The COVID-19 pandemic wreaked havoc all over the world by itself, but now the after-effects of the virus are gradually getting visible. It is anticipated that the whole world will plunge into a global recession. This will be caused as almost the whole world is currently under lockdown and almost all the business are not active, which in turn creates a cash crunch for people worldwide.
The same scenario is of the worldwide governments. With only a very few business activities happening all over the world, the governments are looking into tapping new ways to gain funds. One of the latest development in respect to this has been in Saudi Arabia, which has increased its Value Added Tax to 15%.
According to many tax experts, the chances that the other middle east countries such as Bahrain and the United Arab Emirates (UAE) will follow the same pattern is very less. Although if the Value Added Tax is increased, it will provide a source of revenue for the government as there are very few business activities happening in the country it will create a high-pressure situation for the people in the country. Keeping this in mind, the Ministry of Finance (MoF) UAE has ruled out any future plans to increase the VAT tax rate.
It is being rumoured that the Government and Tax Experts in the UAE are discussing to reduce or to drop the VAT tax altogether for the time being. This may be done until the businesses in the country start running at their normal capacity, and the UAE economy has stabilised. The Government of the United Arab Emirates has taken an idea which has been already implemented by many other Asian and European countries and is mulling upon the decision to provide emergency tax breaks which will lessen the impact of coronavirus on the economy. The decision to increase the VAT Tax will be counterproductive.
What is Value Added Tax (VAT)?
Value Added Tax is a form of tax which is levied in the UAE on the majority of the transactions made by an entity. This tax was introduced in the United Arab Emirate (UAE) on the 1st of January, 2018 at a tax rate of 5%. This is a consumption tax and is applied whenever some kind of value is applied to the product.
The application of VAT is not a new concept, and more than 180 countries in the world are using it. It can be called using different names such as Indirect Tax (IT), Goods and Services Tax (GST) etc. this tax can be very helpful as it provides an additional source of revenue for the government. The revenue created from this source can be utilized for the betterment for the people of the country. Especially in the present scenario.
Who needs to Register for Vat in UAE?
It is not necessary for all the companies to register themselves for VAT. The Federal Tax Authority (FTA) has set certain standards based upon the revenue generated by a company according to which a company needs to register themselves for VAT. The criteria mentioned are:
1. If a company has a yearly revenue of AED 375,000 or more, then it is mandatory for the company to register for VAT
2. If the company has a yearly revenue of greater than AED 187,500 but less than AED 375,000, then the company may register itself for Vat although it is not necessary. This voluntary registration for VAT is recommended for the companies as voluntary registration can provide various benefits.
3. if the revenue of the company is lower than AED 185,000 then it is not required for a company to register itself for VAT.
This tax has been introduced in the United Arab Emirates fairly recently with the aim to help increase the Gross Domestic Product (GDP) of the country. There are various benefits of VAT which can be availed by a business which will ensure the growth of the business and will also help the business to create a niche for itself. It will definitely help in services such as Auditing Services or Accounting Services.
The size of the business and the activities performed will play a key role in deciding the Vat of a company and can be a complicated process sometimes. This way, it is always advisable to take assistance from a VAT Accounting Firm, which will help in the proper calculation for Value Added Tax. If you are in need of such consultants and are searching for them in the United Arab Emirates, then your search ends here.
JAXA Chartered Accountants
JAXA Chartered Accountants can provide assistance in this matter and will ensure that all the financial reports are in order so that no hassle is faced by the company during the VAT filing. JAXA also provide other related services such as Accounting Services, Auditing Services, Payroll services etc. To know more about the different services offered and how can JAXA help your business, Contact Us. We will be very happy to answer your query.