How to Calculate the VAT Registration Threshold in the UAE

The VAT threshold UAE businesses need to monitor is based on the value of taxable supplies and certain imports or other amounts covered by UAE VAT rules. For UAE-resident businesses, the mandatory VAT registration threshold is AED 375,000, while the voluntary registration threshold is AED 187,500.

However, VAT registration calculations consider more than your total annual sales. To determine whether you need to register for VAT in the UAE, first identify which supplies and amounts are included in the registration threshold. You should also check which amounts are excluded. Then, compare the relevant total with the threshold for the previous 12 months and the amount you expect to reach in the next 30 days. 

How to calculate the VAT registration threshold in the UAE

Here is how to calculate turnover as per UAE VAT law registration:

VAT registration turnover = qualifying taxable supplies + zero-rated supplies + relevant imports and other amounts required under applicable VAT rules

For the UAE VAT turnover threshold, qualifying amounts generally include:

• Standard-rated taxable supplies
• Zero-rated taxable supplies
• Relevant goods and services received from outside the UAE that are subject to the applicable VAT rules
• The relevant value of taxable supplies transferred with an acquired business
• Certain taxable supplies made by related parties, where the applicable conditions are met

What is excluded from the VAT threshold?

Not every amount received by a business forms part of the VAT registration limit in the UAE. The treatment depends on the nature of the transaction.

Usually excluded or separately treated

• Exempt supplies
• Certain supplies of capital assets
• Non-business receipts that do not fall within the relevant VAT calculation
• Amounts outside the scope of the applicable threshold calculation

The exact treatment can depend on the transaction and the applicable VAT rules. For example, the UAE VAT law specifically states that the supply of capital assets is not taken into account when determining whether the mandatory or voluntary registration threshold has been exceeded.

Which supplies count towards the UAE VAT threshold?

Understanding what counts towards the threshold is essential when calculating VAT threshold amounts.

Retail and wholesale supplies

Sales of taxable goods to customers, retailers, distributors or other businesses generally count towards the threshold. This can include clothing, electronics, furniture, food products, machinery, spare parts and other commercial goods.

Manufacturing supplies

Manufacturers generally include revenue from selling finished products, components, equipment and other taxable manufactured goods. For example, a UAE manufacturer supplying industrial machinery to local businesses would generally include those sales in its taxable turnover.

Professional and business services

Fees charged for taxable services can contribute to the threshold. This includes accounting, legal, consulting, marketing, advertising, IT support, software development, engineering and other professional services.

Construction and contracting supplies

Construction companies and contractors may include taxable charges for building, renovation, civil works, electrical installation, plumbing, maintenance and other contracting services.

Hospitality and restaurant supplies

Hotels, restaurants and similar businesses generally count taxable revenue from accommodation, food, beverages and other taxable hospitality services. The VAT treatment of individual supplies should be considered separately where exemptions or special rules apply.

Commercial property supplies

Businesses involved in commercial real estate may have taxable turnover from supplies such as the sale or lease of commercial properties, where the transaction is subject to VAT.

Capital asset disposals

The sale of a business capital asset is treated differently. The VAT law states that supplies of capital assets belonging to the person are not taken into account when determining whether the mandatory or voluntary registration threshold has been exceeded.

Which VAT threshold period should you monitor?

The UAE VAT threshold calculation is not simply an annual financial-year test.

A UAE-resident business needs to monitor its qualifying supplies and relevant amounts on an ongoing basis against two tests:

• Previous 12 months: Check whether the value of taxable supplies and relevant imports has exceeded AED 375,000 over the previous 12 months.
• Next 30 days: Consider whether the business expects the value of taxable supplies and relevant imports to exceed AED 375,000 during the next 30 days.

This means a business should use a rolling calculation rather than waiting until the end of its financial year. If the mandatory threshold is exceeded, the business must apply for VAT registration within the applicable timeframe. The UAE VAT Executive Regulation states that a person required to register must submit the application within 30 days of becoming required to register.

VAT registration threshold calculation examples

The easiest way to understand the VAT turnover threshold calculation in the UAE is through examples.

Example 1: Existing business with standard-rated sales

Suppose a retail business has the following qualifying amounts over the previous 12 months:

The exempt supplies are excluded.

Threshold calculation:

AED 320,000 + AED 80,000 = AED 400,000

As the qualifying amount exceeds AED 375,000, the business has crossed the mandatory registration threshold, subject to the applicable VAT rules.

Example 2: New company

A newly established company does not have a full previous 12-month trading history. It should not simply wait until 12 months have passed. If the company expects its qualifying taxable supplies and relevant amounts to exceed AED 375,000 in the next 30 days, it needs to consider its mandatory VAT registration obligation.

Example 3: Business with exempt supplies

A business makes:

• Standard-rated supplies: AED 250,000
• Zero-rated supplies: AED 50,000
• Exempt supplies: AED 150,000

The exempt supplies do not form part of the taxable supply calculation.

VAT registration turnover = AED 250,000 + AED 50,000 = AED 300,000

The business therefore has not crossed the AED 375,000 mandatory threshold based on these amounts alone.

Example 4: Importer

Suppose a business makes AED 250,000 of qualifying taxable supplies and also receives AED 150,000 of relevant imported goods or services that fall within the threshold calculation.

Threshold calculation = AED 250,000 + AED 150,000 = AED 400,000

The business has exceeded AED 375,000, so it should assess its mandatory registration obligation. The precise treatment of imports depends on the nature of the goods or services and who is responsible for accounting for the VAT.

Example 5: Exporter

A UAE business sells AED 200,000 of goods locally and exports goods worth AED 250,000 that qualify for zero-rating.

Because qualifying zero-rated supplies are taxable supplies, they can count towards the registration threshold.

Threshold calculation = AED 200,000 + AED 250,000 = AED 450,000

Example 6: Business acquisition

Suppose Company A acquires part of an existing business from Company B.

The VAT threshold calculation does not necessarily start from zero. The law requires considering the relevant part of the taxable supplies belonging to the person acquiring the business.

Businesses involved in an acquisition should therefore factor the acquired business's relevant taxable supplies into their calculation, rather than looking only at sales made after the acquisition.

Example 7: Related parties

Certain taxable supplies made by related parties may also need to be included when determining whether the registration threshold has been exceeded.

For example, if two related businesses operate under arrangements covered by the applicable VAT rules, the relevant taxable supplies may need to be considered in the threshold calculation.

The treatment of related-party transactions depends on the specific circumstances and applicable conditions, so businesses should review the relevant VAT rules before finalising the calculation.

How to track the UAE VAT turnover threshold

Since the threshold uses a rolling period and also considers expected supplies in the next 30 days, businesses should monitor their figures continuously rather than checking them only once a year. A simple monthly tracker can include:

Businesses can use their sales register, import records, invoices, contracts and revenue forecasts to keep the tracker updated.

The key is to maintain a clear distinction between qualifying taxable supplies and amounts that are excluded or treated differently under UAE VAT rules.

Conclusion

Calculating the UAE VAT registration threshold correctly helps businesses know when they may need to register for VAT and avoid overlooking qualifying supplies. Since the calculation involves a rolling 12-month period and expected supplies in the next 30 days, regular monitoring is important. Maintaining organised sales, purchase and import records can make this process easier. 

With TallyPrime, businesses can manage accounting, invoicing, inventory and financial records in one place, helping them maintain better visibility of their business transactions and stay organised as they grow.