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As the world is becoming environmentally aware, countries are moving away from the natural oil and gas reserves towards sustainable and clean energy. To move away from their dependence on the oil and gas sector for income, the UAE government introduced Value Added Tax in the year 2018. It is an indirect tax levied on specific goods and services.
According to the Federal Tax Authority (FTA), businesses in the UAE need to register for VAT mandatorily if their revenue increases the threshold of AED 375,000. Similarly, companies should voluntarily register for VAT if their revenue generation is between AED 35,000 to AED 187,500. However, if a company that has revenue below AED 187,500, it doesn’t need to register with the FTA.
What is Mandatory VAT Registration in UAE?
Businesses and Individuals whose taxable supplies in the previous 12 months are more than AED 375,000 have to register for VAT in UAE. These businesses and individuals are mandated by the FTA to register for VAT. It means that these businesses need to charge VAT on their sales and can reclaim any amount of VAT incurred on their purchases (input VAT recovery). For VAT recovery, consider consulting the best VAT consultancy in Dubai and avoid the headache.
What happens if a company’s turnover falls below the Mandatory VAT registration threshold in the UAE?
If a company’s turnover falls below the mandatory VAT registration threshold in the UAE, it does not have to register for the VAT. In other words, the company doesn’t need to separate VAT on sales and purchase account. Similarly, there is no need to charge VAT on sales of your business.
If a business does not account for VAT, it means the company is inherently incurring the VAT. It just means that the company cannot reclaim the VAT paid.
What happens if a company meeting threshold requirements for mandatory registration does not register for VAT in UAE?
If a company meets the threshold requirements for mandatory registration (AED 375,000) and still doesn’t register for VAT in the UAE, it will have to face administrative penalties. Penalty for non-registration is AED 20,000.
Similarly, you have to incur a penalty up to AED 1,000 if you fail to file the VAT return for the first time. There is a penalty of AED 15,000 for failure to display prices without including tax. There is an AED 10,000 penalty in case of failure to maintain records for the first time and AED 50,000 in case of subsequent failures.
What is Voluntary VAT Registration?
Any company or individual who doesn’t fall under the criteria of mandatory VAT registration can register for VAT if the company anticipates that the total value of the supplies will cross the required threshold. According to Article 8 of the Cabinet Decision No. 52 of 2017 on the Executive Regulations of the Federal Decree-Law, No# eight on Value Added Tax threshold for voluntary VAT registration is around AED 187,500.
When a company applies for voluntary VAT registration, it will be registered from the first day of the month succeeding the month in which application was submitted. Similarly, if a business expects that it will be able to meet the threshold in the next 30 days, it should voluntarily apply for VAT registration.
If you are thinking about voluntarily registering for VAT, the chances are that the FTA may ask for proof of eligibility, including financial records and supplies. So, make sure to get in touch with the best VAT consultancy in Dubai for preparing all the required documents for voluntary VAT registration.
Benefits of Voluntary VAT Registration in UAE
If an individual or a company does not fulfill the above criteria, it cannot register for VAT in the UAE. But if it does fulfill the requirements, it is preferred for companies to register voluntarily for VAT because there are a lot of advantages to it. Some of the benefits of voluntary VAT registration include:
1. Avoid Administrative Penalties
By voluntarily registering for VAT, a company can make sure that it is complying with all the rules and regulations set by the FTA and the government. This way, you will not have to be on your toes all the time and keep an eye on the revenue.
2. Refund
If you are supplying zero-rated goods and services, you might qualify for a refund at the end of the tax period. Some of the examples of industries providing zero-rated supplies include education, healthcare, real estate, oil and gas, and transportation. There are also goods and services exempt under FTA regulations.
3. Generate Confidence in the Market
If you have a business, you must know the struggle of competing with different competitors in the market. If you register your company for VAT voluntarily, it will generate confidence in the investors, and it will help attract potential investors. A VAT registered business shows that it is complying with all the rules and regulations.
Register for VAT and Avoid Penalties
This is everything you need to know about the mandatory and voluntary VAT registration in the UAE. There are so many benefits of having a VAT registered business in the UAE. So, if you anticipate that you will cross the VAT registration threshold for mandatory or voluntary registration, it is recommended that you register your business. Establishing a business in the UAE is very lucrative as it is considered as the financial hub of the world, but one needs to be very cautious as there are a lot of rules and regulations to abide by. In order to secure your business, and avoid administrative penalties, make sure to register your business voluntarily. Happy VAT filing!
