From VAT registration to filing, here’s what SMEs and startups should know about it.
Reading time: 5 minutes
UAE has been an example of growth and development guided by a strong vision and long term strategies, leading to a politically, socially, and economically sound society. As a way forward, it had introduced VAT in 2018 to diversify its revenue base, reduce dependence on oil-based revenues, and invest in public works and the welfare of the people. The introduction of VAT has had an impact on consumers and businesses alike. VAT has an immense benefit for the development of the country, changing the landscape of doing business in the UAE. The standard VAT rate is 5% in the UAE. Even though Saudi Arabia has increased the VAT rate during the Coronavirus pandemic, it's been reported that UAE has no plans to follow the same anytime soon.
What are the tax categories?
There are three categories for businesses to remember. Exempt products and services: Services and goods that are exempt from VAT are exempted completely. Zero-rated products and services: VAT is taxable at 0% on zero-rated goods and services. They are included in the AED 350,000 threshold and must be recorded in your VAT record keeping. You will have to show VAT for such products and services as zero on the VAT invoice. Standard rated products and services: The standard VAT rate is 5% for all the products and services that are not exempt or zero-rated.
Who should register for VAT?
All small businesses don't need to register for VAT. But if you are confident that your business will reach the mandatory threshold of AED 375,000 per year, you must consider registering. By doing so, you will steer clear of heavy penalties. So if you have exceeded this limit of AED 375,000 in the past 12 months or expect to do so in the next 30 days, you must register for VAT. If your taxable supplies and imports are less than this limit but above AED 187,500, you can voluntarily choose to register, but it's not compulsory. If your taxable supplies and imports are less than AED 187,500, you don't have to register for VAT. If you have more than one business or branch in the UAE, then you should register as a VAT group. As mentioned above, it's important to remember that not all industries, goods, and services are subject to VAT. Some are exempt or zero-rated from VAT. You can't charge or pay VAT on them. Once you are registered, you will receive a Tax Registration Number with which you will be able to charge VAT. Many such subtle nuances of VAT make it clear that entrepreneurs should take the help of VAT experts. You can get in touch with registered tax agents to seek advice on VAT registration and related consultation.
Why voluntarily register for VAT?
There are numerous benefits of registering for VAT for SMEs and startups. If your annual turnover is AED 187,500 to AED 375,000, you are eligible to opt for voluntary registration, giving you an edge over other non-registered businesses. Your business will be able to get VAT refunds. Whether you have opted for voluntary registration or you have reached the mandatory threshold, you can claim VAT on the purchases carried out for the business. By registering for VAT, you will be entering into a world of opportunities. Proper tax invoices with the TRN mentioned gives your clients the reliability they are looking for. Most growing businesses forget to keep track of if they have already reached the mandatory threshold, inviting trouble from the authorities. Hence, it's safer to register voluntarily to do away with the worry of paying fines. One of the many benefits of VAT is the proper maintenance of books of accounts and accurate financial statements, which makes it transparent for banks to grant loans to SMEs as they can judge the financial position of the company better. However, some companies choose to relocate to VAT-exempt free zone to avoid the hassle of VAT compliance and to make it easier to do business with their customers who would find 5% VAT expensive.
Mistakes SMEs are prone to making
Many small businesses and startups have been facing difficulties in adapting to the VAT system, making them prone to certain mistakes that attract heavy fines. A small mistake may cost you a lot as you could either overpay or underpay - both of which will threaten your business's health. Some of the common mistakes are:
- Not maintaining proper records as per FTA requirements
- Miscalculation of VAT
- Not using tax invoices
- Not using the right accounting system
- No knowledge of VAT laws
- Late filing of VAT returns
- Not registering for VAT on time
Hence, VAT laws have made it compulsory to look for a tax-compliant accounting system that not just gives cloud storage for the invoices and maintains records, but also does VAT reporting and filing for you. Don't hesitate to take the help of experts in handling all the VAT related tasks.
How can SMEs and startups deal with VAT?
We know that many small business owners are not familiar with bookkeeping jargon. However, VAT compliance requires changes in the old methods of accounting, financial management, and operations. This means aligning the core business functions with government regulations. As the laws are updated with time, it's essential to have VAT experts on board who can understand the implications of such laws on your business. SMEs and startups should invest in a reliable and secure accounting system for recording financial transactions and updated bookkeeping records. It must be tax compliant and ensure accurate financial statements and timely VAT reporting and VAT return filing. You should be able to produce accurate and updated records in case of an audit. There's also a complete guideline on VAT returns filing by the FTA. In case your business decides to deregister, you must look into the requirements and contact your accounting service provider for help with it. Remember that as a taxable person, you will have to issue tax invoices. One of the easiest ways to do so is to get a tax invoicing software that integrates with the accounting applications for smooth automated bookkeeping. Additionally, opt for cloud storage for data archiving as the FTA requires you to keep your records and documents for at least 5 years. VAT filing takes place every quarter or every month for some companies depending on your filing calendar. Tax filing is done before the end of the 28th day at the end of the tax period. VAT experts significantly reduce the administrative costs associated with VAT services and provide a free consultation to support your business. With dedicated customer support and VAT timeline to track the progress, they take away all the workload for you to focus on core business operations.
If you wish to avail of complete VAT services, you can get in touch with us at +971 56 547 2460 or firstname.lastname@example.org