CALCULATING THE VAT REGISTRATION THRESHOLD IN THE UAE: UNDERSTANDING THE INCLUSION OF IMPORT TRANSACTIONS

Introduction

Value Added Tax (VAT) was introduced in the United Arab Emirates (UAE) on 1 January 2018 at a standard rate of 5%. Since then, all businesses operating in the UAE have been required to monitor their taxable transactions to determine whether they need to register for VAT with the Federal Tax Authority (FTA).

A key aspect of VAT compliance is understanding how to calculate the registration threshold and more importantly, what to include in that calculation, especially regarding imports of goods and services.

This article provides a clear overview of the VAT registration thresholds in the UAE, how they are calculated, and how import transactions affect your registration status.

VAT Registration Thresholds in the UAE

Under UAE VAT law, there are two main thresholds for VAT registration:

-Mandatory Registration Threshold: AED 375,000 → Businesses must register if taxable supplies and eligible imports exceed this amount.

-Voluntary Registration Threshold: AED 187,500 → Businesses may register voluntarily if taxable supplies or taxable expenses exceed this amount.

If your taxable supplies or imports in the past 12 months have exceeded AED 375,000, or if you expect them to exceed that amount in the next 30 days, VAT registration becomes mandatory.

What Counts Towards the VAT Threshold

When calculating your VAT registration threshold, you must include all taxable supplies and relevant imports.

Taxable Supplies

Include:

-Goods and services supplied within the UAE that are subject to VAT (at 5% or 0%).

-Deemed supplies (such as the self-use of business goods).

Exclude:

-Exempt supplies (e.g., residential property, certain financial services, or local passenger transport).

-Out-of-scope transactions (activities completely outside the VAT system).

Imports of Goods and Services

According to the FTA’s Taxable Person Guide (VATG001): “Any goods or services that a person has imported into the UAE that would have been subject to VAT had they been supplied in the UAE should be included when calculating the value of supplies for registration purposes.”

This means that:

-Imported goods that would be taxable if sold in the UAE must be included.

-Imported services (like consultancy or software) that would be taxable if supplied in the UAE must also be included.

Period of Assessment

You must assess your total taxable supplies and imports:

-Over the past 12 months, and

-Over the next 30 days (based on expected business activity).

If either assessment exceeds the relevant threshold, registration is required.

Step-by-Step: Calculating the Threshold

Follow these steps to determine if your business must register for VAT:

-Identify taxable supplies
Add up all taxable goods and services supplied in the UAE during the last 12 months. Exclude exempt or out-of-scope items.

-Include eligible imports
Add the value of imported goods and services that would have been taxable if supplied in the UAE.

-Calculate the total
Combine your taxable supplies and eligible imports.

If the total exceeds AED 375,000, registration is mandatory.

If it is between AED 187,500 and AED 375,000, registration is voluntary.

Example

Suppose your business had the following transactions over the past 12 months:

-Domestic taxable supplies: AED 300,000

-Imported consulting services: AED 100,000

-Exempt supplies: AED 50,000

Only taxable supplies and eligible imports are counted.
Total for threshold = AED 400,000

Since AED 400,000 exceeds the mandatory threshold, your business must register for VAT.

Inclusion of Imports: Key Considerations

Import of Goods

-If you import goods into the UAE that would be taxable if supplied locally, include their value in your threshold calculation.

-VAT is generally accounted for under the reverse charge mechanism at the time of import.

Import of Services

-Imported services (such as marketing, legal, or IT services) that would be taxable if supplied in the UAE must also be included.

-These are treated as self-supplied under the reverse charge mechanism.

Non-Resident Businesses

Non-resident businesses making taxable supplies in the UAE must register for VAT immediately, regardless of the threshold, if no UAE-based entity accounts for VAT on their behalf.

Exclusions and Special Cases

Do not include the following when calculating your VAT threshold:

-Exempt supplies (e.g., residential rent, certain financial services).

-One-off sales of capital assets.

-Supplies that are entirely out of scope for UAE VAT.

Practical Compliance Tips

-Monitor turnover regularly: Keep a rolling 12-month record of taxable supplies and imports.

-Plan ahead: If upcoming sales or imports will exceed AED 375,000 within 30 days, apply for VAT registration promptly.

-Maintain records: Keep invoices, import documentation, and VAT classifications properly organized.

-Consider voluntary registration: If your turnover is between AED 187,500 and AED 375,000, voluntary registration may enable VAT recovery and improve business credibility.

-Avoid penalties: Failing to register on time can result in administrative fines and backdated VAT liabilities.

Summary

Include in threshold calculation:

-Taxable supplies (5% or 0%)

-Imports of goods and services that would be taxable if supplied locally

Exclude from threshold calculation:

-Exempt supplies

-Out-of-scope transactions

Threshold amounts:

-Mandatory registration: AED 375,000

-Voluntary registration: AED 187,500

If your total taxable supplies and eligible imports exceed these amounts (or are expected to), VAT registration with the FTA is required.

Conclusion

Correctly calculating the VAT registration threshold is essential for compliance in the UAE. Both taxable domestic supplies and imports of goods and services must be considered in the calculation. By maintaining accurate records and reviewing your turnover regularly, you can ensure timely registration and avoid costly penalties.