Insights on Tax Registration Exemption for Companies Operating in UAE

Insights on Tax Registration Exemption for Companies Operating in UAE

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It is important to be aware of the tax registration rules in UAE, for any business entity in the region to take care of its tax-related responsibilities as mandated by the regulator and also to efficiently plan its resources and cash flows. Especially if you are thinking of starting a business entity in UAE, it is beneficial to contemplate on the possibilities and implications of tax registration exemption for entities operating in UAE.

Is Tax Registration mandatory for all the Companies?

It is mandatory for a business entity to register for VAT if its amount of taxable supplies and imports per year exceeds or is expected to exceed the mandatory registration threshold as prescribed by FTA.

What is the Registration threshold for the mandatory Tax Registration in UAE?

The registration threshold for mandatory VAT registration in UAE is AED 375,000. Businesses can voluntarily register for VAT if the amount of taxable supplies and imports per year exceeds AED 187,500.

Is Tax Registration exemption possible for Companies operating in UAE?

If a company has only VAT exempted supplies, then the company does not need to register for UAE VAT.

What are the VAT exempted supplies in UAE?

VAT exempted supplies in UAE include the following:

  • Insurance premium and reinsurance premium relating to life insurance policies
  • Rental income of residential buildings
  • Local transport services for passengers
  • Financial services not made for an explicit fee or consideration

Example 1: Company ‘A’ has only one type of revenue and the revenue is rental income from a residential building that it owns. Even if the amount of rental income of ‘A’ exceeds the mandatory registration threshold limit, ‘A’ does not need to register for VAT purposes.

Example 2: Company ‘B’ is an insurance company issuing only life insurance policies, out of which 70% are reinsured with another company. Revenue of “B” includes life insurance premium from its customers and commission income from its reinsurer. Commission income of “B” exceeds the mandatory registration threshold limit. In this case, though the major revenue of “B” is an exempted supply, the commission income is taxable and hence “B” has to register for VAT.

Can Companies with Tax Registration exemption claim input tax recovery?

Tax paid on expenses incurred in relation to exempt supplies is not reclaimable as per the input tax recovery rules. So for a company which is exempted from tax registration as it has only exempt supplies cannot recover any input tax incurred. Hence any VAT expenses incurred by companies who have only exempt supplies will directly hit their income statement as non-recoverable tax expenses. For tourist people who are by default eligible to avail exemption on tax payments, FTA has established facilities of refund kiosks in UAE for them to reclaim an eligible portion of the tax they incurred on their expenses before they leave the country.

Can Companies with Tax Registration exemption avoid Tax Return filing?

If your company has only tax-exempt supplies and hence not registered under VAT in UAE, then there is no need to file VAT return with FTA. However, a periodic assessment of the nature of the supplies and volume of your business transactions is recommended to review the compliance with tax registration and reporting requirements. Companies dealing with multiple supplies and complex transactions need to analyze their activities at each transaction level to confirm the applicability of exemptions and tax treatments to adhere to the VAT rules as stipulated by the regulator.

Is Tax Registration exemption possible when Taxable Income is above mandatory threshold limit?

It is to be noted that FTA has included the option of tax group registration, which can be availed by an eligible group of entities in case they meet the specific conditions listed down in the tax regulation. If a company is part of such a registered Tax Group in UAE, even if it has taxable income above the mandatory threshold limit, it does not need to avail for individual tax registration separately. Various investment groups and related parties find this as a beneficial option to manage the tax function in their group more efficiently.

Also Government announced Corporate Tax effective from 2023, do read that blogs too.

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