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Invoicing being a key function of every business and e-invoicing is a norm related to it, it is super critical for businesses to understand the concept of e-invoicing and the preparedness that allow you to adapt to the new system of issuing of invoices.

e-invoicing is a process through which business to business (B2B) transactions are authenticated with a unique number known as IRN and QR code by the invoice registration portal (IRP). Read What is e-Invoice in GST? to know more.

What e-invoicing requires?

In the e-invoice system, as a supplier, the moment you create an invoice for your customer, it should be uploaded to IRP where the validation will be done, and IRN along with the QR code will be issued. Next, you need to print the invoice with QR code before issuing it to your buyer.

How is current practice different from e-invoicing?

There is a drastic change if you compare the new norm with the current practice which doesn’t require you to authenticate the invoice. In current practice, as a supplier, you print the invoices, issue it to the buyer and then periodically report the details in GSTR 1. Post that, the buyer gets the visibility of invoices in GSTR -2A.

The other mandate that comes with e-invoicing is that an invoice is valid only if the invoice is authenticated by IRP and the QR code (which is embedded with an IRN) is printed on the invoice. In another way, any invoice without QR code that is authenticated by IRP will remain invalid. This implies that the buyer will be eligible for input tax credit only on the invoices that are authenticated by the IRP portal.

The change and the technology

The new mandate requires you to upload the e-invoice details in prescribed format (JSON) to IRP. Next, download the output file (JSON) that is authenticated by IRP with IRN and QR code. Later, you need to print QR code and IRN on the invoices before issuing it to the buyer.

As a result, the current practice of invoicing will change. First, businesses need to make a provision for real-time upload of invoice data and printing of QR code. This will emphasize the necessity of businesses to have a right technology which assists in real-time and instant generation of e-invoices without need to change the invoicing process.

Secondly, the business behaviour is expected to change where the buyer will drive the supplier to upload the invoices to the government system to confirm his eligible ITC. Therefore, it is evident that buyers will appreciate doing business with the suppliers who recognise the importance of quick and accurate upload of invoices.

Businesses who are using software that directly integrates with the IRP portal will find it easy to manage the e-invoicing requirements. Because the direct integration helps you automatically upload the e-invoice data to the portal and instantly print the QR code into the invoices. This way, you can continue the invoicing process as always without the need to change.

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Introduction to VAT Registration in UAE

Being registered under the VAT law means that a business is acknowledged by the government, as a supplier of Goods and Services and is authorized to collect VAT from customers and remit the same to the government. Only VAT registered businesses will be allowed to do the following:

• Charge VAT on taxable supply of goods and services
• Claim Input Tax Credit on VAT paid on their purchases, which will be deducted from VAT liability on sales
• Payment of VAT to the government
• Periodic filing of VAT return

Apart from the above, all registered businesses have to align their business reporting structure in line with the compliance requirements such as accurate and updated books of accounts, tax paid documents such as Tax invoice, credit notes, debit notes, records to all inward supplies and outward supplies etc. are required to be maintained.

Therefore, understanding the fundamentals of VAT will be one of the important steps for your VAT preparation and obtaining VAT registration will be the first step towards transiting your businesses to the VAT era.

Who should register under VAT?

Are all businesses liable to register under VAT? No, only those businesses crossing the defined annual aggregate turnover threshold are liable to register under VAT. Based on the registration threshold, a business will either be mandated to register or as an option, a business can apply for registration or can seek exemption from VAT registration

On this basis, VAT registration in UAE can be classified into the following:

• Mandatory VAT Registration
• Voluntary VAT Registration
• Exemption from VAT Registration

VAT registration Deadlines in UAE

As a move towards implementation of VAT in UAE on 1st January 2018, the Federal Tax Authority (FTA) is inviting applications for VAT registration. The FTA has opened its portal to allow the businesses to register online. The early call for online registration allows the businesses to be prepared well in advance and be ready to charge VAT from 1st January 2018. The UAE VAT registration in the FTA portal is carried out in a phased manner depending on the turnover of the business.

VAT Turnover Calculation for Registration in UAE

In UAE VAT, businesses whose annual turnover exceeds the mandatory registration threshold of AED 375,000 and the voluntary registration threshold of AED 187,500 are allowed to apply for VAT registration. Therefore, it is crucial for businesses to understand what type of supplies are considered in deriving the annual supplies turnover and how to calculate the VAT turnover for registration in UAE.

How to Apply for VAT Registration in UAE

In UAE, the businesses whose turnover exceeds AED 375,000 have to mandatorily apply for VAT registration. To facilitate the businesses to register, the Federal Tax Authority (FTA) has opened its portal for online VAT registration. The deadlines based on the turnover of businesses are already announced by FTA and the registration will be carried out in a phased manner. While it is crucial for businesses to determine their obligation towards VAT registration, it is also important for businesses to know how to apply for VAT Registration and understand the level of details required to complete the online registration process.

This is because, before applying or starting the online VAT registration process, having a good understanding about the type of details required and steps to complete the online VAT registration will help you to prepare well in advance. As a result, the registration process can be completed easily and can avoid unnecessary delays due to furnishing of incorrect details which could even lead to rejection of registration application.

• Creation of e-Service Account
• Login to your e-Service Account
• VAT Registration Form: The online VAT registration form contains 8 sections as shown below, in under which the details need to be furnished for completing VAT registration
  • About the applicant
  • Details of the applicant
  • Contact details
  • Banking details
  • Business relationships
  • About the VAT registration
  • Declaration
  • Review & submit

VAT Group Registration

In UAE VAT, any person conducting business is not allowed to have more than one Tax Registration Number (TRN), unless otherwise prescribed in the UAE Executive Regulation. Thus, even if you are operating via branches in more than one Emirate, only one VAT registration is required. With a similar objective, if two or more persons are related or associated parties in the businesses, they are allowed to apply for VAT group registration.

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To determine whether the value of supplies has exceeded the mandatory registration threshold limit or the voluntary registration threshold limit, the following needs to be considered.

• The value of taxable supply of Goods and Services: Taxable supplies refers to all the supplies of goods and services made in UAE on which VAT is levied at the standard rate of 5% including zero-rated supplies. This does not include the notified supplies which are exempted from VAT.
• The value of reverse charge Supplies: Reverse charge supplies are those notified supplies on which the recipient or the buyer are required to pay the VAT to the government unlike forwarding charge, where the supplier will collect VAT from the buyer and pay. The value of such supplies needs to be considered in arriving at the turnover threshold for VAT registration.
• Imports: The value of taxable goods and services imported on which the importer is liable to pay tax.

Let us understand how to calculate the VAT Turnover threshold with an example

Rose General Stores is a supermarket in UAE, engaged in supply of groceries and all types of household products. They also import certain home furnishing products from other countries and supply it to the customers in UAE as well as export it to other countries. The following are the different types of supplies made by Rose General Stores.

To determine Rose General Trader’s eligibility for registration in UAE, taxable supplies + exports (zero-rated supplies) + imports + reverse charge supplies should be considered. Exempt supplies will not be considered in arriving at the registration threshold. The registration threshold calculation of Rose General Trader is given below:

The turnover of Rose General Stores for VAT registration is AED 625,000 which has exceeded the mandatory registration threshold of AED 375,000. Thus, Rose General Stores is required to mandatorily register under UAE VAT.

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Mandatory VAT Registration in UAE

All the businesses who have a place of residence in the state of UAE and whose value of supplies in the member states in previous 12 months has exceeded AED 375,000 should mandatorily register under UAE VAT. Also, if the businesses anticipate that the total value of supplies will exceed the mandatory registration threshold of AED 375,000 in the next 30 days, then they too will have to register under UAE VAT.

Those businesses, who do not have a place of residence in the state of UAE, will have to compulsorily register under VAT irrespective of the registration threshold.

Voluntary VAT Registration in UAE

All the businesses having a place of residence in the state of UAE who are not required to mandatorily register under VAT, are given an option to voluntarily apply for registration. This can be done, only if the annual supplies or taxable expenses incurred is not less than voluntary registration threshold. The Voluntary Registration Threshold is AED 187,500 which is 50% of the mandatory registration threshold.

Here, the registrations are not mandatory, it is optional for business to decide whether they would want to register. The inclusion of taxable expenses as criteria to determine the eligibility for voluntary registration provides an opportunity for all the start-up business to register under UAE VAT. This is because, as a start-up, the turnover or value of supplies may be lesser but there is a high possibility that huge amount of taxable expenses would have been incurred in starting the business or during the initial stage of the business. As a result, the inclusion of taxable expenses as a criteria for voluntary registration would enable all the start-up business to register with zero turnover.

VAT Registration Exemption

The businesses whose value of supplies in the member states is below the voluntary registration threshold of AED 187,500 are not allowed to register under UAE VAT. Also, the businesses who are engaged in making only zero-rated supplies may request for VAT registration exemptions.

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What is a VAT Group Registration?

In UAE VAT Registration, two or more persons conducting businesses may apply for Tax Registration as a tax Group. A tax group is a group of two or more persons registered with the FTA as a single taxable person subject to fulfilment of conditions under UAE VAT Law. This group registration is only for the purpose of tax.

Conditions for Applying VAT Group Registration

To be eligible for applying for VAT Group registration, all of the following conditions need to be fulfilled.

Each person shall have a place of establishment or fixed establishment in the State:

This implies that each person should have either of the below-mentioned establishments in UAE :

• Place of Establishment: The place where a business is legally established in UAE pursuant to the decision of its establishment, or a place in which significant management decisions are taken and central management functions are conducted.
• Fixed Establishment: Any fixed place of business, other than the place of establishment, in which the person conducts his business regularly or permanently and where sufficient degree of human and technology resources exist which enables the person to supply or acquire Goods or Services. This includes branches, which are also considered as the fixed establishment.

The relevant persons shall be Related Parties:

Here related parties refer to two or more persons who are not separated on the economic, financial or regulatory level, where one can control others either by Law, or through the acquisition of shares or voting rights.

One or more persons conducting business in a partnership shall control the others:

This implies that one or more person who are related, controls the other business. For example, officers or directors of one another’s businesses, partners in each other’s business etc.

VAT Group Registration Illustration

As illustrated above, Mr. Abdul is a Director in Rose Trading Ltd and a Partner in A-One Trading Ltd. Mr. Rizwan, is a Director of A-One Trading Ltd. Also, Mr. Rizwan is a Partner in Rose Trading Ltd. Therefore, Mr. Abdul and Mr. Rizwan will be treated as related parties and will be eligible to apply for VAT Group Registration provided the conditions are fulfilled.

VAT Group Registration Benefits

The following are the benefits of VAT Group Registration for the business

• All the entities within a VAT Group will be treated as ‘ONE’ entity for VAT purpose. This will help the businesses in simplifying accounting for VAT, and also compliance reporting like VAT returns are required to be prepared and reported at the group level instead of entity level.
• Any supplies within the entities of a VAT group, are out of the scope of the VAT. This means, VAT will not be levied on the supplies between the entities of a VAT Group. However, supplies made by the VAT group to an entity outside the VAT group are subject to VAT.

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What are Exempt Supplies in UAE VAT?

By definition, exempt supplies refer to ‘supply of goods or services for consideration while conducting business in the State, where no tax is due and no Input Tax may be recovered except according to the provisions of the Decree-Law’. In simple words, there are certain exempted goods or services notified in UAE executive regulations, on which VAT is not levied. This means, on supplying these goods or services, VAT is not charged.

On the other hand, businesses supplying these exempted goods or services will not be allowed to claim the input tax paid on your purchases. For example, you have paid VAT at 5% on the purchase of raw materials and assume, finished goods produced using raw material is exempted. Now, you will be not allowed to claim the 5% Input VAT paid on your purchases and it should be treated as a cost of the product.

Exempted goods and services list in UAE

Broadly, VAT exemptions in UAE are given for certain financial services, residential building, and supply of bare land, local passenger and so on. However, to consider supply as exempted from the VAT, the specific conditions mentioned in the UAE VAT Act and Executive Regulations need to be fulfilled.

The following is the list of exempted goods and services:

• Financial Services

The following financial services are under VAT exemption supplies:

• Financial services which are not conducted in return for an explicit fee, discount, commission, and rebate or any similar return are exempted.
• The issue, allotment, or transfer of ownership of an equity security or debt security are exempted from VAT Rate.
• The provision or transfer of ownership of a life insurance contract or the provision of re-insurance in respect of any such contract is under VAT exempted list.

This sounds good! But how do I know whether an activity or service which I am providing is a financial service? Is there any definition of financial services?

Yes, the UAE VAT Executive Regulation has not defined what is financial service is, but it has listed down the instances which amount to financial services.

Financial services are those services which are connected to dealing in money or its equivalent and the provision of credit. Exchange of currency issue, provision of any loan, advance or credit, the operation of any current, deposit or savings account etc. are few instances of financial services.

Kindly note, not all of the financial services discussed above are exempted from VAT. If any of these services are conducted in return for an explicit fee, commission, discount, and rebate or similar return as a consideration in respect of the supply of services, it would amount to a taxable supply.

• Residential Buildings

The supply of residential buildings is under VAT exemption subject to the following condition:

• The lease is more than 6 months or
• The tenant of the property is a holder of an ID card issued by the Emirates Identity Authority

The period of tenancy referred above will be identified with reference to the contractual period of tenancy and it will include any period arising from a right or option to extend the period of the tenancy or renew the tenancy.

Here, residential buildings refer to buildings intended and designed for the human occupation which includes principal place of residence, residential accommodation for students or school pupils, armed forces and police, orphanages, nursing homes, and rest homes.

Broadly, all residential accommodations which are within the definition of residential building and satisfying the above conditions are exempted from VAT.

Are there any buildings which are not considered as a residential building?

Yes, all the non-residential accommodations are not considered as residential buildings. The following are the instances of buildings which are not considered as residential buildings:

• Any place that is not a building fixed to the ground and can be moved without being damaged
• Any building that is used as a hotel, motel, bed and breakfast establishment, or hospital or the like
• A serviced apartment in which services in addition to the supply of accommodation are provided
• Any building constructed or converted without lawful authority In all the above cases, VAT @ 5% will be applicable.

In all the above cases, VAT @ 5% will be applicable.

• Bare Land

Here, ‘bare land’ means a land that is not covered by complete buildings or partially completed buildings or civil engineering works.

• Local Passenger Transport Services

The supply of local passenger transport services by way of transport by land, water or air from a place in the State to another place in the State will be exempted. The means of transport such as motor vehicle including taxi, bus, railway train, tram, monorail, ferry boat, abra or other similar vessel or similar means of transport, designed or adapted for the transport of passengers are exempted from VAT.

Even helicopter or aero plane designed or adapted for the transport of passengers and approved for transport of passengers in accordance with the Civil Aviation Act is exempted.

However, local passenger transport services in the context of a pleasure trip and local passenger transport service by aircraft which constitutes “international carriage’ as mentioned in UAE executive regulation will not be exempted and VAT @ 5% will be levied.

Related Articles:

• VAT Rate in UAE
• Zero-Rated Supplies in UAE VAT
• Difference between zero rate, exempt and out of scope supplies in UAE VAT

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In this article, let us understand the steps to be followed by a non-registrant to pay VAT in the FTA portal.

How to make VAT Payment in FTA portal

• Step 1: Log in to FTA e-Services portal
• Step 2: Click on the VAT tab as shown below:

• Step 3: Click ‘VAT 301- Import declaration form for VAT payment’

• Step 4: Fill in the Customs Authority, Customs Declaration Number and Declaration Date. Click Next.
• Step 5: The screen ‘About Declaration’ will open. The details of the customs declaration submitted earlier (Import date, destination, etc) will be automatically retrieved. Click Next.
• Step 6: The screen ‘Declaration details will open and the declaration details [for example, HS (Harmonized System) code, import value, customs duty, CIF (Cost, insurance and freight) value, etc] will be automatically retrieved. Click Next.
• Step 7: As the scenario of import requires payment of VAT, click ”Pay VAT button which will direct you to the e-Dirham gateway.

• Step 8: Once you are redirected to the e-Dirham gateway, you will be able to make the payment through an e-Dirham or non-e-Dirham card.
  

• Step 9: Once the payment is processed successfully, a confirmation message will appear on the screen and you will receive an email confirmation that the payment has been successfully completed. After this, the customs clearance process can be completed.
  

Hence, the process for payment of VAT on import has been made easy in the FTA portal. Non-registered importers can follow the above steps to pay VAT on import in the relevant scenarios.

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