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Although many companies have adjusted into the VAT system in the UAE one year after implementation, it is not the same for new established entities. Several questions are raised about the Value Added Tax and when a company should register for it.

  • Is it better to voluntarily register for VAT to avoid penalties?
  • When should a company register for VAT?
  • Should companies wait to reach the threshold before registering?

To shed clarity on these common questions, here are facts that every new entity should know about.

The UAE VAT registration threshold is AED 375,000 per annum. If a company wants to voluntarily register, their turnover must at least be AED 187,500 per annum.

Usually, new entities encounter confusion as to when they should be registering. Whether it is better to register early in advance, or if they should wait for when they reach the threshold.

 

CHALLENGES

One of the common challenges that entities encounter is being asked for a TRN number by bankers and Authorities. For instance, a company import products – if it doesn’t have a TRN number because it has not registered yet, VAT shall be paid. However, if a TRN is found registered, there will be no need to pay 5% VAT.

NEXT STEP

After obtaining a TRN number post-registration, the next step is to make sure that the company is equipped to keep records and be accurate with bookkeeping and documentation. It is advised to have an FTA accredited Accounting Software. It should be able to record transactions like invoices, payments, credit notes and debit notes; generate a VAT summary, audit file, and VAT return file. Having an efficient and customizable one will help avoid complications and inaccuracies.

THE VAT SYSTEM

Before VAT, transactions and payments were simpler. As the system is implemented, there is a tight enforcement of compliance. Companies must keep records of transactions down to withdrawal and deposits as even these details are checked and can be questioned by authorities such as FTA.

VAT GROUPING

For multiple companies that work as one under the same owner, they can apply for VAT grouping for the benefit of being treated as a single person for tax purposes. This way complications and confusions are avoided. The transactions between the related companies will be tax-free. Cash flow will be easier as well, and less transactions that may cause complications.

TAX DEREGISTRATION

For companies that stop making taxable supplies or those who do not meet the threshold may de-register within 20 days to avoid resulting in a penalty for non-compliance of tax laws.

More than these common ones, the procedure and need for accuracy cause challenges to companies. To avoid non-compliance to tax laws and resulting damages such as penalties, it is best for entities to seek for the expertise of tax agents or tax and accounting consultants/advisor. They can take and train companies through the process to avoid non-compliance and errors causing even more financial damages.

Know more about proper VAT and Accounting procedures with SDAC Consulting DMCC. We have a team of accredited accountants who help companies understand and adapt to efficient accounting systems. Head to this LINK to contact us or email us directly at commercial@sdacconsulting.com