Implementing VAT brings about a change in doing business in the UAE which is part of the strategy of the UAE Government. The implementation of this tax is aimed at reducing the sole reliance on oil for economic growth. Therefore, having a clear understanding with regard to vat registration requirements can enhance a business‘s compliance and efficiency. This exploration of the VAT registration requirements in uae process will be all encompassing, especially with regards to criteria, compliance, consequences of compliance, and consequences of non- compliance.
Knowing VAT in UAE
Value Added Tax also referred to as VAT is a tax that is charged on the sale of goods and services during every phase of production in the value chain. Effective date of imposition is January 1, 2018. This VAT system is imposed for purpose of diversifying Government revenue as well as promoting the economic vision of UAE in the longer term. The tax system is applicable to any person or body legal factors carrying out business activities, hence the need for thorough comprehension of the tax system’s rights and obligations. At a regional level, the FTA is of great importance with respect to the implementation of VAT in the country. All businesses must consider possibilities and business circumstances concerning changes of laws and rules regarding VAT since it may alter their engagement activities and their business financial forecast.
For what businesses is VAT registration a must?
UAE has a vast array of business entities but not every business is expected to register under VAT which is an important difference that all business owners require to know. Whether a company is required to register or not depends greatly on its annual taxable turnover. Any company that registers a taxable turnover of AED 375,000 or more is required to register with the FTA and those registering a smaller amount have the choice to register or not. In this case however, it is important to look at whether the voluntary registration aligns with the strategic intent and scope of the business. This can be affected by the market dynamics and expected growth among other things.
Required minimum Annual Taxable Turnover
AED 375,000 is the amount for which VAT compliance becomes mandatory and registering under the FTA is a prerequisite. The goal of setting up this threshold is to avoid the compliance burdens of administrative work for small businesses. Knowing this threshold is important for people working with businesses that are around this amount. Companies on the other hand who predict their turnover to be greater than this amount can set protocols and process flows to allow registration And compliance. Furthermore businesses that experience spices in revenue need to stay alert to their turnover and its changes.
Voluntary Registration
Voluntary registration may be an option for all businesses whose taxable turnover is AED 375,000 or less. While some people may believe this is not a pre-requisite that must be done, there are a few points in its favor. It is advantageous to voluntarily register as it improves the reputation of the business – which allows the businesses to issue tax invoices and claim input VAT on their purchases that qualify. It does so moreover enables the business to compete in tenders and contracts where VAT registration requirement is necessary. All the companies should therefore weigh the benefits of VAT registration against the obligations it entails before making this decision.
VAT Registration Process
Applying for VAT registration might appear like a daunting task, however it is not as hard and complex as many perceive it to be. This, like many other processes begins with gathering the necessary documentation and finally submitting an application. Financial statements that detail the expected turnover for the following year can include your trade license, ownership information, and tax returns. After that you may fill out the online application on the site of the Federal Tax Authority once your documents are ready. Approval time differs from one business to another, so it is best to exercise patience for a bit. Seeking a conversation with a tax adviser may help as well as support you through this process.
Necessary Documents for Registration at D-CP
It’s of utmost importance that you have all the necessary documents for a smooth VAT registration. Here is a brief list of documents that need to be prepared by businesses intending to register for VAT:
- a) A copy of your Trade License – indicates the legal position of the firm
- b) Identification documents of the custodian(s) of the firm – details of business owner(s)
- c) Taxable turnover estimates – Financial accounts and forecasts for the next twelve months
- d) Proof of business activities – to demonstrate VAT registration eligibility
VAT Registration Process Steps
| Step | Description |
|---|---|
| 1 | Prepare the necessary documentations |
| 2 | Fill in the application for VAT registration online via FTA website |
| 3 | Apply and wait while the system processes your application |
Requirements After Registration
VAT registration is – ’the Name’ – that you register for the process, which then leads you to compliance, which is the most important part. It is an obligation for a registered business to account for VAT for any sale they make and to issue sales tax invoices showing this information on them. Otherwise, these can create very big problems when auditing the account. Apart from that the business is supposed to submit VAT returns on an ongoing basis but can either be quarterly or annual depending on the circumstance. Retaining records is not just a good idea, it is a must as failure to do so may result in legal actions. These may include, but are not limited to, sales invoices, receipts and all relevant papers supporting VAT input taxes.
VAT Invoicing Needs to be Correct
Every VAT complaint centers on proper issuance of tax documents. Each tax invoice has a few criteria requirements, which include the following:
- The date of issuance.
- The consecutive invoice number.
- The details of both the supplier and the customer.
- The nature of the goods or services provided.
- The rate of VAT.
- The total payment including VAT.
Tax Crimes
Management bears the responsibility of maintaining compliance with the tax obligations and this therefore goes without saying that the penalty for violation can be very high. The penalties can vary between heavy fines to life imprisonment, and the consequences economically can prove to be disastrous. Even worse, non submission of VAT requirements can hurt the businesses image which in turn affects the level of confidence that clients and partners have. It is this section that discusses about the so called “pillars of compliance” in broad strokes outlining the basic fears one would have around VAT terms from an operational point of view one simply could not afford to disregard. There are ramifications for inaction on compliance.
Conclusion
Evidently, understanding VAT registration procedures in the UAE will ensure compliance with existing regulations while remaining operational. As the tax scenery continues to shift, businesses orientation must be continuously applicable. According to the preceding analyses, businesses that will familiarize themselves with the registration prerequisites and compliance rules will positively affect the economic values of the UAE. Also, engaging in proper financial planning and documentation can strengthen a company’s resistance to potential blunders in the VAT environment. At the end of the day, good planning and hard work can help businesses compete effectively in a tough environment.
FAQ
What is the VAT registration threshold in UAE?
The compulsory registration threshold for VAT is AED 375,000 of taxable turnover.
Can a business register for VAT voluntarily?
Yes, a business with taxable turnover of less than AED 375,000 may register for VAT voluntarily under certain conditions which are set.
What are the effects of failing to register for VAT?
Failure to comply can result in fines, litigation, and much harm to the business’s reputation.
How often do businesses need to file VAT returns?
Most businesses are required to submit VAT returns either quarterly or annually depending on the case.
What documents are needed to register for VAT?
In order to register for VAT, one is required to furnish necessary documents like a business license, business ownership details and documents related to business financials.
