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The UAE Government introduced Value Added Tax (VAT) on 1st January 2018 with a standard rate of 5% on all goods and services in the country. Businesses in the UAE, including those owned or managed by German entrepreneurs or investors, can benefit from VAT registration to recover certain input costs related to this tax.
We get many queries related to VAT. Below are some of the most frequently asked questions from our clients based in Germany and across Europe.
VAT is an indirect tax on goods and services, similar to the consumption tax in Germany and other EU countries. It’s a multi-stage consumption tax that applies throughout the supply chain and is collected by registered businesses on behalf of the government. Ultimately, the VAT burden is borne by the end consumer—not the business itself.
Value Added Tax (VAT) is an indirect tax on the consumption of goods and services. It’s a multi-stage tax applied throughout the supply chain and collected by businesses on behalf of the UAE government. The final cost is carried by the end user, not the German business operating in the UAE.
The main reason for implementing VAT in the UAE is to diversify national revenue sources and reduce dependence on oil-based income. VAT supports the UAE government’s plan to deliver more public services and infrastructure by generating steady revenue through taxation.
Financial Impact: Once VAT is part of your company’s financial setup, you may need to adjust your pricing structure due to non-recoverable VAT elements. This can also impact your working capital and cash flow, especially if you offer long credit terms or engage in zero-rated transactions. German companies forming VAT groups should be extra careful—mismanagement can result in unrecoverable VAT liabilities. Operational Impact: You’ll need to revise contracts with suppliers and customers to reflect VAT obligations. IT systems need to be upgraded to capture and report VAT data. Sales and procurement teams need to be trained to handle VAT-compliant processes smoothly. Compliance Impact: VAT compliance includes mandatory registration based on annual turnover thresholds, periodic return filing, maintaining internal controls, and being ready for audits by the UAE’s Federal Tax Authority (FTA). Non-compliance with VAT regulations can result in penalties and legal consequences—something German companies should avoid proactively.
Flyingcolour® assists in all types of company registrations in the United Arab Emirates. We assist in Mainland, Free Zone, or Offshore company registrations across all Emirates of the UAE. We also assist in opening bank accounts with all major local banks. Our team works closely with UAE Government Departments and banks.