT returns, startups can reclaim the VAT they paid on business purchases (input tax) essentially getting that money back from the government. This can significantly improve cash flow, especially in the early stages when every dirham counts.
• Develops Good Accounting Practices: Proper record-keeping is essential for VAT filing. This discipline translates into better financial management, aiding future growth and decision-making.
• Prepares for Future Growth: If your startup experiences rapid growth and surpasses the mandatory VAT registration threshold, you'll already have established VAT compliance systems in place, making the transition smoother.

Procedure of VAT return filing for Startups in UAE

Here are the step-by-step instructions to file VAT returns in UAE,

• Step 1 - Gather Records: You'll need detailed records of all your taxable transactions for the filing period (month or quarter). This includes:
  • Standard VAT invoices issued for sales you made (output tax) categorized by VAT rates:
    • Zero-rated sales (e.g., exports)
    • Exempt items and exports
    • Sales subject to the reverse charge mechanism
    • Sales to VAT-registered businesses
    • Standard-rated sales (most goods and services)
  • VAT invoices received for purchases you made (in put tax) categorized for recoverable input tax:
    • Purchases from non-VAT registered suppliers
    • Exempt or zero-rated purchases
    • Purchases subject to the reverse charge mechanism
    • VAT-deferred or paid at customs on imports
    • Standard-rate purchases made locally
• Step 2 - Calculate VAT Payable/Refundable: Analyze your records to calculate the total VAT you collected from sales for each VAT rate category (output tax) and the total VAT you paid on purchases for each applicable category (input tax). The difference determines your VAT liability:
  • If output tax exceeds input tax, you owe VAT to the FTA (payable).
  • If output tax is less than input tax, you can claim a VAT refund from the FTA.
• Step 3 - Access the FTA Portal: You'll need to use the Federal Tax Authority (FTA) e-Services portal to file your VAT return online. You can access it after creating an account if you haven't already.
• Step 4 - Complete the VAT Return Form: The portal will guide you through the electronic VAT return form. Enter the required details, including:
  • Your VAT registration number
  • The tax period for the filing (month or quarter)
  • For VAT on Sales: Total value for each VAT rate category (zero-rated, exempt, reverse charge, etc.)
  • For VAT on Purchases: Total value for each recoverable input tax category (non-VAT registered supplier, exempt, etc.)
  • The calculated amount of VAT payable or refundable
• Step 5 - Submit and Pay (if applicable): Once you've completed and reviewed the return, submit it electronically. If you have a VAT payment due, you can pay online through the portal using a debit card or e-Dirham.

Also read: How to claim VAT refunds for tourists?

What is the VAT rate structure in UAE?

The UAE uses a standard VAT rate of 5% on most goods and services. However, the system also incorporates two exceptions: zero-rated and exempt supplies. Zero-rated supplies, like exports outside the GCC, are technically taxable but incur a 0% VAT rate. This allows businesses to claim back input tax on these transactions. Exempt supplies, like specific healthcare and education services, are not subject to VAT at all. 

Conclusion

In summary, VAT return filing is mandatory for VAT-registered businesses in the UAE. While not always required for startups, voluntary registration offers valuable benefits like building credibility, recovering input tax, and preparing for future growth. The filing process itself involves gathering detailed transaction records, calculating VAT liability, submitting the return electronically, and settling any outstanding payments. Understanding the UAE's VAT rate structure, with its standard 5% rate alongside zero-rated and exempt categories, is crucial for accurate filing.

File your VAT returns before the due date & avoid penalties with Filings.ae experts!!