Effect of VAT on Newly Registered Companies in UAE

Value Added Tax (VAT), a consumption tax levied on goods at every supply chain stage, aims to supplement falling oil revenues. It offers GCC (Gulf Co-operation Council) member countries an alternative income source for economic infrastructure investment. VAT was implemented across member nations on 1st January 2018.

The UAE, in accordance with this directive, has been enforcing VAT since the onset of 2018. All qualifying businesses must register for VAT and submit VAT returns as prescribed. In the UAE, VAT stands at a standard rate of 5% for most applicable products and services.

Impact of VAT on UAE’s Newly Registered Businesses

Here’s how VAT can influence newly-established businesses:

1. VAT Eligible Goods: Not all products and services are subject to VAT. Some have a zero VAT rate (known as Zero Rated supplies). Newly registered businesses must ascertain if their offerings fall under the VAT purview. If they do, such businesses must consider VAT registration, factoring in other relevant parameters.
2. VAT Registration: Businesses transacting with VAT-exempted goods needn’t register. However, those dealing with VAT-covered goods and services must evaluate their eligibility based on UAE government guidelines. Essentially, businesses with taxable supplies and imports surpassing AED 375,000 must register for VAT. Those with figures exceeding AED 185,000 (but below AED 375,000) can opt for voluntary VAT registration. Entities below this threshold aren’t obligated to register. Regardless, all companies should maintain accurate transaction records.
3. VAT Filings: VAT-registered businesses need to periodically file VAT returns. While most submit quarterly, some might need monthly filings. The Federal Tax Authority (FTA) sets filing schedules during a company’s VAT registration process. Companies categorize supplies as standard-rated, zero-rated, VAT-exempted, Reverse charge, or Intra GCC supplies.
4. Tax Group: A tax group involves two or more business entities registered as a single VAT entity, as per UAE VAT Decree-law stipulations. Meeting specific criteria is essential to form a tax group, with the FTA making the final decision.
5. Offences and Penalties: Non-compliance with Decree-law rules can lead to penalties, ranging from AED 1,000 to AED 20,000, depending on the infraction. Newly registered businesses should familiarize themselves with VAT regulations to avoid such penalties.

Why Choose Taxfix?

At Taxfix, we offer comprehensive services, from accounting and bookkeeping to auditing in the UAE. Our adept tax advisors, equipped with extensive VAT knowledge, guide new businesses through the VAT registration process based on eligibility criteria. We further aid our clients in timely VAT return filings, ensuring compliance and minimizing the risk of potential offences. For any inquiries, please contact us. We’re here to assist.