Value-added tax(VAT) is the major tax in the UAE, applying a 5% tax rate to most goods and services. VAT was introduced in UAE on January 1, 2018, and it has played a major role in diversifying the country’s economy. VAT will be collected in different stages of the supply chain. From manufacturing to distribution of the products VAT will be levied in each step. Input tax is the tax that is levied on business-related purchases and this can be reclaimed by businesses.
VAT compliance is really important for doing business in the UAE, it could influence financial management, cost, and also international trade. This article will give you an idea regarding when and why businesses should business register for VAT.
What is VAT and who needs to register VAT in UAE?
VAT is a tax that is implied based on the consumption of goods and services. VAT is collected from businesses but finally, it will be paid by customers because it will be added to the price of goods or services. Some businesses are exempt from VAT in UAE: local passenger transportation, specified financial services, healthcare, basic food items, education, and residential property rentals.
VAT for business: VAT compliance requirements in UAE
The taxable turnover of your business determines whether VAT registration is necessary. If your business’s annual taxable supplies and imports are more than AED 375,000, VAT registration is mandatory. If the taxable supplies for a business are between AED 187,000 and 375,000, voluntary registration can be done. Voluntary registration of VAT will be beneficial because you will be able to reclaim VAT on your business expenses.
Keep accurate records of your business purchases and supplies. Also, businesses should keep a record of paid and collected VAT because it is necessary to make VAT returns and to justify VAT claims. VAT can be included in your product and while doing this you need to determine the effect of VAT on consumer pricing to maintain competitiveness. Businesses should charge appropriate VAT rates to reduce consumer burden. VAT returns should be filed quarterly and it is necessary to achieve compliance and to avoid penalties. Businesses should seek the help of professional VAT consultants to obtain accurate VAT compliance and calculation. Tax Gian is one of the major VAT consultants in UAE who can help you achieve VAT compliance.
How to calculate VAT?
Input VAT (for purchase)
A business can claim the VAT paid on purchases by reducing the amount of VAT it owes to the government. For example, if a business buys raw materials worth AED 1000 and pays AED 50 (5%) in VAT, this amount can be deducted from the output VAT.
Output VAT (for sales)
A business can add the amount of VAT paid to the government in its final product so the paid VAT will be collected from the customer. For example, if a business sells its product for AED 100 then it will add AED 5 as VAT (5%) which makes the cost of the product AED 105.
Payable VAT
A business would provide the details regarding the output VAT and input VAT to the FTA.
Formula for Net VAT payable
Net VAT= Output VAT – Input VAT
Step-by-step procedure for VAT registration in UAE
Fill out the VAT registration form:
Complete the registration form by providing details regarding your business such as the name, business activities, projected revenue, etc.
Documentation
Provide the required documents such as
- Trade license
- Financial records
- ID proof of shareholders
- Memorandum of association (MOA)
- Contact details of the organisation
- Bank details
- Declaration of import or export activities
Record keeping
Businesses should keep documents regarding invoices and expenses for compliance and reporting.
Submit your application
Submit your application after attaching all the relevant documents.
Obtain your VAT registration certificate
The Federal Tax Authority (FTA) will review your application to ensure everything is in order. Once approved, your VAT registration will be complete.
Benefits of VAT registration in UAE
Financial management
VAT registration can provide your business with stability by reducing reliance on other taxes and ensuring a stable revenue stream.
Cost saving
By claiming the input tax business can save costs. Also if the VAT paid on the purchase is more than the VAT collected on sales then the business can apply for a refund.
Business Credibility
VAT registration will increase the credibility of your business and show compliance.
Market access
VAT registration will provide your business with good value by providing government accountability. This could provide businesses with a competitive edge against the competitors.
Business efficiency
The efficiency of your business will be improved by maintaining a proper record of your transactions.
How Tax Gian can help businesses with VAT compliance in UAE?
VAT compliance is crucial for doing business in the UAE. It would be hard to achieve VAT compliance if the business operation involves several transactions. Incorrect filing, late VAT payments, and failure to maintain proper records are major challenges that businesses may face. This is where professionals like us will come in handy. Tax Gian can assist you with VAT registration and compliance.
Our experts can help you with VAT registration and filing tax returns. We will guide you on how VAT functions in your business operations, regardless of your industry. We will assist you with charging VAT, reporting VAT, and reclaiming VAT.
