Advantages and Disadvantages of VAT in UAE

With (VAT) Value Added Tax’s introduction in UAE on the 1st of January, 2018, UAE has become one of the first countries to implement the indirect tax that’s charged on all supplies of taxable goods and services. In this article, we’ll take a close look at the advantages and disadvantages of VAT in the region. Let’s start with… 

The Advantages of VAT in UAE 

Value Added Tax was implemented by the UAE government as it offers the following benefits:

  • VAT encourages investment and personal savings – among the great reasons for instituting VAT is the system encourages investment and personal savings. 
  • Helps in making up revenue – the indirect tax is transparent and a minimum burden onto consumers because it’s collected in fragments which is at various stages in the distribution, supply, and production of goods and services. 
  • Eases business dealings – in UAE, organizations and suppliers prefer doing business with SMEs and companies taht are not registered for VAT. You may easily find that if your business doesn’t1 produce proper VAT invoices, established companies will be unwilling or hesitant in dealing with you. For voluntary and mandatory VAT registration alike, businesses that are registered have a tax registration number (TRN) in order to deal with other businesses easily.  

The Disadvantages of VAT in UAE

As with anything else, VAT is a double-edged sword. Here are its disadvantages:

  • Boosts inflation – the indirect tax increases taxation as most businesses will seize the opportunity in raising prices as they are registered for VAT;
  • Difficulty in managing VAT-related processes – for businesses, it can be hard to implement VAT-related processes including registration and returns filing. This may be from lack of resources and experience. Fortunately, regulated tax agents in UAE are able to help. 

Additionally, VAT can be complex and hard to understand. Calculating and implementing VAT in a business may be difficult for businesses regardless of the size. In order to ensure compliance and enjoy the benefits that it offers to the country and to businesses, it is recommended to seek the help of tax specialists. 

 How to Apply for VAT Registration in UAE?

In the United Arab Emirates, businesses with an annual turnover of DH375,000 are mandated by the Federal Tax Authority in submitting an application for VAT registration. In order to facilitate businesses with the registration process, the tax authority has authorized regulated tax agents that can assist businesses. 

The deadlines for registration are announced by the FTA and the process has to be carried out prior to the deadlines. Failure to submit an application will result to significant fines and penalties to the business. While it’s important for businesses to identify all of their obligations related to registration for FTA, it’s crucial for them as well to understand the application of VAT to their businesses and operations. 

The following details are to be provided to the tax authority during the application process:

  • Name of the business (applicant)
  • Banking details 
  • Contact details 
  • Business relationships 
  • Declaration of annual taxable supplies 

Take note: The Federal Tax Authority has the discretion to request further information from businesses during the registration process. Do you have a regulated tax professional in UAE that you trust in helping you with VAT-related processes? We suggest you give us a call today. Having us as your reliable tax advisor will mean the following:

  • You get to save your business money and time; 
  • The business does not have to pull out records or VAT return filing as our team can do it for you; 
  • Our experts can help you when your business is requested for an audit.

Do I need a licensed tax agent in helping me with VAT in UAE?

Just knowing a professional is taking care of your business’ VAT processes can reduce stress and burden business owners carry with them. Also, you need to remember that making mistakes, minor or major, can be costly. The business may trigger an audit or be fined or penalized. A tax professional helps in eliminating errors and ensuring returns are prepared accordingly.

What happens if my business fails in submitting VAT returns on time?

If a business files VAT returns late or is late in making payments to the Federal Tax Authority, it will be in a twelve-month probation. If a business files late returns again or makes more delayed payments then it will incur penalties. 

What will happen if I don’t register for VAT?

If your business exceeds the mandatory threshold for VAT registration, then it is necessary to inform the tax authority right away. Failure to do so following thirty days from exceeding the threshold increases the likelihood of the business in getting a penalty for failure to register. To hasten the process of VAT registration and make sure the business doesn’t get fined, it is best to seek the help of vat registration experts