VAT Registration Dubai: FTA Guide for SaaS & Digital Businesses

Dubai’s VAT registration requirements often blindside SaaS and digital businesses. That’s because, in the UAE, even a single sale to a consumer triggers immediate VAT registration. There is no minimum revenue threshold, and the penalty for failing to register within 30 days of your first sale is a steep AED 10,000 (about $2700).

For SaaS companies expanding globally, it’s vital to understand your UAE VAT obligations, whether you’re a scrappy startup or a worldwide enterprise. Registering on time and keeping up with ongoing filing and other compliance requirements can help you avoid a compliance misstep in this lucrative market. 

VAT in Dubai: Quick Overview

VAT registration is the process of officially enrolling your business with a country's tax authority to collect, report, and remit Value Added Tax (VAT) on taxable goods and services. Once registered, businesses receive a unique VAT identification number and become legally obligated to charge VAT to customers, file regular VAT returns, and pay collected VAT to the government.

Once known for its tax free shopping, as of 2018, Dubai now has a 5% VAT that applies to most goods and services, including digital goods and software as a service (SaaS).

Dubai is part of the great United Arab Emirates (UAE), and all VAT (as well as corporate tax)  in the emirates are regulated by the Federal Tax Authority (FTA).

Who Needs to Register for VAT in Dubai?

Mandatory and Voluntary Thresholds 

VAT registration in Dubai is mandatory for UAE businesses after a company makes 375,000 UAE dirham (AED) per year in revenue in the country.  

The country also allows for voluntary registration for VAT after your revenue reaches AED 187,500. A company might decide to register voluntarily because that allows them to recover any VAT paid out as input tax credits. 

Digital Sellers & Foreign Companies 

It’s vital to understand that non-resident digital services providers, such as SaaS providers, are required to register and begin collecting UAE VAT immediately. There is no minimum revenue threshold. 

For B2C sellers, this means collecting VAT on every sale into Dubai and the rest of the UAE.

For B2B sellers, while still liable for handling VAT, the reverse charge mechanism applies. In short, this means that sellers can require their UAE VAT-registered business buyer to assume the VAT liability in B2B transactions, as long as the buyer is registered for UAE VAT.

Note that registration may still be required even if you only sell to business customers in Dubai.

It’s easy for SaaS and digital companies to miss this vital detail, especially with the simplicity of cross-border digital commerce. However, failing to register can mean a steep penalty of 10,000 AED (about $2,700 US) with additional penalties as time goes on.

How to Register for VAT in the UAE

VAT registration in the UAE is an extensive process, so gather your documents and be prepared

Required Documents 

You’ll be required to provide:

• Basic company details
  
  • Legal name
  • Taxpayer Identification Number (TIN)
  • Business address
  • Bank account details
  • Short description of businesses activities and goods and/or services provided
    
• Owner and business representative identifying and contact information 
  
  • Passport photo of business owner
  • If not the owner but an authorized representative, both a passport photo and signed Power of Attorney (POA). Note that the POA must be stamped with the official company seal.
    
• Core company documents 
  
  • Trade license
  • If UAE-based: Emirates ID 
  • If US-based: Employer Identification Number (EIN) confirmation letter 
  • Memorandum of Association (MoA)
  • Articles of Incorporation
  • Bank letter confirming UAE business account
  • Stamped turnover declaration showing lifetime revenue and expenses
    
• Supporting materials 
  
  • Sample sales invoices
  • Sample purchase orders or client contracts
  • Sample business expenses 

Having all these materials at hand will greatly speed up an already intensive process.

How to Register via EmaraTax

1. Create an FTA e-services account
2. Add a “taxable person”
3. Complete the entire VAT registration form
4. Upload the requested documentation and submit

The FTA will typically provide your Tax Registration Number (TRN) within 20 days.

In some cases, the FTA will request extra documentation. If that occurs, Sphere is here to help. Our UAE representative can communicate in Arabic with FTA officials, advise, and provide the requested follow up documentation. 

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After Registration: Compliance Essentials

After you’ve registered and begun collecting VAT from Dubai and other UAE customers, you’ll be required to follow strict compliance rules. Here’s what you need to know.

Filing VAT Returns

Most businesses will be required to file a quarterly VAT return 28 days after the end of the taxable period. This is filed and paid via the online portal EmaraTax.

Input Tax Recovery

Registered businesses in the UAE can reclaim VAT paid on qualifying business expenses, which can significantly reduce your overall tax burden. For SaaS companies, this means you can recover VAT on essential business costs like software subscriptions, contractor fees, and marketing expenses. 

The ability to claim input tax credits makes VAT registration particularly attractive for businesses with substantial operational costs, as it transforms VAT from a pure expense into a recoverable cost that flows through your business. 

Recordkeeping

UAE VAT law requires businesses to maintain all invoices, receipts, and tax returns for a minimum of five years. Note that the Federal Tax Authority (FTA) may request Arabic translations of your records during an audit. 

Keep in mind that FTA audits are a real possibility, so maintaining organized, compliant records is essential protection for your business.

Dubai VAT & SaaS: What Makes It Tricky

You may be liable to collect VAT in the UAE from your very first sale. 

Sell to individuals? Your first B2C sale to a buyer in Dubai triggers the obligation to register for and collect UAE VAT. Many non-UAE businesses are unaware of this obligation until steep penalties (about $2700 USD) hit.

Reverse Charge for B2B

For non-resident SaaS businesses selling B2B and exclusively to UAE-registered businesses, you can apply the reverse charge mechanism instead of registering for UAE VAT. 

Under this system, your UAE business customers are responsible for accounting for and paying the VAT on your services directly to the Federal Tax Authority, rather than you collecting it from them. This means you should issue invoices without UAE VAT but clearly state that the reverse charge applies, and verify that your customers have valid UAE VAT registration numbers to ensure they can properly account for the tax.

Keep in mind that even if you solely sell to other businesses, you may still be required to register for UAE VAT. In that case, you would not apply the reverse charge mechanism. 

Common Mistakes & Penalties

Avoid these common Dubai & UAE VAT pitfalls:

• Failing to Register – The UAE requires that you register for a TRN within 30 days of becoming eligible. The penalty is steep, at 20,000 AED or about $2700 USD.
• Incomplete documentation – Failing to submit all documents correctly during registration can lead to extreme delays and may prohibit you from selling into the country.

UAE VAT Penalties

• Late VAT registration or deregistration - AED 10,000 
• Late VAT filing - Up to AED 1,000 (2,000 for repeat offenses)
• Late VAT payment - 2% of unpaid tax and a 4% monthly penalty for each month paid late
• Incorrect VAT return - Up to AED 1,000  (2,000 for repeat offenses)
• Improper record keeping - Up to AED 10,000 (20,000 for repeat offenses)

From “Do I need to register?” to Full UAE Compliance

To sum it up:

• The UAE, while formerly offering tax free shopping, now has a 5% standard VAT rate on most goods and services.
• Non-UAE residents should register for VAT at your first consumer sale. There is no revenue threshold.
• Non-resident B2B sellers can often use the reverse charge mechanism, shifting the VAT onus onto your in-country business customer. 
• UAE residents face a mandatory registration threshold at AED 375,000 in annual revenue, with the voluntary registration threshold at AED 187,500.
• Register through EmaraTax. Your Tax Registration Number (TRN) will generally be issued within 20 days.
• The UAE has a complex VAT registration process. Documentation problems can slow your expansion into the UAE. 
• Fines and penalties are steep, starting with an AED 10,000 (about $2700 USD) penalty for late registration. 

Automate your UAE VAT with Sphere, which provides in-country, Arabic speaking representatives. 

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How Sphere Helps

The wealthy UAE is a tantalizing market for SaaS and digital businesses, but knowing when and how to register for VAT can be complicated.  

Sphere takes the guesswork (and steep penalties) out of VAT compliance by continuously monitoring your sales into the UAE and alerting you when registration becomes necessary.

From there, our AI-powered technology and in-house UAE representatives communicate directly with the Federal Tax Authority to ensure your registration is timely and correct. Then, once registered, Sphere ensures you collect the right amount of VAT on taxable supplies, files your quarterly UAE tax returns for you, taking complicated VAT compliance off your plate.