A high tax rate can make it difficult for a company to carry on business operations and affect its profits. Thanks to a tax-friendly regime, UAE has emerged as one of the most preferred destinations for doing business.
While the federal government levies no corporate income taxes, Value Added Tax (VAT) was introduced in 2018. VAT is an indirect tax that is charged for the consumption or use of goods and services. VAT has a significant impact on the operations of a business.
If you are planning to set up a business in UAE, Here is a primer to understand the VAT regime and why you need a consultant to help you.
Understanding the VAT regime
Currently, VAT is charged at the rate of 5 percent on the consumption of all goods and services. However, there are certain exemptions such as:
- Preventive healthcare services
- Crude oil and natural gas
- Educational services
- Specified financial services
- Investments in precious metals
As the name suggests, VAT is charged at every step of the supply of a good or service as it delivers value to the consumer. While the consumers have to pay the taxed amount, businesses need to collect it on behalf of the government. That’s why businesses in UAE need VAT registration.
Wondering how VAT works? Suppose a manufacturer sells a mobile phone for AED 2000 to a wholesaler. At this stage, VAT of 5% will be collected by the manufacturer from the wholesaler. When the wholesaler sells it to a retailer, the wholesaler will collect a VAT of 5% on the listed price. Similarly, while selling it to the customer, the retailer will levy a VAT of 5% on the phone’s MRP. However, the wholesaler and the retailer will be eligible to receive a VAT refund by filing for a return.
Do all businesses need to register for VAT?
If the total taxable sales and imports of a business within the UAE are more than AED 375,000 per annum, such businesses need to be mandatorily registered with the tax authorities. Businesses whose supplies and imports are more than AED 187,500 per annum can voluntarily register with the authorities. All registrations are done through the website of the Federal Tax Authority of UAE (FTA).
The FTA has clarified that only a single VAT registration is needed if a natural person owns several sole proprietorships. Each establishment doesn’t require a separate registration.
Who can file for a return of VAT?
All businesses registered with the FTA for VAT need to submit a VAT return. Such return needs to be filed within 28 days from the expiry of a tax period. Tax period refers to the period for which a taxable person calculates and pays the tax. Typically, the tax period is:
- For businesses with an annual turnover below AED150 million – quarterly
- For businesses with an annual turnover of more than AED150 million – monthly
Returns must be filed in Form VAT 201.
What role does a VAT consultant play?
The introduction of the VAT regime in the UAE has made it mandatory for businesses to pay more attention to bookkeeping and accounting practices. As a business owner, you may not have much time on your hands to read up on the rules and regulations related to VAT. Given the frequent amendments to the VAT laws, you may even find it difficult to calculate the correct amount of VAT to be paid or claim refunds.
Having an experienced consultant on board can help you take care of various VAT related activities, including completing registration with FTA, filing returns, maintaining relevant records, ensuring that your invoices are as per the advisory issued by FTA, and even VAT deregistration.
A VAT Consultant can reduce your workload significantly by taking care of all aspects of these payments. They can also carry out a detailed risk assessment to minimize the risks associated with VAT. Moreover, segregating your current inventory into various categories based on VAT rates can be supervised by such a consultant.
Missing a single step in VAT compliance can give rise to legal issues and put your business under the scanner. For example, as per the FTA, all registered businesses should maintain the specified books of account for at least five years from the transaction date. Failing to do that can invite legal action. VAT Consultants are qualified tax professionals who understand the VAT regime inside out and come armed with extensive technical knowledge. They make sure that your business doesn’t face any legal challenges on account of VAT related compliances.
Moreover, a VAT consultant keeps your business audit-ready at all times by keeping the accounting practices in ship-shape.
Looking for a VAT consultant for your business
A thorough understanding of the VAT regime is essential for doing business in the UAE. Having expert guidance on VAT related issues can help you maintain your focus on matters that you handle best — running your business.
Are you looking for a VAT consultant who can help you navigate the complex VAT regime in UAE? Whether you are planning to start your business in the UAE or have an existing business, the experienced team of chartered accountants at Centurion Consulting LLC is here to help. We have over two decades of consulting experience across various industry verticals. We excel in identifying the pain points of your business and help you grow.
We offer a full spectrum of VAT services, including registration, filing, advisory, inventory management and accounting. We also carry out a VAT Impact Assessment study to understand how VAT affects various departments of your business. With the help of our recommendations, you can identify how to make your operations more tax efficient. To know more, set up a 45 min free consultation with our experts. You can also fill up your details and request a call back from our team.
