The Implication of VAT on New Businesses in the UAE
17

Jan 2020

The implication of the Value Added Tax is one of the latest development in the country which will impact not only the economy of the land but will also have an effect on its business relationships with the other countries. As this is a new tax implemented on almost all the companies that are present in the country, the various terms and conditions of VAT are not understood by the management of the companies properly.

Let's understand how the Value Added Tax can impact the growth of the business that is just in their nascent stage.

VAT

Value Added Tax is a consumption tax and has to be paid by the consumer in the end. It is applied to the companies based on the increase in the Value of the commodity after each stage of production or distribution. It has been decided by the government of the United Arab Emirates to implement a rate of 5% for this tax. This may increase the prices of some of the goods, but as the United Arab Emirates does not have many fees, a 5% increase in the costs to be paid will not result in a significant change.

The application of the Value Added Tax (VAT) is not a new thing as more than 180 countries already have some form of this tax present in their country. This tax will provide an additional source of revenue for the country and will help in removing its focus from the hydrocarbon sector of the country as the primary source of income.

The 5% rate of the Value Added Tax may seem a small number to make an impact on the economy of the country, but this increase can result in an increase of almost 2% in the Gross Domestic Product (GDP) of the country. With an increase in the GDP, the country will be better able to perform the developmental activities in the country. 

Impact of Value Added Tax in the UAE

As mentioned before, there have been several countries that have already seen the effects of the Value Added Tax. This tax will not only help in increasing the Gross Domestic Product (GDP) of the country but will also help the government to have a more significant revenue as the chances of tax evasion are less.

The various impacts of the Value Added Tax in the United Arab Emirates are:

1.New Source of Income

The Value Added tax helps in providing a stable working environment. It acts as an alternative source of revenue for the country and allows the state to shift its focus from the oil and natural gas sector. The funds gathered are used for the betterment of the country and to provide amenities to the people of the country.

2.Development of New Avenues of Work

As the implementation of the Value Added Tax is a reasonably new step taken by the government of the United Arab Emirates, there has been an increasing need for people who can handle all the VAT related problems of a company. This has given rise to many Auditing and Accounting firms which provide such services and has created more significant job opportunities.

3.Easy and Transparent Administration

As there were no taxes in the country in the past, the implementation of the Value Added tax will result in a slight increase in the prices of the various goods and services, but it will also help in maintaining a database of all the transactions that have been occurred. Using this database as the base, a company can take decisions for the future. 

4.Increased Efficiency

The Value Added tax will increase the efficiency of the company. As there will be a slight increase in the prices, the companies may be reluctant to introduce this tax in the beginning, but in the long run, the company will be benefitted by many factors. As a result, it will also help the economy of the country.

5.Improved Confidence of the Present and Potential Investors

As all the financial data of the company will be available to every investor, the level of confidence of the investors both present and potential will increase.

To operate a business in the United Arab Emirates, you need to understand the various implications of the Value Added Tax on your newly started a business. To get the proper assistance, you need to consult a VAT Accounting Firm. If you are looking for such firm in the UAE, you can look into the services provided by JAXA Chartered Accountants. They will handle all your VAT related queries and will offer you a suitable solution. For more details, Contact us. We will be happy to help.