Dubai, UAE – April 28, 2025 – As the UAE cements its status as a global business hub, Al Dhaheri Jones & Clark (ADJC) is advising international service providers to pay close attention to their Value Added Tax (VAT) obligations—even when operating without a physical presence in the country.
According to the UAE Federal Tax Authority’s (FTA) E-Commerce VAT Guide (VATGEC1), foreign companies that offer electronic or remote services to individuals or non-VAT-registered businesses in the UAE are required to register for VAT and account for it directly.
“Many foreign businesses assume they are outside the scope of UAE VAT law simply because they don’t have offices here,” said Iftikhar Kazi, Business Manager at ADJC. “But the law is clear—if you’re providing services to non-VAT-registered clients in the UAE, you must register for VAT and charge 5% accordingly. Failing to do so can result in serious penalties.”
Key VAT Requirements for Non-Resident Service Providers:
• VAT Registration Is Mandatory for B2C Services:
Non-resident companies delivering services such as digital content, SaaS, remote consultancy, or other electronic services to UAE individuals must register for VAT immediately—no threshold applies.
• The Reverse Charge Mechanism Does Not Apply in B2C Transactions:
In these cases, the foreign supplier must register, charge, and remit VAT directly to the FTA, since the UAE recipient is not VAT-registered.
When VAT Registration May Not Be Required:
- Supplying Services to VAT-Registered UAE Companies (B2B):
In B2B arrangements, the Reverse Charge Mechanism shifts the VAT responsibility to the UAE-based recipient. The foreign supplier is not required to register in this scenario.
- KHDA-Approved Online Educational Services:
Courses recognized by the UAE’s Knowledge and Human Development Authority (KHDA) are exempt from VAT under Article 40 of the Executive Regulations (Cabinet Decision No. 52 of 2017).
Consequences of Non-Compliance:
Foreign suppliers who delay VAT registration may face serious financial exposure:
• AED 10,000 fine for late VAT registration
• AED 1,000 late filing penalty for the first missed return, increasing to AED 2,000 for each subsequent quarter
• VAT on revenue earned before registration is considered VAT-inclusive, reducing net income
• Late payment penalties start at 2%, with a recurring 4% monthly charge thereafter
“Understanding these obligations is critical for sustainable business operations,” Kazi emphasized. “ADJC is here to support non-resident companies with proactive compliance strategies, seamless VAT registration, and advisory services tailored to UAE regulations.”
With deep expertise in cross-border tax compliance and regulatory strategy, ADJC continues to assist foreign companies in meeting their VAT obligations and avoiding costly oversights in the UAE’s evolving digital economy.
