If you’re a business owner or an accountant in Abu Dhabi, you’ve probably wondered whether accounting services are taxable. With VAT, now part of the UAE’s tax system by understanding how it applies to accounting services is important for both businesses and individuals.
However, if you’re looking for accounting help or offering accounting services, it is essential to understand how VAT affects these services. This blog will break down what you need to know about VAT and accounting services in Abu Dhabi like what’s taxable, what’s not and how to stay on the right side of the law.
What Is VAT and How Does It Apply to Accounting Services?
VAT is a 5% tax added to most goods and services in the UAE including accounting services. If a business is registered for VAT, it must charge VAT on its taxable services and submit it to the Federal Tax Authority (FTA).
Accounting services such as bookkeeping, tax advisory, payroll processing, financial reporting and auditing are all subject to VAT in Abu Dhabi. If your business provides these services, you need to charge VAT and report it in your tax returns.
However some businesses don’t need to charge VAT depending on their annual income. Let’s look at when VAT applies and when it doesn’t.
Who Needs to Register for VAT?
Not every accounting business in Abu Dhabi has to register for VAT. There are two main thresholds:
- Mandatory Registration
If your taxable revenue exceeds AED 375,000 per year, you must register for VAT. - Voluntary Registration
If your revenue is between AED 187,500 and AED 375,000, you can register but it’s not required.
Are There Any Exemptions for Accounting Services?
In general, accounting services are taxable under UAE law. But there are a few exceptions where VAT may not apply:
1. Accounting Services for International Clients: If you provide accounting services to businesses outside the UAE, they may be zero rated for VAT. This means you don’t charge VAT but you must keep records proving the client is overseas.
2. Accounting for Charities: Some services provided to charities and government entities may be VAT exempt. However, the exemption depends on specific conditions so businesses should check with the FTA.
3. Mixed Services: If an accounting firm provides both taxable and exempt services, VAT needs to be calculated carefully. For example, if your firm offers tax advisory services (taxable) and financial consulting for an exempt entity (not taxable), you’ll need to separate the VAT for each service.
How VAT Impacts Businesses Using Accounting Services
If you hire an accountant in Abu Dhabi, you might wonder how VAT affects your business expenses. Here’s what you need to know:
- If you are VAT registered, you can reclaim the VAT charged on accounting services in your tax return.
- If you are not VAT registered, you cannot reclaim VAT so accounting services will cost you an extra 5%.
How Accountants Help with VAT Compliance
Accountants play a big role in keeping businesses compliant with VAT regulations in Abu Dhabi. Here’s how they help;
- VAT Registration
Helping businesses decide if they need to register and completing the paperwork. - Filing VAT Returns
Making sure businesses report VAT correctly and avoid penalties from the FTA. - VAT Refunds
Identifying tax deductible expenses to lower the overall tax burden. - Tax Planning
Advising businesses on how to legally reduce VAT payments and improve cash flow.
FAQs
1. Which services are exempt from VAT in Abu Dhabi?
Certain sectors have VAT exemptions such as healthcare, education and some financial services. However, accounting services are generally taxable unless they fall under a special exemption.
2. Is accounting profit taxable in the UAE?
Corporate tax has recently been introduced in the UAE, applying to businesses earning more than AED 375,000 per year. However personal income tax is not applied to individuals meaning your salary or wages are tax free.
3. Is service charge taxable in Abu Dhabi?
Yes, if a business adds a service charge to its invoices, VAT applies to the full amount. This means businesses need to calculate VAT on both the service fee and any additional charges.
4. What is the tax free income in Abu Dhabi?
There is no personal income tax in Abu Dhabi meaning individuals don’t pay tax on their salaries. However businesses with profits above AED 375,000 per year are subject to corporate tax.
Final Thoughts
So, are accounting services taxable in Abu Dhabi? Yes in most cases they are. Businesses providing these services must charge 5% VAT unless they meet specific exemption criteria.
If you’re an accounting firm, staying VAT compliant is essential to avoid penalties. And if you’re a business hiring an accountant knowing how VAT works can help you plan your costs and claim back taxes where possible.
For expert advice on VAT, tax planning and compliance, it’s best to work with professionals who understand the UAE tax system.
For further guidance and expert hands, Zaebek is your go to choice for tax and accounting services in Abu Dhabi. Let our experts handle your VAT and tax planning so you can focus on growing your business!