VAT in UAE: Here’s Everything You Should Know!

VAT in UAE

Almost everyone knows governments collect taxes from the masses to run their affairs. So, just like every other country, the government of UAE started collecting VAT in 2018. So, let’s start at the beginning, what is VAT? VAT stands for Value Added Tax and applies to the use or consumption of goods and services. At the point of sale, an imposition of 5% VAT occurs. The government collects taxes via businesses.

Now that we understand what VAT is, let us see how it takes effect in the UAE.

VAT in UAE

2018 saw the introduction of the tax in question. The rate of VAT in UAE, as in most cases, is 5%. The tax serves as an income source for the government, which can utilize to provide quality public services. However, businesses can also take leverage from the VAT accounting UAE has to offer for businesses.

VAT Criteria for Registering

It is compulsory for a business to register for VAT if its imports and taxable supplies, among other things, are more significant than AED 375,000 per annum. Other companies whose imports amount to less than AED 375,000 are not obligated to pay. It is optional for those whose supplies rise above AED 187,000 per annum. For this, you can easily hire any accounting and auditing companies in Dubai to register your business.

As we stated before, businesses help the government collect VAT. In return for its services, the government gives the businesses a refund on tax. Foreign businesses may also take part in this endeavor while visiting the UAE, as there is no restriction for local and national businesses to be the sole VAT collectors.

Guidelines to Register for VAT

Usually, the process starts by going to the FTA (FTA stands for Federal Tax Authority) website and into the eServices section. Businesses need to establish an FTA account; only then will registration be possible. In case you have any questions or concerns about how to proceed on the matter, you are free to get in touch with Federal Tax Authority. Or for a more direct helpline, call on either 600 599 994 or 04-7775777. This is something that everyone thinking about starting a business in Dubai should know.

Imposition of VAT on Businesses

VAT applies to tax-registered businesses located both on the mainland and within the free zones. But if a company is located in a free zone which is defined as a designated zone. A designated site, by definition, is not a part of the UAE and hence does not come under the jurisdiction of the UAE government. The exchange of goods between such zones is free of tax.

VAT Return Filing

Business registered for VAT and other ‘taxable persons’ (any person who carries out a business independently within the EU or anywhere else) is under the requirement to put forward a ‘VAT return’ to the FTA. They are to do this at the close of every tax period. VAT returns basically account for all the purchases and supplies that a business or individual has made over a given period, as well as their VAT liability. Still, if you don’t know how to proceed, then contacting any reputable accounting services in Dubai will come in handy.

What is VAT Liability?

Tax difference between output tax, which is payable for a specific tax term, and the input tax, which is restorable within that period. The output tax is the VAT imposed on goods and services, and the input tax is those on purchases. This is VAT’s liability. When the output tax is higher than the input, the difference is the payment that the FTA demands in that case. However, if the input tax is higher than the output tax, the business or taxable person in question will have extra input recovered. This input tax can be set off from subsequent payments due to the FTA.

How to file a VAT return?

This process is online now. You can go to eservices.tax.gov.ae and file your VAT return.

Now that you know all the basics, what are you waiting for? Get registered for the VAT! It is best to read through the FTA guidelines to answer the more specific questions. However, suppose you don’t want to get involved in these complicated papers works. In that case, you can engage a reputable firm such as Profits Plus Accountants to do it for you!

New Tax Law In UAE – Installments & Waiver of UAE VAT Administrative Penalties

UAE VAT

UAE introduced VAT in 2018, and since then, nearly every businessman has been the target of hefty penalties and fines due to incompliance with VAT regulations. Genuinely speaking, following FTA VAT strict Installment rules can be tough.

Many changes have been made to the UAE VAT FTA rules, whether it is about offering a time extension for non-UAE businesses to forward an application claiming a VAT refund or modifying the voluntary disclosure guide.

But recently, a surprisingly significant change has been made in the UAE tax laws where problems related to penalty waivers and installments were discussed in a new Cabinet Decree No. 105 of 2021 titled ‘Regarding Protocols and Procedures for [Tax] Penalty Installments and Waiver’.

Signed on December 28, 2021, the UAE new tax law was put out in January 2022 in the official gazette and became effective on March 1, 2022.

Now, taxable persons are allowed to resolve their administrative monetary penalty either by requesting a waiver or paying in installments. Considering specific circumstances, a waiver can be permitted for the VAT Penalties compensated in the last 05 years. Moreover, no application for installments or waivers can be accepted if litigation is continued.

According to this law, the Committee holds the power to cancel the installment plan anytime in the case of the taxpayer’s failure to submit the installments on time. For maximum ease, taxable persons in UAE who have asked the authorities for an installment of penalties can request the revision in a plan to make instant amendments. Still, first, the taxpayer must ensure to satisfy the Federal Tax Authority.z

Installments in Administrative Penalties

If you meet the criteria below, your request to pay administrative penalties in installments will get instant approval.

  • You can forward an application for only an unpaid tax penalty.
  • The total sum of unsettled penalties must cross AED 50,000.
  • The taxable person is willing to pay the penalties in full in installments.
  • The unsettled administrative installment penalties shall never be questioned by the TDRC (Tax Disputes Resolution Committee UAE) or the Federal Court.
  • No tax is due for the tax period for which an installment request is being filed.

Request For Penalty Waiver Of Administrative Penalties

If you meet certain conditions, the authorities will permit the waiver for penalties. But Committee will always have the right to cancel the request for authentic reasons. But remember, the Decree never discusses single-person held limited liability businesses.

The waiver will be approved in the following scenarios, or one must comply with the following requirements:

  • If the unsettled administrative monetary penalty is not associated (directly or indirectly) with tax evasion.
  • The taxpayer has never been imposed officially with any restrictions, precautions, or preventative measures from the UAE government or any governmental authorities.
  • Death of a natural business owner or a key employee of a tax registrant, regardless of the cause.
  • If a registered taxable person had already paid the tax before he went into insolvency or bankruptcy.
  • All taxes are paid through another taxable person’s tax account.
  • If the natural registered person, owner of the sole establishment, or a key employee of a tax registrant is severely ill.
  • In case of resignation of the key employee of a tax registrant.
  • No evidence was found concerning constraints on the rights, liberty, and independence of natural taxpayers or establishment owners.
  • No waiver will be accepted if a proof is found against the individual regarding general malfunctioning in the Authority’s systems, reimbursements, or used telecommunication services.
  • In cases of insolvency that was not for purposes of tax evasion.
  • No proof of compliance in the system of the FTA UAE or payment and communication systems.
  • The registered person or the owner of an establishment has the record of “execution of a custodial sentence.”
  • A penalty waiver request is forwarded within the specified time frame suggested by the Committee.

installments plan

Procedures for Submitting Requests

Once you have met the necessary criteria, the taxpayer must fill out the official application forms the Federal Tax Authority UAE asked to request installment plans or a waiver. A taxable individual cannot file more than 01 application for the same penalty/ies.

Generally, the following documents and information are required in the forms:

  1. Personal details include correctly spelled name, updated address, and other information on the taxpayer.
  2. TRN (tax registration number), if applicable.
  3. The amount of penalty.
  4. The details of violations for which you are requesting.
  5. The original date when the penalty was applied to the business.
  6. Authentic reasons behind submitting the request.

Be aware of the common mistakes that can lead to the cancellation of a waiver or installments. Most importantly, you must never breach the undertakings, or else the application will be nullified, and FTA will re-impose the waived VAT penalty payment. The taxable individual is held accountable for filing an undertaking as:

  1. In case of an installment schedule, you MUST ensure that your application states that the installment will be remunerated per the schedule specified by the Committee.
  2. In case of a waiver request, you MUST ensure that your application states that the reasons for the administrative penalties will indeed be mended and corrected. The taxpayer must promise not to make a mistake ever in the future.

Timeline & Committee Decisions

Federal authority of tax takes 40 business days for:

  • Reviewing your request
  • Making sure that your application is in full compliance with official government standards
  • Verifying each control & procedure sketched during the cabinet decision is being followed properly.

If the application is found valid, it shall be sent to the Committee, who takes approx. 60 business days for taking the final decision of approval or cancellation. The applicant will be informed within 10 business days. If you notice a “lack of a decision,” consider it a denial. In case of installment application approval, you will be asked to provide corporate, personal, or bank guarantees.

The Committee is not only accountable for setting the timeline for filing waiver and installment applications but also has a free will to decide how much percentage of administrative penalties will be renounced, the payment dates, the total amount to be waived off, and a new plan against admissible excuse for defiance with the payment schedule.

Providing Cost-Effective Services In VAT In UAE

Profits Plus provides top-tier VAT advisory for optimization. From VAT registration to VAT filing and implementation, our experienced tax advisors, finance experts, and tax accountants ensure that you stay compliant with UAE VAT penalty laws.

No one understands the complexity of VAT registration better than we do. That’s why our VAT services in UAE can save you from suffering an administrative penalty in the future!

9 Common Mistakes to Avoid While Filing VAT Returns in UAE 

In January 2018, UAE implemented Value Added Tax (VAT) for the first time, instructing every business to follow the laws set by FTA (Federal Tax Authority). VAT plays a key role in compensating the declining revenue and keeping a close check and balance of expenses. That’s why every company is advised to be extra careful when filing for VAT registration, returns, or deregistration. 

Most Common 9 Errors Made by Registered Companies During VAT Returns  

Once you have paid your tax, you must file the VAT return for the confirmation of payments. Act vigilantly if you want to keep yourself safe from paying hefty fines and administrative penalties. People filing Value Added Tax returns themselves must try avoiding the following mistakes because being an industrialist or businessperson, you will probably not have time to deal with tax issues. 

  1. Not Disclosing Zero-Rated and Tax-Exempted Sales 

Have you been carefully filing for only standard-rated transactions without mentioning zero-rated and tax-exempted sales? If yes, then you are doing it half right! 

Identifying and disclosing zero-rated and exempted transactions to the legal authorities is equally important. Like missing out on output and input VAT can cause you to pay heavy penalties, forgetting or hiding the record of zero-rated and tax-exempt sales can take your business downhill. 

  1. Entering The Sales in The Wrong Emirate  

Another common mistake is categorising standard-rated transactions per the consumer’s location while filing VAT returns in the UAE. The right emirate for sales is where you have your business running regularly and actively. 

It must be based on a business’s fixed establishment – an official workspace or office with enough team force, technical assistance, and industrial resources for conducting business operations. 

  1. Missing the Deadline  

Getting busy in business meetings and forgetting about filing VAT returns before the proposed date – a very common problem.  

For quarterly and monthly VAT returns filing, FTA has specified the deadlines, and in case of any delay, miscalculations, or omission errors, the taxpayer is penalised heavily. The administrative penalty for delays in VAT returns filing is worth AED 1,000 for the first time and AED 2,000 for the second. 

Keep your tax filing schedule up-to-date, make sure you never miss out on filing a VAT return and save yourself from the last-minute panic episode! 

  1. Mistakes in VAT calculation 

Companies should keep the applicable Value Added Tax rates in mind considering their services and goods. Mistakes in calculations or disbursements will lead to consequences (punishments, fines, etc.) 

  1. Carelessness in Maintaining a Detailed Invoice  

Nimesh Goel said, “It is critical for businesses to develop their tax compliance strategy to contain the rise of non-compliance.” And it really is!  

Without a well-structured strategy in place, you cannot keep your tax-record straight, and every tax-eligible person must have a detailed invoice ready for each return. Authorities can ask for transaction details anytime, even from the past years, and you should be able to deliver it within 5 business days. 

  1. Appealing VAT Return on Outlays that are not Legalised 

If you are a businessman, you must be aware of daily expenses. But that doesn’t mean you will be recovering VAT on each and every penny. Unfortunately, we have seen companies claiming VAT returns on expenses that are not allowed.   

As per the VAT rules in UAE, the below-mentioned expenses don’t ask for Value Added Tax recovery: 

  • Entertainment/recreational activities 
  • Automobiles (vehicles) used for personal work 
  • Employee-related expenses 

Are you still confused? Contact Profit Plus to get the necessary VAT assistance. Our VAT experts will guide you about the UAE VAT law.

  1. Errors in RCM 

RCM stands for Reverse Charge Mechanism – a tax applicable on goods or services imported to UAE, which is paid by the buyer to the government directly. Most companies prefer not to link their Tax number with the taxpayer’s account, making it difficult to claim for input VAT along with bringing imprecisions in transactions as they forget to account for import transactions (covered under RCM) while filing VAT returns. 

  1. Faults in Adjustment Columns 

What tax-eligible persons don’t understand is that each adjustment column in the VAT returns filing process must be filled accurately and completely. They must be utilised for the adjustment of bad debts rather than mentioning and rectifying the mistakes that are done in previously filed VAT returns. 

Fill every column with the right type of information. Or else, confusion in numbers can cause investigation and/or penalties trouble. 

  1. No Proper Record-Keeping 

Authorities are allowed to ask the VAT registered businesses to submit their previous VAT data. In fact, FTA has made it compulsory for all industries to maintain correct records of each sales invoices, purchase, inventory, tax paid on import and export goods, salary transfer, general ledgers, bank statements, credit and debit notes, employee benefits, and payment receipts from the past 5 years. For real estate, they must maintain a record of the last 15 years. 

Keep it organized! 

Put Your VAT Worries Behind with Profit Plus 

We, specialised and reputable tax professionals in UAE, ensure that your VAT return filing procedure goes error-free with our expert-level guidance and professional support of qualified VAT accountants. 

Whether it is about VAT registration, deregistration, or return filing, Profit Plus resolves tax issues thoroughly and delivers the right VAT solutions without exposing your business to any threats.

 

Top 8 Administrative VAT Fines & Penalties in UAE Levied by FTA

Federal Tax Authority (FTA) is the only organisation of UAE that decides the amounts and percentages for fines and penalties every year and looks after all the tax procedures to resolve disputes. Companies are penalised upon finding a case of proven violation where they have either failed to fulfil the requirements or has breached the VAT (Value Added Tax) Law.  

Penalties come with brilliant discounts for offering an opportunity to companies to come forward and make their errors known. Or else, an audit will be performed, and if any error is found, they will be fined heavily. 

8 Fines and Penalties Under VAT 

  1. Failure to meet Registration Requirements 

The business should be mandatorily registered one month before reaching the turnover limits, only if the total amount of the taxable expenses crosses a registration threshold of AED 375,000. The unregistered business will be penalised with a late registration fee worth AED 20,000/- as per the VAT Law. 

  1. Late or no VAT Deregistration 

In case of failure to deregister in the specified time of 20 days (counting the days from the deregistration is applicable), a fine worth AED 10,000/- will be asked from a taxable person. 

  1. Problems with VAT Return 
  • A penalty of AED 1,000/- is applicable to the taxable person in case he fails to file or files for a VAT return after the 28th of the end of the tax period. If he forgets to file the return again, the fine is doubled to AED 2,000/- for the second time. 
  • FTA will levy two administrative penalties if the taxpayer voluntarily reveals errors in their previous Tax Return assessment through a disclosure form 211 and shows the under- or unpaid tax of AED 10,000/- or more. 
  • Fixed penalty worth 3,000 for the first mistake and 5,000 for making the same mistake the second time. 
  • Percentage-based penalty decided on the basis of the unpaid amount. 5% and 30% for making a voluntary- disclosure before and after getting an official notice of the tax audit, respectively. 50% of registrants who never use disclosure form and their errors are caught during the tax auditing.  
  1. Display of Prices  

An administrative penalty worth AED 15,000 applies to the taxable person who decides to display the price of the goods but disagrees with the Value Added Tax Law and puts the costs of the company’s supplies or services without tax inclusion. 

  1. Failure to Keep the Records or Submission of Information 

A VAT-registered person is held accountable for maintaining accurate documents to prove the authenticity of the official transactions. He must provide the genuine documents to Federal Tax Authority when asked. In case of carelessness, he will be charged: 

  • First time: AED 10,000/- 
  • Second time: AED 50,000/- 

If FTA asks for submission of financial records in Arabic and taxpayers fails to deliver, AED 20,000/- is levied. 

  1. Failure to Notify About Charge of Tax Based on The Margin 

A failure to inform the FTA about the total amount of calculated tax on selling used goods, antique pieces, or collectors’ items invites an administrative penalty of AED 2,500. It is essential to be transparent in trade due to the differences in profit margin observed between purchasing and selling prices. 

  1. VAT in Designated Zones 

VAT Laws are inapplicable in Designated Zones, but they have their own rules. The non-compliance to the rules will lead the taxpayer to an administrative penalty worth AED 50,000. In higher-level violation, the penalty increases to 50% of the chargeable tax. 

  1. Issues with Electronic Tax Invoices and Electronic Tax Credit Notes 

A penalty worth AED 5,000 (for each invoice or Note) is applicable on the taxpayers who: 

  • Was unable to issue Tax Invoice or Tax Credit Note electronically 
  • Was unable to meet the requirements for issuing accurate electronic Tax Invoice or Tax Credit Note 
  • Was unable to secure a valid copy of the original electronic Tax Invoice 

VAT Accounting Experts to Deal with Tax & Accounting Matters 

Are you looking for solutions to your tax accounting and VAT concerns? Profit Plus has skilled and highly experienced British accountants catering to your administrative VAT penalty issues.  

VAT Deregistration in UAE | How to Apply for TRN Cancellation 

FTA has made the VAT implementation mandatory for businesses (under certain circumstances), and every taxpayer has been extra careful about registering its company on time to avoid hefty fines. But what they do not usually care about is “VAT deregistration”, which also results in administrative penalties when not done on time.  

Before initiating the process of VAT deregistration, you should understand its rules & regulations, eligibility, and timeframe.  

VAT Deregistration 

VAT deregistration is a crucial and legal procedure in UAE where only VAT registered businesses under Federal Tax Authority or taxable individuals forward their applications online to cancel their Tax Registration Number (TRN) if they fulfil the requirements. It makes a taxable person free from submitting tax returns following the 2017 Federal Decree-Law No. 8. 

Conditions for VAT Deregistration 

You must deregister yourself in case of meeting any of the following criteria to save yourself from fines and penalties of late deregistration. 

Compulsory VAT-Deregistration 

  • Businesses or individuals who used to deal in taxable supplies have stopped. 
  • Businesses or individuals are no longer expected to get involved in taxable supplies for the next 12 months (1 year). 
  • The taxable company is still doing business in taxable supplies, but the total annual amount of money they are making out of it is lesser than the minimum Mandatory Registration Threshold, which is AED 375,000. 

Voluntary VAT-Deregistration 

  • The taxable individual is still dealing in taxable supplies, but the total annual amount of money he is making out of it is lesser than the minimum Voluntary Registration Threshold, which is worth AED 187,500. 

Criteria for Groups 

In addition to the requirements mentioned above, you must fulfil the following conditions to cancel your group VAT registration: 

  • The applicant must not be meeting the group’s official criteria to be considered as its identity. 
  • The companies that used to be part of the group are no longer financially linked with the group. 
  • In the case of continuing VAT registration, there are chances of incidents of tax evasion. 

Time Frame for VAT De-registration 

Every registrant is legally permitted to deregister himself from VAT through Federal Tax Authority portals within 20 business days or less, counting from the day when the taxpayer becomes eligible for VAT deregistration. 

Penalty for Late VAT Deregistration  

In case of failure to deregister your company within 20 business days (timeframe), you are penalised with 10000 AED as a late fee, and then your company will be deregistered.  

The Process to Deregister  

Before applying for deregistration, you must clear all of your outstanding liabilities. You can check your total due amount (if any) in the “My Payment tab.” If you are clear of debts, proceed with the applications. 

  1. Visit FTA official site and log in to the portal with your proper credentials.  
  1. You will see a dashboard where you need to find and click on the ‘De-Register’ button (placed against the VAT registration). 
  1. The portal will ask for complete personal information that you must provide correctly and truthfully. Technically, the portal tends to have your fully detailed data already saved, but you must recheck it, especially the e-mail address of the authorised participant. 
  1. Go to the ‘Choose Files’ and upload all the required documents as evidence. 
  1. You must pick one of the suggested reasons to deregister from the provided drop-down list. 
  1. After reading the necessary declarations, finalise your deregistration application and submit it. 

Status Details 

  • First, your application will enter the “pending” phase, waiting to receive FTA’s processing approval. You can see the pending status mentioned on your dashboard. 
  • Then it reaches the “submitted stage”, where you are informed about the processing acceptance and will be asked to provide additional information. 
  • Here comes the “pre-approved stage”, confirming your application approval but showing that you have pending liabilities. 
  • Once you have no liabilities left, your business will be deregistered.

Reasons for the Application Disapproval 

  1. The application is submitted after the due date (after 20 business days). 
  1. The application is missing the required tax returns. 
  1. The data is incomplete or faulty. 
  1. The individual is left with unpaid credits, tax, or fines. 

How Can Profit Plus Help? 

With the professional assistance of our well-trained British accountants, you can tackle your VAT concerns better. Whether it is about VAT registration, submission, implementation, deregistration, or accounting, we provide the necessary guidance to give your application greater chances of approval and assurance to your business. 

Profit Plus offers much more than VAT deregistration services, such as SOPs, Cash flow management, and BPI consultant services. 

The Introduction Of Federal Corporate Tax in UAE 

What is the corporate tax? 

Recently, the UAE Ministry of Finance announced the federal corporate tax which will be applicable on fiscal years starting from the 1st of June 2023. That day marks the start of the tax year 2023. 

Understandably, businesses have concerns and queries regarding the fulfilment and other facets of this new tax law. We’ll try to explain and dispel any confusion you might have about the CT law. 

What are Applicable Rates? 

There is a 0% tax on income from AED 0 to 375,000 while a tax rate of 9% is levied on any amount exceeding AED 375,000. Free zone businesses will be required to file a tax return but maintain their exemption status if they comply with certain rules and do not carry out business in mainland UAE. 

This tax will be payable on the net profit stated in the financial statements whereas losses from the corporate tax will be carried forward into the next tax year to balance out taxable income for the future fiscal years. 

What exemptions will be granted from the corporate tax? 

The following sources of income for individuals will be classed as those upon which corporate tax will not apply: 

  1. Employment income 
  1. Income from savings 
  1. Return on investments 
  1. Income from real estates 

Any other income which is directly related to a business and is an individuals’ earning in a personal capacity. 

Moreover, capital gain, dividends paid and other investment return earned by foreign investors. This was done so in a bid to improve investment in the country 

For corporations and businesses, exemptions will be granted on: 

  1. Capital gain and dividends from qualifying shareholdings 
  1. Intra-group transactions 
  1. Restructurings  

Will businesses inside the UAE receive tax credits? 

The answer to that is yes, foreign tax credits will be availed to those businesses that pay taxes on income earned outside the UAE. Also, withholding tax will be forgone for businesses making interest payments, dividends and royalties domestically and across the border. 

How will tax returns be filed? 

The corporate tax will have to be filed electronically for each financial period and without the requirement of advance corporate tax payment based on provisional tax returns. 

Outcome and Main Takeaways 

The main features of the anticipated corporate tax like the 0% tax for SMEs and start-ups, exemptions for HQs based in the UAE and international business hubs, no tax on foreign direct investment, no tax on an individual’s income, and a minimal compliance burden for businesses, should solidify the UAE’s standing as a central hub for business, investment and also as a leading international financial centre. 

If you’re a business owner, and you’re still confused on how to comply with this tax, head on over to ProfitsPlus for all your accounting needs!  

VAT and all you need to know about it.

UAE has always been considered as a hub for investment opportunities. Investors from around the world are attracted to the many new chances of investment which continue to emerge from this place. In 2018 the UAE government imposed VAT ( Value Added Tax) which was the implementation of 5% tax on goods and services. Cost of living in the UAE, at this point, saw a slight rise.

 

Criteria:

In order to be eligible to pay VAT there is a certain threshold that needs to be met with. While registering for the VAT with the federal tax authorities in dubai it is the individual owner that registers for it with their Emirates ID so accountability falls completely on the individual and not the business entity that he or she owns.

The eligibility to register for vat depends on the company’s turnover. If the turnover of the year is greater than 375000 AED the company has the option to voluntarily register for VAT.

After registration with the FAT of UAE you will need the help of experts to help keep track of your accounting books and that is where the Expert accounting services come in hand. The accountants are generally experienced in 20 years or more of britsh VAT system which is almost similar to the UAE vat system. Vat records are generally required to be kept fo some years yto avoid penalties

 

Penalties

Consultants are important when it comes to handling VAT. They help avoid penalties and overlook the documents and figures that are submissited to the FAT. they are well informed about the procedures and requirements of the entire process.

 

The need for an accounting software

VAT compliant accounting softwares are generally used to help manage invoices, generate bills,and manage all the tax rates and reports.

They make it easier to track your deadlines and have a team of expert accountants that overlook the entire information reports generated.

 

So unless you have an alternates that exempts you from the VAT having an accounting software and expert accountants helps cater to the financial needs of the company. It helps avoid penalties that are taken as a serious offence by the FTA of UAE.

 

When to register your business for VAT; Voluntary or Involuntary

The world of tax as it applies to you and your small business is an incredibly important one, and yet often more than a little confusing; one of the areas that seem to confuse most is that of VAT (value added tax). Most business owners know that they must register their business for VAT but are a little unclear as to the exact rules. If and/or when one should register for VAT is a common question that many businesses would like a simple answer to. Most accounting firms in Dubai will offer you different types of registration, so be mindful of whom you pick.

There is in fact more than one type of registration, which is probably what confuses people; ‘compulsory registration’ is, as its name implies, the point at which the law says you have to register your business. Here in the UAE, this is when the value of your business’ taxable commodities and services reaches £70, 000 in a year. As well as the previous twelve months, the law also states that if you are aware that you will reach this figure in the next month you are also obliged to register.

You are obviously not obliged to register for VAT if your business does not reach this threshold, but many businesses do choose to do so; this is called ‘voluntary registration’ and it has both advantages and disadvantages.

One of the reasons that a business may choose to voluntarily register for VAT before they reach the UAE threshold is that when a business regularly invoices other VAT registered customers they are able to claim back some or all of the VAT charged on their purchases.

Voluntarily registering your business accounting for VAT can also improve your business profile by leading other businesses to infer that you have a much higher turnover than you actually do. This will open streams of business to you from those wishing to do business only with larger concerns as they include you in the mix.

However, once you have registered for VAT you will be required to submit a VAT return each year; adding to your business’ paperwork and form filling obligations will obviously add to your workload; something to be considered if you are a small business owner struggling with an already full-time table.

It is not recommended that you voluntarily register for VAT if your only customers are the general public, who cannot claim back the VAT that they pay, as you will have to add an extra 17.5% to your prices, which could make you uncompetitive, better then to wait until compulsory registration kicks in, at which point your larger turnover may allow you other ways to increase your commerciality.

Whatever size business you have, making a decision about when to register for VAT without first sitting down with your accountant and discussing all of the options open to you would be fool hardy to say the least; most accountancy professionals have a good working relationship with HMRC and an in-depth understanding of the benefits and disadvantages of each alternative, so use their knowledge to make the best decision for your firm.

In simple terms, you must register for VAT if your business is over the VAT threshold, but if it is under it you have a choice; choosing to register voluntarily is beneficial for some businesses and less so for others, but the ways in which this will affect your own business are probably best explored by someone with an understanding of its financial history and its future forecasts.

The main advantages of voluntary registration:
If you are charging business clients who are VAT registered themselves (not the general public), then if you choose to register for VAT this will represent “money in your pocket”, as you can claim the VAT back on some or all of your purchases. Your customers will not mind as they can recover all the VAT back you charge them on your invoices.

Being VAT registered is sometimes viewed in a more favourable manner by other businesses. They may assume that you are VAT registered because you have a higher turnover, even though that is not the case. In essence, being VAT registered could mean that other organisations view your business as more credible.

If you are a business where most of your supplies are zero rated for the purposes of VAT, then it may be worthwhile voluntarily registering, as you will be in a repayment situation each month and can claim the VAT back that has been charged to you.

The main disadvantages of voluntary registration:
If you register for VAT you will be required to submit VAT Returns, and also account for all the VAT on your taxable supplies and purchases, as part of your record keeping. This extra administration can cause a drain on your time and an additional stress if you are a small business.

If you register for VAT voluntarily but your customers are the general public, then you will need to add on 17.5% to your prices; they will not be able to claim this back and therefore this represents a real hike in the cost of your services to them. Therefore, from a commercial point of view, this may not be a good idea as you may price yourself out of your market.

Like all other decisions, as regards tax and accounts compliance, you should make sure that you fully consider all of the consequences before you make a final decision. It is crucial that you consult with your accountant, so that he can look at whether or not it would be beneficial for you to voluntarily register for VAT based on your own circumstances.

So, you’re looking for accounting companies in Dubai, or more specifically a VAT accountant, then check this out!

 

 

 

 

 

Understanding VAT in the UAE 2020

You may know nothing about VAT Accounting, but that doesn’t mean that you should remain ignorant. If you’re a VAT taxpayer, the more you know about it, the more benefit you and your business can derive from it. Here are five essential things that you need to know about VAT in UAE.

VAT Registration and De-Registration

How do you know whether you should register or de-register for VAT? If your turnover is more than AED 375,000 per year, you must register for VAT. If your turnover for the year is under AED 375,000, you are allowed to de-register or apply for voluntary registration. Once you’ve registered for VAT, that’s when a VAT consultant will be useful to you. They can advise you on the latest regulations and keep you and your business on the good side of HM Revenue and Customs.

VAT Schemes

Businesses that are registered for VAT need to account for tax when they invoice customers or when their own suppliers invoice them. HM Revenue and Customs has a number of VAT schemes that allow your business to save time or only account for VAT when they are actually paid. To work out which scheme bests suits you, seek the qualified advice of an experienced VAT advisor.

VAT Records

It is your legal and mandatory obligation to keep accurate VAT records regarding any tax paid or received. You need to keep these records for a fixed number of years and there are penalties for poorly kept records. Keeping accurate VAT records helps you to avoid paying too much tax. To find out more about keeping accurate VAT records, speak to a VAT accounting specialist.

VAT Responsibilities

Do you know what your VAT responsibilities are? If not, you could fall foul of the VAT penalty system. A VAT consultant will let you know your VAT responsibilities and help you to stick to them. You don’t need to be a VAT expert when you have a VAT adviser, they’ll keep you informed of all your responsibilities regarding Value Added Tax.

VAT Penalties

As of 2017, a brand-new VAT penalty system is in place. There are two scenarios under which a penalty will apply. The first is in the case of failure to notify about an under-assessment. This occurs when a VAT Return is not submitted, and Customs have to estimate the assessment. If this assessment is lower than the actual figure it should be and the taxpayer does not inform HM Revenue and Customs, then a penalty is liable.

Second, when someone submits a document that includes an error, this will also trigger a penalty. An error when reasonable care was not taken will be punished with 30% penalty. An error which is deliberate but not concealed from HM Revenue & Customs will be punished with a 70% penalty fine. Finally, an error which is deliberate and where concealment can be proved will result in a 100% fine. By using a professional VAT consultant, you can avoid making mistakes and paying the price for it.

Exemption from VAT

If you have an alternate license in the UAE (LLC or Freezone) and do not function in Dubai and obtain all profits from outside UAE, then you may qualify for exemption from VAT, but you nevertheless MUST practice for this through the FTA. Banks will request this and may also hold repayments as a result. This is also regarded as zero-rated supplies.

To benefit from the expertise and experience of a VAT adviser visit profitsplus.ae to find out how they can help you manage your VAT accounting.

Zero-Rated VAT for Companies in the UAE

Zero-rated vat agencies based totally in the UAE review their unique VAT application.

There are numerous customers who while being located here in the UAE, are using zero-rated supplies which begs the question, whether this person should consider registering themselves for VAT.

Many clients, who were part of the esteemed profits tax consultants, have been reported to register for vat during the closing of 2019, or else they would have faced banking problems with transactions.

Some of these clients even as far to confess that their institutions made them register for vat as they had large sums of money coming and going via their own accounts.

Which again begs the question that, what is the appropriate approach to registering for zero rated vat?

So we went ahead on your behalf and asked the FTA, their answer is as quoted;

‘If you only make zero-rated supplies, you can also follow to be excepted from registering for VAT.

You still need to complete a VAT registration application, but you should reply “Yes” to the question: “Are you applying for an exception from VAT registration?”

This actually means that if you have an organization in the UAE producing zero rated supplies, then it a dire necessity to have to register for vat in UAE with the FTA. The only problem is the softwares which need to be set up properly for them to work.

Let us put it into perspective that, all of our zero-rated buyers have put in the incorrect vat utility and can no longer declare that they are taking advantage of an exception to the generally followed rules.

Some of our customers have experienced losses or penalties of up to 20,000 AED because of asking for amendments in the wrong way. They failed to realize that all their supposed amendments needed to be made within the 20-day limit set by the FTA

So, it is our profound recommendation that you thoroughly check your initial vat application, and that it was made in the correct order. With that being stated, we can surely rely on the FTA to begin inquiries into companies who stated on their forms, sales of up to 6m AED but failed to reach that milestone.