VAT Compliance for SMEs in UAE: Simplifying the Process

VAT compliance for small and medium enterprises (SMEs) in the UAE is mandatory for smooth business operations. Businesses must be mindful of important aspects of VAT, like thresholds, returns, keeping accurate records, and more. Without proper compliance, mistakes can incur penalties or result in lost refund claims. With the right approach and clear processes in place, things can get easier and more understandable.

Tax Gian are professional and qualified tax agents that help you comply with various tax laws properly. We help SMEs optimise their tax practices and implement the best strategies by providing tailored solutions.

This guide breaks down the essentials of VAT for SMEs in the UAE to be easily understood and implemented.

Understanding VAT Registration for SMEs

SMEs must know the following about registration;

• Compulsory Registration: A business is liable to register for VAT within 30 days, if its taxable supplies exceed AED 375,000 within a 12-month period. Taxable supplies refers to the value of any supplies made, except for exempt supplies such as financial services or local passenger transport.

• Voluntary Registration: If your taxable supplies or taxable expenses fall between AED 187,500 and AED 375,000, you can register on your own. It would be very useful for start-ups which may not have much income but have cost incurring VAT.

• How to Register: The Federal Tax Authority (FTA) online e-services portal provides an online VAT registration form. Businesses just have to follow the steps on the platform to complete the registration process successfully.

Key Compliance Responsibilities for VAT-Registered SMEs

VAT Collection and Recovery

• Output VAT: All registered businesses are obliged to collect VAT on all taxable goods and services sold.

• Input VAT: The business recovers VAT paid on purchases where it has valid invoices and documentation.

Tax Return

Tax returns are filed either quarterly or monthly according to turnover. All SME returns are filed electronically on the FTA portal by the 28th of the month following the tax period. Returns must contain:

• Value of taxable supplies and VAT charged.

• Zero-rated and exempt supplies.

• VAT recoverable on purchases.

Simplifying Record Keeping

For small and medium-sized businesses, financial records are kept for a minimum of five years. These records include;

• Invoices of all supply and procurement.

• Assets and services consumed.

• Adjustments or corrections of invoices or accounts.

Accurate record-keeping helps in compliance with the taxman as well as easy reimbursement and auditing procedures.

Formation of Tax Groups

There is scope for SMEs with related businesses to form a tax group if the financial and regulatory ties they share qualify them for that. This will allow for a single return filing for the group’s VAT, saving on administrative costs. However, all the group members are still liable for VAT together.

Filing and Paying VAT

• Filing Tax Returns: Submit output and input VAT through the FTA portal. These need to be accurate.

• Payment Options: The e-Dirham system offers an alternative mode of payment. Businesses should register their e-Dirham account well in advance to avoid any delay.

Common Challenges and How to Overcome Them

• Threshold Complexity: Understand the mandatory threshold of AED 375,000 and the voluntary threshold of AED 187,500 to ascertain your registration requirement.

• Record Keeping: Execute electronic mode of invoicing and financial documents to retrieve them effortlessly.

• Return Filing: Keep yourself updated about the return deadlines so that no penalty is likely to be encountered. Consider hiring an expert tax consultant like Tax Gian to increase the accuracy level.

Why Choose Tax Gian?

VAT compliance would not be burdensome for UAE SMEs if they understand threshold conditions, keep clear records and use digital tools will ease the process. Tax Gian helps SMEs understand critical compliance aspects and implement best practices. Our experts find the best solutions for your business tailored to your needs.