Value Added Tax (VAT) is a type of consumption tax levied on the goods for value addition in every supply chain stage. The member countries of the GCC (Gulf Co-operation Council) have introduced a Value Added Tax (VAT) to check the falling oil revenues and generate an alternate source of income to invest in economy’s infrastructure. The Value Added Tax came into effect on 1st January 2018 across all the member countries.
In line with other partners, the UAE has implemented the VAT from the beginning of 2018. All the eligible businesses are required to apply for VAT registration, and file VAT returns accordingly. In the UAE, the VAT fixed at a nominal rate of 5% for all the eligible products and services.
How is VAT Affecting Newly Registered Businesses in the UAE?
The following factors can affect a Newly Registered Business in many ways such as:
VAT Eligible goods
The VAT is not levied on all the goods and services. There are also supplies with VAT rates fixed as zero (known as Zero Rated supplies). The new businesses registering in the UAE will need to understand whether the products or services offered by the company are under VAT umbrella. If the new business’s products come under the umbrella of VAT, then the unique business needs to apply for VAT registration, taking into consideration other factors.
We understood if the businesses are dealing with VAT exempted goods, they will not require to register for VAT. But all the companies dealing with goods and services under the VAT Umbrella need not register for VAT. The UAE government has provided clear guidelines with regards to VAT Registration.
In a brief, all the businesses with taxable supplies and imports that exceed a threshold of AED 375,000 mandatorily need to register for VAT. For businesses, if the taxable supplies and exports exceed the voluntary registration of AED 185,000 but below the mandatory registration can choose to register for VAT. The businesses with taxable supplies and imports below the voluntary registration limit will not require any VAT registration. Businesses are required to maintain proper records of all the transactions irrespective of the category they fall.
The companies registered for VAT are required to file the periodic VAT Returns. Most of the businesses registered for VAT will need to file quarterly VAT returns. However, some of the businesses are also required to file monthly VAT returns. The Federal Tax Authority (FTA), at the time of company VAT registration, specifies the time of VAT filings. The companies need to classify the supplies standard rated, zero-rated supplies, VAT exempted supplies, Reverse charge supplies and Intra GCC supplies.
A tax group is formed when two or more firms or limited liability companies registered as a single entity for the VAT purposes as specified by the UAE VAT Decree-law. However, the companies are required to adhere to certain conditions specified to form the Tax group. The FTA takes the final decision with regards to the Formation of the Tax Group. A formal process has to be followed to start a Tax group.
Offences and Penalties
Suppose any business registered in the UAE does not adhere to the rules specified by the Decree-law. In that case, it is considered as a VAT offence, and penalties are imposed accordingly. The penalties will result in monetary fines ranging from AED1,000 to AED 20,000 depending upon the offence committed. All newly registered businesses need to understand and adhere to the VAT rules.
We at Jaxa Chartered Accountants assist our clients by providing them with all services related to Accounting, bookkeeping and auditing in the UAE. Our expert tax advisors with a thorough knowledge of VAT can assist new businesses in the registration of VAT based on the eligibility. We further help our clients in filing the VAT returns as required to ensure the client does not commit any VAT related offence and thereby avoid paying hefty fines. Please Contact Us if you have any queries. We’d be happy to assist.