The implementation of Value Added Tax (VAT) in the country helped the government tap into a new source of revenue for the country. This tax has been introduced in the United Arab Emirates on the 1st of January 2018 and requires special attention from the side of businesses. A business must be registered for VAT as any non-compliance can lead to penalties.
What is VAT?
VAT or Value Added Tax is a type of indirect tax which is levied at each stage of the product in which any value is added to it. This tax allows the businesses to act as tax collectors and permits them to collect tax from the end consumer. The rate for VAT has been decided at 5%. This may seem like a minimal amount, but even such a small amount can help bring in a significant change for the UAE government.
Every business which has been registered for Value Added Tax receives a Tax Registration Number (TRN). This TRN plays a considerable role in helping the Federal Tax Authority (FTA) identify and track all the transactions of a company.
What is a Tax Registration Number (TRN)?
TRN is an abbreviation for Tax Registration number. A TRN is a 15-digit number that is used to differentiate one company from another. TRN is also sometimes called the VAT registration number, and every company receives this number whenever the company is registered for Value Added Tax.
TRN plays a massive role in processing the various tax-related documents and also allows the companies to avail of numerous tax benefits and claim various associated tax benefits. As the VAT is a comparatively new tax that is being levied in the country, VAT compliance is very important for a company.
Benefits of Tax Registration Number
Apart from compliance, there are various benefits of having a Tax Registration Number, such as:
- One of the most significant benefits of having a TRN is that it generates confidence amongst the investors and shareholders of the company.
- According to the Cabinet Decision No. 40 of 2017 on the administrative penalties of Tax Laws in the UAE, every business must register for VAT and avail a Tax Registration Number to avoid any penalty.
- The process of communication and transaction between the seller and the purchaser is more streamlined using a TRN number.
- Any registered business will be eligible for a refund only after registering for VAT and claiming a valid TRN number.
With so many benefits of having a Tax Registration Number, it is very important as well as lucrative for the company to register for VAT.
Who needs to Register for VAT?
According to the UAE VAT Law, the threshold for the registration of Vat has been set at AED 375,000. This means that if a company has revenue that exceeds AED 375,000 must mandatorily register for VAT. In case if the revenue if the company is less than 375,000 AED but is greater than AED 187,500, then the company can register for Vat, but it is not compulsory for the company. Any company having revenue lower than AED 187,500 need not register for VAT in the UAE.
Registering for Value Added Tax is one of the most essential requirements for companies as only after registration, the company will be able to collect and file for Value Added Tax. If the wrong information if provided while filing the VAT return or any mistake is made in the form, then the completed form will be dismissed, and the whole process of filling up the form has to be done again. To avoid any such situation, the management of the company must avail of the services of a consultancy firm which will take care that any such mistakes are not made.
JAXA Chartered Accountants is one such CA firm and will take care of all the financial needs of the business. Apart from providing VAT related services, JAXA also provides other services such as Audit and assurance services, Tax related services, Accounting Services, Payroll Services, etc. To know more about the various services JAXA offers, Contact Us. We will be happy to help.