Are you wondering if your company needs to register for Value Added Tax? Value Added Tax, or VAT, is one of the most common types of tax around the world. More than 180 countries have implemented this tax, including the UAE. While some countries have raised their tax percentage, the UAE has stayed with the standard rate of 5%.
The UAE prides itself on being a business-friendly country, and it shows through its booming economy. However, some businesses struggle with the idea of VAT, and it’s easy to see why. If you make a mistake, then you could overpay, or if you underpay, then you could face fines. It can all be pretty confusing. But believe it or not, it’s actually not as complicated as it sounds, especially if you have business experts on your side like MSZ Consultancy.
Keep reading to find out what your business needs to know about VAT.
What Exactly is Value Added Tax?
We know that one of the biggest benefits to business in the UAE is the fact that you don’t have to pay taxes, but VAT is different. VAT is a consumption tax, just like a sales tax, but there are some differences.
Sales taxes are put on the final sale to the customer. VAT is imposed on goods and services and is charged throughout the supply chain, including on the final sales.
When it comes to taxes, most countries actually prefer VAT over sales taxes because it’s considered more of a sophisticated approach to collecting taxes. And in the long run, these taxes are great for the UAE. The funds are used to help out the UAE by going to pay for amenities like public hospitals, schools, roads, parks, police services, and other important aspects of life.
Who Needs to Register for VAT?
Not every company needs to register under the UAE VAT law. This is just for companies in the UAE that provide goods or services with a yearly revenue that exceeds AED 375,000.
If your company value is below AED 375,000 but below AED 187,500, then you can register for VAT, but you don’t have to.
Who is Eligible for VAT?
There are certain guidelines that you have to meet in order for VAT registration in Dubai or anywhere in the UAE. Here are the requirements that the FTA requires for eligibility:
- The business must be functioning in the Mainland.
- The branch of a foreign company or an Offshore company is not eligible for VAT registration.
- A Free Zone company can be an applicant for the certificate.
- Proof of employment or investment must be produced.
VAT Registration in UAE
Knowing when to register your company for VAT or deciding whether you need to voluntarily register or not, can be complicated. If you don’t register when you should, then you could face penalties and fines. That’s why it’s important to seek help from an expert consultant, like MSZ Consultancy, that can answer all of your questions and help you through the process.
If you decide to do this on your own, registration can be done online through the Federal Tax Authority (FTA). You’ll have to create an account and upload the necessary documents.
Documents required for the VAT registration process in UAE:
- Emirates ID of proprietor or stakeholders
- Photocopies of Business Trade License, Commercial License, Dubai Custom Code certificate, and passports from the proprietor or stakeholders
- Memorandum of Association
- Proof of address for the company
- Contact information for the company’s representative
- Corporate bank account details
- If there’s another established owned by the proprietor or stakeholders, then you’ll need to provide details on that business
- An income report from the past 12 months
- A detailed report of export and imports
- An attested list of all GCC countries your company does business with
- VAT registration letters
The FTA will issue a Tax Registration Number (TRN) in about three weeks. If your establishment has more than one company, then you’ll have to be sure to let the FTA know if you would like to have one tax group number or separate numbers.
What is a Tax Registration Number?
After you get your tax number, you will use this number to claim credits of taxes paid. You’ll give this number to your suppliers, vendors, and customers to use on invoices.
Your Tax Registration Number is the prerequisite to your VAT implementation in the UAE. You will most likely get your TRN before you get your VAT registration certificate, so there aren’t any interruptions in your business.
What Are the VAT-Related Responsibilities?
When a company is registered for VAT, there are several responsibilities they will have to keep up with:
- All businesses must record all their financial transitions
- All VAT businesses must make sure their ledgers are transparent and updated
Businesses that don’t think they should apply for VAT registration in UAE should still keep their financial records in case they need to end up registering at a later date.
What Must VAT-Registered Businesses Do?
For general businesses, here are things companies with VAT will be responsible for:
- VAT companies must charge VAT on taxable goods or services they supply
- They must maintain business records for an auditor
- They will be responsible for reporting the VAT charged and the VAT paid to the government
Companies will need to file VAT within 28 days after the allotted tax period. If the process isn’t done correctly, there are penalties that the FTA will issue:
- Not displaying VAT costs – 15,000 AED
- Incorrect tax filing – 3000 AED
- First-time offense – 1000 AED
- Failure to submit deregistration application – 10,000 AED
Let MSZ Consultancy Help Your Business Setup VAT
The VAT registration process in UAE can be time-consuming. Not to mention, if you make any mistakes, you could be hit with a fine. Don’t chance any errors and leave the registration to MSZ Consultancy. We have over 12 years of experience with helping entrepreneurs setup their companies in the UAE and making sure they have everything they need for an error-free registration process. Trust MSZ Consultancy to help you too! Don’t wait! Call us today at +971 52 544 1248 for a FREE consultation.