Value Added Tax commonly referred to as ‘VAT’ became effective in the United Arab Emirates from 1 January 2018, at a standard rate of 5%. Any charities that engage in business activities in the UAE supplying goods and services will, in most cases, be required to pay VAT like any other taxable individual. This type of organization will register for VAT, charge VAT on their taxable supplies and reclaim input tax on costs attributed to those supplies. Nevertheless, some charities can be recognized as ‘designated charities and as a result have privileged VAT treatment and refund regimes. This article aims at helping charities to identify whether they fall within the category of organizations that are required to register for VAT in the UAE. It examines specific parameters for determining VAT eligibility for charities in the UAE how to apply for VAT registration.
VAT Eligibility Criteria for Charities
The following are the criteria for VAT eligibility for charities in the UAE:
Table 1: VAT Eligibility Criteria for Charities
| Criteria | Description |
|---|---|
| Approval by the Ministry of Community Development | The charity must be approved by the Ministry of Community Development to carry out a charitable activity in the UAE as a designated charity. |
| Establishment under Federal or Emirate Decree | The charity must be established as a charity under a Federal or Emirate Decree. |
| Licence to Operate as a Designated Charity | The charity must be licensed to operate as a designated charity by an agency of the Federal or Emirate Governments authorized to grant such licenses. |
| Objectives | The charity's objectives must include advancing health, education, public welfare, religion, culture, science, and similar activities. |
| Operate within Terms of Approval/Licence | The charity must operate within the terms of any approval, license or other authorization which has been granted by the aforementioned bodies in respect of its charitable activities. |
| Not-for-profit Basis | The charity must operate on a not-for-profit basis. |
| Funding | The charity must be funded primarily by means of grants or donations. |
VAT compliance for UAE charities
The following are the steps through which eligible charities can register for VAT in the UAE:
- Check if your charity is obliged to register for Value Added Tax. Any charity organization which has a taxable supply of goods and services more than the registering threshold of AED 375,000 in the last twelve months or expects to meet this criterium within the next one month should register for VAT.
- Gather the necessary documents. Charities are required to provide the following documents when registering for VAT:
- Business license trader license or business registration certificate
- Memorandum of Association (MOA) or other statutory document
- Photocopies of passports of the charity’s authorized signatories
- Utility bills such as water, electricity, or gas bills or the lease agreement where the candidate lives.
- Bank account details
- Any other document that the FTA requires
- Complete the VAT registration application. The application for VAT registration can be applied for by charities through the FTA’s eServices site.
- Wait for approval. The FTA will then consider the application and on some occasions, request further information or supporting documents. On approval of the application, the charity will be issued with a VAT registration number and certificate.
FAQs
What are the criteria for VAT eligibility for charities in the UAE?
To become a designated charity, an organization must undergo certification processes regarding its approval /licensing, non-profit entity, funds and management.
How can a charity register for VAT in the UAE?
Any charity organization or non-profit organization, which intends to register for VAT needs to do so through the Federal Tax Authority website provided that the charity’s annual turnover of taxable supplies of goods and services is above the mandatory or voluntary registration threshold. However, all designated charities are to register irrespective of thresholds.
What are the steps to determine if a charity is VAT-eligible?
Charities should assess their activities and governance structures based on the criteria for qualifying as a designated charity. For this, the ‘charity’ must have been duly registered under the laws of the UAE to undertake a ‘charitable activity’ as a ‘designated charity’, be enrolled as a Charity under a Federal or Emirate Decree, and have a license to operate as a ‘designated charity’ from an agency of the Federal or Emirate Government authorized for that purpose.
What are the implications of not being VAT-eligible?
Non-eligible charities cannot claim input tax and it would be their responsibility to pay any VAT charged on goods. They also cannot consider special rules for buildings or refund schemes that are available to designated charities.
Conclusion:
Any charity operating in the UAE needs to evaluate its VAT eligibility for charities in the UAE and ensure compliance with the VAT legislation. In this way, charities find out whether their activities fall in the category of designated charities which enjoy some special VAT exemptions. Adhering to these guidelines will ensure charities meet the UAE VAT requirements and benefit from the available exemptions to fulfill their charitable missions contact us for more information.
Mostafa is a seasoned Tax Consultant with over 5 years years of experience gained in diverse taxations matters. He has vast expertise in settling tax disputes with the Federal Tax Authority and handling of tax procedures in compliance with tax laws. He is adept in investigating underlying tax intricacies and offering expert tax advisory. He is also well-versed in conducting tax analysis’s and negotiations with the Tax Regulators, upon tax preparation and filing. Mostafa specializes in the areas of Tax law, Auditing, Accounting and Banking law.
