Mandatory and Voluntary VAT registration in Dubai for Businesses

Contents hide

1 VAT Intimations on Corporations

2 Which Sectors have VAT applicable to them?

3 Mandatory VAT Registration in Dubai

4 What happens if your UAE-based Company’s turnover falls below the Mandatory VAT Registration Threshold?

5 Voluntary VAT Registration for Business in Dubai

6 Benefits of Voluntary VAT Registration

6.1 Planning

6.2 Business and Cash Flow Security

6.3 Refunds

6.4 Upskilling

6.5 Read more about VAT in Dubai

Value Added Tax (VAT), considered an all-purpose utilization tax, is levied on the mainstream businesses in supplies/goods and services. It is advised to consult a VAT consultancy service in the UAE to pursue business within a legal framework.

VAT Intimations on Corporations

Companies involved in business or trade are accountable to carefully document certain features like the business revenue, expenditure, and related VAT charges.

The enrolled organizations and brokers will charge VAT to the more significant part of their clients at the prime rate and cause VAT on the products they purchase from the providers. The difference between these entities is recovered or paid up to the administration.

Which Sectors have VAT applicable to them?

The VAT applies to most of the major and the minor industries. This includes food, transport, healthcare, education, hotels, businesses, and many others.

Mandatory VAT Registration in Dubai

Businesses and individuals who have had access to their taxable supplies in the last year, if in the previous 12 months the supplies are more than AED375,000, are mandated to apply for VAT registration. This means the businesses should charge Value Added Tax (VAT) on their sales (output VAT) but can reclaim any VAT suffered on their purchases (input VAT).

The business can make taxable supplies of goods/services in the next 30 days, which has more than the threshold of mandatory VAT registration.

What happens if your UAE-based Company’s turnover falls below the Mandatory VAT Registration Threshold?

If your business has a turnover that falls below the mandatory VAT registration threshold, you don’t need to register for VAT. Not registering for VAT means you do not need to separate the VAT on purchases or sales in the accounts. You don’t need to charge VAT on the sales of your business. It may seem like good news at first. But, let us tell you the details of it to tell you that it is not. If a business is not accounting for VAT, the company is treated as the ultimate user of the VAT-related purchase, meaning the business inherently suffers the VAT.

So, non-registration does not necessarily mean the business will not pay VAT. Instead, it means the company cannot reclaim the VAT that is paid. Hence, business costs go up by the amount of the VAT paid on its purchases at a standard VAT rate of 5%.

Voluntary VAT Registration for Business in Dubai

A business must seriously consider the costs involved in VAT accounting versus not accounting for VAT if it falls below the mandatory threshold. However, business owners must remember that the burden of proof for trading below the threshold falls on the business but not on the VAT authorities. Hence, keeping well-maintained accounting records to prove that the company has not yet reached the threshold.

Vigilance is advised for companies trading below the VAT registration threshold, but not very much, as there are possibilities for substantial penalties if the threshold is reached, but VAT is not accounted for inadvertently. VAT accounting becomes a legal requirement at the point when the threshold is reached. So, businesses must utilize their accounts to continually manage and monitor where it concerns the VAT registration threshold.

Benefits of Voluntary VAT Registration

There is a case to be made for voluntary VAT registration. If your business records revenue of 50% of the threshold, you can apply to become a voluntary VAT vendor. A few good reasons to do that are listed below.

Planning

A minimum penalty of 500 Dhs up to five times the amount of VAT payable for the period will be levied on your business if your revenue crosses the threshold, but VAT is not yet registered. And by the time the limit is reached, the VAT registration process will be entrenched in your business. That is one less thing to worry about.

Business and Cash Flow Security

Medium and large-sized businesses which are legally required to register as VAT vendors need VAT invoices from their suppliers to comply with stringent record-keeping requirements. Due to this, they may decide not to transact with businesses that have not registered as VAT vendors so that they can streamline the reporting processes. Voluntary VAT registration secures a place in the supply chain and contributes to healthy cash flow.

Refunds

If you supply zero-rated goods/services, you may qualify for a tax refund at the end of the reporting period. Education, healthcare, property and real estate, oil and gas, transportation, and precious minerals fall under the zero-rated supplies. There are different exemptions for each of these sectors under the law stipulation.

Upskilling

One may find a learning curve while becoming a registered VAT vendor. Upskill your team before you legally collect taxes. Hence you not only future-proof your business but also empower your business team with the latest skills and knowledge. You also give them opportunities to familiarize themselves with the process and requirements for compliance.

It takes some adjustments, understanding, and learning to maintain public services efficiently and to position Arab and GCC nations as globally competitive countries with truly diversified economies.

Contact the experts at JAXA for all the solutions regarding VAT, TAX, accounting, and more.