Impact of Voluntary Tax Registration on Businesses
17

Mar 2021

The Gulf Cooperation Council (GCC), a six-member union of gulf states decided to implement new taxation named Value Added Tax (VAT) to check the falling revenues due to the volatile oil prices and invest the same amount towards improving the infrastructure. GCC signed the unified agreement in 2017 with all the member states agreeing to implement the VAT with effect from 1st January 2018. 

Being a founder member of the GCC, UAE made necessary preparations and implemented the VAT law across all the seven emirates by a Royal Decree. The UAE is famous for its liberal economic policies and business-friendly laws. There are no income tax and corporate taxes (with exceptions) for individuals and companies operating in Dubai. Still, with the implementation of VAT, most of the goods fall under the taxable category. Under the VAT law, all eligible businesses involved in selling VAT goods will require registering and filing returns periodically. Here’s a detailed guide on the voluntary tax registration requirements.  

VAT Decree-Law

VAT was implemented in the UAE starting from 1st January 2018 under the Federal Decree-Law No. (8) of 2017, referred to as ‘Decree-Law’.VAT is a tax levied on the import and supply of goods and services at every production stage, distribution stage that also includes deemed supply. The standard VAT rate is fixed as 5% for most of the goods and supplies (except on exempted goods & supplies) under Article-3 of Decree-Law.   

What is the Voluntary Tax Registration?

Businesses are required to register with the Federal Tax Authority (FTA) for VAT purposes. Businesses will collect the tax when a sale takes place from the customer on behalf of the authority and submit the collected tax to the authority. Businesses are required to file the VAT returns as per the specified period provided by authorities at VAT registration. Businesses are provided with a unique Tax Registration Number (TRN) for tax filing purposes.

Is it mandatory for all businesses to register for VAT?

No, it is not mandatory to register for VAT. The authorities have specified certain guidelines regarding VAT registration based on the value of supplies of the businesses. The supplies specified are taxable alone (except all the Exempted supplies and 0% VAT supplies). Please find below the requirements specified for the VAT registration.

No Registration: Value of the taxable supplies is less than or equal to AED 187,500 in the last 12 months or expected to be in the next 30 days.   

Voluntary Registration: Value of the taxable supplies is greater than AED 187,500 but less than AED 375,000 in the last 12 months or expected to be in the next 30 days.

Mandatory Registration: Value of the taxable supplies is greater than AED 375,000 in the last 12 months or expected to be in the next 30 days.

Advantages of Voluntary Tax Registration

Although companies with taxable supplies in the range of AED 187,500 to AED375,000 have a choice to register for VAT, companies will have certain advantages if they register for VAT and file returns periodically.

  • One of the main advantages is that companies registered for VAT can claim their input tax credit from the authority post the tax returns filing, which means available of additional liquidity for the business operations.  
  • Tax Registration Number (TRN), which is unique, can help boost the company's legitimacy. With an added image, businesses can look forward to competing with big businesses and plan the next stage of growth.
  • Tax registration can keep businesses worry-free on any tax-related penalties as businesses need to maintain a record of all the transactions and file returns.
  • Businesses can be free from any worries about the taxable supplies reaching the mandatory VAT registration thresholds.

How Can We Help?

We at Jaxa Chartered Accountants assist businesses in making the right decisions regarding all the tax-related matters. Our consultants can guide businesses about the advantages and disadvantages of tax registration depending upon the business profile and activities, among other factors. We also provide our clients with other services like accounting, bookkeeping, payroll, and tax consultations. Please Contact Us if you have any queries. We are happy to help!