A Guide for VAT Registration in the UAE

Value Added Tax (VAT) was first introduced in the United Arab Emirates (UAE) on 1st January 2018 to diversify the country's economy by adding new revenue sources. Since then, VAT has become an integral part of the UAE's tax system, impacting businesses and consumers alike. 

As a business operating in the UAE, you might feel overwhelmed navigating VAT's complexities. That's why we have put together a series of articles covering VAT in UAE; continuing the thread, we will cover everything about VAT registration in the UAE this time.

Here, we will discuss why VAT registration matters, who needs to register, and the step-by-step process. We will also share a checklist of necessary documents for VAT registration and some quick tips to maintain compliance even after registration.

Understanding VAT in the UAE

VAT is an indirect tax applied to a product at each stage of the supply chain whenever there is a value addition, from the production to its final sale. 

You collect VAT for sales on behalf of the government and claim credit for VAT you pay on purchases. This credit mechanism ensures that you only pay tax on the value you add, ensuring a fair system for businesses of all sizes. Here is how it works –

Suppose, as a manufacturer, you buy raw materials for AED 100, and add a value of around AED 30 during the production process. The value of the product is now AED 130, and you apply 5% VAT (AED 6.5) and sell it to a retailer for AED 136.5.

The retailer also adds the value of AED 20. The product value has now become AED 156.5, and a 5% VAT (AED 7.82) is applied again. The retailer then sells the product to the end consumer for AED 164.32, who bears the final VAT cost. The VAT collected at each stage, minus the VAT paid on inputs, is remitted to the government.