Adhering to the Value Added Tax (VAT) law is one of the key compliance requirements businesses operating in the UAE face. Introduced in 2018, VAT is a tax applied to most goods and services. As part of this system, businesses are required to register for VAT if their taxable supplies and imports exceed a specific threshold.
However, the terms related to VAT registration can be confusing. Two important terms in the UAE VAT system are the VAT Exemption Number and the Tax Registration Number (TRN). In this blog, we will explain these terms and highlight the differences between them. So, let us begin!
What is VAT?
Before we dive deeper into the blog, it is important to understand what VAT is. VAT, or Value Added Tax, is a tax that businesses collect on behalf of the government. It is charged on the value added to goods and services at each stage of production or distribution.
Businesses that are registered for VAT must charge VAT on their sales and can claim back any VAT they paid on business-related purchases. VAT is managed by the Federal Tax Authority (FTA) in the UAE. Businesses that meet certain requirements need to register with the FTA to collect and pay VAT.
Once registered, these businesses are issued a tax registration number (TRN), which acts as their unique identifier for VAT purposes.
Also Read: VAT vs. Corporate Tax in the UAE: What Every Business Owner Needs to Know
What is the tax registration number (TRN)?
The tax registration number (TRN) is a unique number assigned to a business once it has successfully registered for VAT with the FTA. This number is used to identify the business for tax purposes and is necessary for compliance with the UAE VAT law. Here are some key features of TRN number:
Unique identifier
The VAT number is a unique number given to each business that registers for VAT. Businesses need to have a TRN to operate legally and follow VAT regulations.
Required for tax filings
Businesses must include their VAT tax number when filing their VAT returns so the FTA can track and verify their tax obligations.
Invoicing
When businesses issue invoices, the TRN number must be shown on the invoice to confirm the transaction under UAE VAT law.
VAT payment and refunds
The VAT number is crucial when businesses are making VAT payments or claiming VAT refunds. It is used by the FTA to track VAT transactions and ensure that businesses are adhering to the law.
Related: The Ultimate Guide to Applying a Tax Registration Number (TRN) in the UAE
Who needs a TRN number?
If the taxable sales and imports of your business are more than AED 375,000, you must register for VAT and get a VAT registration number (TRN). Even if your sales are below this amount but above AED 187,500, you can still choose to register for VAT voluntarily.
What is the VAT Exemption Number?
While the TRN number is a standard registration number for VAT-registered businesses, the VAT Exemption Number is a special identifier for businesses or individuals who are exempt from VAT. This number is given to those who do not need to charge or collect VAT on their goods or services. Here are some key features of the VAT exemption number:
Special exemption
The VAT exemption number is provided to businesses or individuals who qualify for an exemption under UAE VAT law. Examples include educational institutions, healthcare providers and certain government organizations.
No VAT registration needed
Businesses with a VAT exemption number do not need to register for VAT because they do not have to charge VAT on their goods or services. However, this does not mean they are completely outside VAT rules; they just do not need to collect VAT on their transactions.
Exemption criteria
The exemption typically applies to specific categories of supplies or services, which may include non-taxable goods or services. The UAE VAT law lists these exemptions, and businesses that meet the requirements can apply for a VAT exemption number from the FTA.
Not for regular businesses
The VAT exemption number is not a substitute for the TRN for regular businesses. It is an exemption for those who do not meet the criteria to be VAT-registered but still need to have a formal exemption status.
Who needs a VAT exemption number?
A VAT exemption number is typically required for businesses or individuals who are exempt from VAT because of the type of services they offer. For example:
- Educational institutions providing educational services may qualify for exemption.
- Healthcare providers offering medical services may be exempt from VAT.
- Certain government entities and international organizations may also be exempt.
What are the key differences between the VAT exemption number and VAT tax number (TRN)?
Both the VAT exemption number and the TRN are related to VAT, but they serve different purposes and apply to different situations. The TRN is used by businesses that are registered for VAT, typically those whose taxable supplies exceed that VAT registration threshold of AED 375,000. These businesses must collect and remit VAT on taxable supplies and include their TRN on invoices.
They are also required to file regular VAT returns with the Federal Tax Authority (FTA). On the other hand, the VAT exemption number is issued to businesses or individuals who are exempt from VAT, meaning they are not required to collect VAT on their supplies. This exemption usually applies to specific sectors like education, healthcare and certain government entities.
Businesses with a VAT exemption number do not need to file VAT returns but may need to submit documentation related to their exemption status. While businesses with a TRN must follow all VAT requirements, those with a VAT exemption number are not required to issue VAT-registered invoices, though they may still issue invoices for other purposes.
When to apply for the TRN or VAT exemption number?
VAT exemption number
If your business provides services or goods that fall under the VAT exemption category, such as healthcare or education, and you are not required to charge VAT on your supplies, you can apply for a VAT exemption number.
TRN
If your business’s taxable supplies exceed AED 375,000 annually, you must apply for VAT registration and obtain a TRN. This process is mandatory for most businesses operating in the UAE.
In conclusion, the VAT registration number (TRN) is for businesses that must charge VAT, while the VAT exemption number is for those exempt from VAT. If unsure which applies to your business, consult a VAT expert at Asad Abbas & Co Chartered Accountants. Contact us today for assistance with your VAT-related queries and compliance needs!
