VAT Turnover Threshold Calculation for Registration in UAE

The UAE government sets a specific turnover threshold limit for VAT registration. Businesses with a turnover exceeding AED 375,000 must register for VAT in UAE. The taxable turnover for VAT registration will be determined by the following factors - taxable supplies, zero-rated supplies, imports, and reverse charge supplies. This article helps you better understand the UAE VAT turnover threshold and how to calculate it.

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What is VAT Registration in UAE?

VAT registration in the UAE is a process by which businesses exceeding a specific annual turnover threshold or opting to register voluntarily must comply with Value Added Tax (VAT) regulations. This implies collecting VAT on taxable supplies of goods and services, maintaining VAT records, filing VAT returns, and paying VAT to the Federal Tax Authority (FTA).

VAT Turnover Threshold Limits in the UAE

The UAE operates with two key VAT turnover thresholds:

• Mandatory Registration Threshold: Businesses with a taxable turnover exceeding AED 375,000 in the past 12 months or expected to exceed this amount in the next 30 days must register for VAT mandatorily.
• Voluntary Registration Threshold: Businesses with a taxable turnover exceeding AED 187,500 but below AED 375,000 can choose to register for VAT voluntarily.

How to calculate a VAT turnover threshold for registration in UAE?

Below, we have provided the VAT turnover threshold calculation formula and explained each element to help you understand how the calculation works.

Here is the simplified to calculate VAT taxable turnover:-

Taxable Turnover = Taxable Supplies + Zero-Rated Supplies + Imports + Reverse Charge Supplies

• Taxable Supplies: This refers to the value of all goods and services supplied within the UAE on which the standard VAT rate of 5% applies.
• Zero-Rated Supplies: These are specific goods and services with a VAT rate of 0%. However, they are still included in the turnover calculation for VAT registration.
• Imports: The value of taxable goods imported into the UAE is included in the turnover calculation.
• Reverse Charge Supplies: In certain situations, the recipient of a supply becomes liable for paying VAT instead of the supplier. The value of such reverse charge supplies is included in the turnover calculation.
• Exempt Supplies: Unlike the elements mentioned above, exempt supplies (e.g., education and healthcare services) are excluded from the calculation of taxable turnover for VAT registration.

Let's consider a company based in the UAE that sells electronics and offers occasional IT consultancy services. In the past year, here's a breakdown of their revenue:

Now, to calculate their taxable turnover for VAT registration purposes, we simply add up all these components:

Taxable Turnover = AED 150,000 (Electronics) + AED 50,000 (IT consultancy) + AED 10,000 (Zero-Rated) + AED 40,000 (Imports) + AED 0 (Reverse Charge)

Taxable Turnover = AED 250,000

In this scenario, since the company's taxable turnover (AED 250,000) falls below the VAT registration threshold in the UAE, it doesn't need to register for VAT. However, it can register for VAT voluntarily since it is above AED 187,500.

Benefits and Considerations of Voluntary VAT Registration

While not mandatory for businesses below the AED 375,000 threshold, voluntary VAT registration can offer advantages such as:

• Claiming Input VAT: Businesses can reclaim the VAT they paid on purchases from registered suppliers, potentially improving cash flow.
• Enhanced Credibility:  VAT registration can be perceived as a mark of credibility and professionalism, potentially attracting new business opportunities.

However, voluntary registration also comes with additional responsibilities:

• Compliance Costs: VAT registration necessitates VAT record-keeping, filing VAT returns, and potentially incurring additional tax advisory fees.
• Charging Output VAT: Businesses must collect and account for VAT on taxable supplies, which may impact pricing strategies.

Learn more: Benefits of Obtaining VAT registration in UAE

Conclusion

Understanding VAT turnover threshold calculation is vital for businesses operating in the UAE. By calculating your taxable turnover and considering the implications of mandatory or voluntary registration, you can ensure compliance with UAE VAT regulations. Consulting with Filings.ae Tax professionals can help you make informed decisions regarding your VAT registration status.

Have your UAE business reached the AED 375,000 threshold? Streamline your VAT registration with Filings.ae! - Get started today!