VAT Registration: When Should MY Company Register?

VAT registration is mandatory if a business's taxable supplies and imports exceed AED 375,000. Additionally, businesses may choose to register for VAT voluntarily if their total taxable supplies and imports (or taxable expenses) exceed the voluntary registration threshold of AED 187,500.

Value Added Tax or VAT is a tax on the consumption or use of goods and services. A VAT of 5 per cent is levied at the point of sale. Businesses collect and account for the tax on behalf of the government. Value Added Tax (VAT) was introduced in the UAE on 1 January 2018.

VAT will provide the UAE with a new source of income which will be continued to be utilised to provide high-quality public services. It will also help government move towards its vision of reducing dependence on oil and other hydrocarbons as a source of revenue.

Any business which exceeds mandatory or voluntary registration thresholds may be required or may be able to register for VAT.

Mandatory Registration

A BUSINESS MUST REGISTER IF:

The total value of its taxable supplies and imports exceeds the mandatory registration threshold over the previous 12 months, or
The business anticipates that the total value of its taxable supplies and imports will exceed the mandatory registration threshold in the next 30 days.
The mandatory registration threshold is AED 375,000. This threshold is not applicable to foreign businesses.

Voluntary Registration

A BUSINESS MAY APPLY TO REGISTER IF IT DOES NOT MEET THE MANDATORY REGISTRATION CRITERIA AND:

The total value of its taxable supplies and imports or taxable expenses in the previous 12 months exceeds the voluntary registration threshold, or

The business anticipates that the total value of its taxable supplies and imports or taxable expenses will exceed the voluntary registration threshold in the next 30 days. The voluntary registration threshold is AED 187,500.

Implications of VAT

Implication of VAT on individuals

VAT, as a general consumption tax, will apply to the majority of transactions in goods and services. A limited number of exemptions may be granted.

As a result, the cost of living is likely to increase slightly, but this will vary depending on an individual's lifestyle and spending behaviour. If an individual spends mainly on those things which are relieved from VAT, he is unlikely to see any significant increase.

The government will include rules that require businesses to be clear about how much VAT an individual is required to pay for each transaction. Based on this information, individuals can decide whether to buy something.

 Implication of VAT on businesses

Businesses will be responsible for carefully documenting their business income, costs and associated VAT charges.

Registered businesses and traders will charge VAT to all of their customers at the prevailing rate and incur VAT on goods/services that they buy from suppliers. The difference between these sums is reclaimed or paid to the government.

If you have questions on VAT in the UAE, contact Zyla Accountants today. We’ll be happy to help with your query.