A Guide to Voluntary Tax Registration

Value Added Tax is a reasonably new addition to the tax situation in the United Arab Emirates. There are many questions regarding VAT in the minds of the businessmen. Many people feel that the implementation of VAT in the UAE is an unnecessary act, but in reality, VAT is a significant tax for the people of the country.

According to information by the International Monetary Fund (IMF) titled ‘The Future of Oil and Fiscal Sustainability in the GCC Region,’ countries all over the world are gradually moving away from the natural oil and other non-renewable sources of energy as they cause pollution. All the \Gulf countries have understood that they now need to reduce their dependence on the oil and gas sector and also need to diversify the source of income for the country.

Value Added Tax

The management of the United Arab Emirates (UAE) has found a working solution to the problem of a different source of revenue in the form of Value Added Tax (VAT). The VAT is an indirect tax and is levied on specific goods on various stages of the production. This tax is ultimately taken out on the end consumer. The rate of Value Added Tax (VAT) has been kept at 5%, which is not a very big amount. After the registration of a company for VAT, it receives a Tax Registration Number (TRN), which helps in easy communication between the government and the company and also helps the business to comply with the various necessities of the government. 

The UAE government and the Federal Tax Authority (FTA) have provided which business entities need to register for VAT. The threshold for the registration of VAT are as follows:

1. The Company with a revenue AED 375,000 or higher requires to register with the FTA mandatorily.
2.  The Company having revenue between AED 35,000 and AED 187,500 may register with the FTA.
3. The Company having a revenue less than AED 187,500 need not register with the FTA.

Voluntary Registration

Any person who does not require to apply for Value Added Tax can register for the same in the following cases:

1. If it is proved that at the end of a given month the value of supplies which is mentioned in the Article 19 of the Federal Decree-Law No. 8 of2017 on Value Added Tax or expenses which will attract tax and are made in the last 12-month period.
2. Any time the entity anticipates that the total value of the supplied stipulated article will cross the mentioned threshold.

Article 8 of the Cabinet Decision No. 52 of 2017 on the Executive Regulations of the Federal Decree-Law No eight on Value Added Tax states the following:

1. The threshold for voluntary registration will be AED 187,500
2. When an entity applies for voluntary registration, the entity will be registered from the first day of the month succeeding the month on which the application is submitted, or any such earlier date for which the request is made and is agreed upon by the authority.
3.  If a business entity expects that that in the next 30 days, the business will be able to meet with the threshold which has been set by FTA, then the business should be able to provide a piece of evidence for the intent of supplying related good or will incur expenses which will come under the threshold.
4. The Federal Tax Authority (FTA) may ask for proof of the eligibility of an entity due for the Voluntary Tax Registration.
5. ‘Taxable Expenses’ can be defined as the expenses which are subject to standard rate incurred in the state by an entity who has a place of residence in the state.
6. Until and unless an entity fulfills all the requirements of the Federal Tax Authority (FTA), he may not register for tax.

All in all, it is preferred that a company registers for vat on a voluntary basis. There are numerous benefits of registering voluntarily for VAT. The benefits of voluntary registration are as follows:

1.Avoiding Penalties

By registering for VAT, a company will make sure that it always complies with the rules and regulations as set by the government and the concerned authority. The management of a company will not have to keep an eye always on the revenue if the company is already registered.

2.Generating Confidence

As soon as the business enters the market, it has to compete with many other businesses. Registering for VAT will help the business to generate confidence in the hearts of the investor and will also help in attracting potential investors.

3.VAT Refunds

 A business will be able to claim any VAT refund only if it registers for VAT and receives a Tax Registration number (TRN). Read our blog “How to Apply for Tax Registration Number (TRN) in UAE” to know more.

4.Ease in Business Communication

If you are already listed for VAT and have a TRN, it will be very easy for the concerned authority to have a healthy too and fro communication with the business. The TRN will become a number that will differentiate the business from others in the market.

With so many benefits, it is very advantageous for a business to register for VAT if the business has reached the threshold for voluntary registration, or the management anticipates that the business will reach the threshold in the coming weeks.

Incorporating a business in the UAE is very lucrative, but one needs to be cautious about the various rules and regulations of the country. If you are looking for a financial firm that will take care of the financial service which your company will require, then you must have a look at the services provided by JAXA Chartered Accountants. to know more about the various services provided by JAXA, Contact Us. We will be glad to help.