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.
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.
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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.
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.
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.
Read more about VAT in Dubai
VAT Services in Dubai
VAT Accounting Services in Dubai
VAT Registration Services in Dubai
How to Register your Company for VAT?
How Can You Prepare For VAT In UAE?
Basic Requirements of VAT Registration in UAE
VAT Refund Policies
VAT Implementation in Dubai
VAT Deregistration Services in Dubai
VAT Return Filing in Dubai
VAT Consultancy Services in Dubai
VAT Rates for Different Industries in the UAE
All you need to know about VAT in UAE
VAT Penalties and Its Legal Actions
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