VAT -Value Added Tax- was recently introduced by UAE in January of 2018. Which was a welcome move by the citizens of UAE as this added revenue will be utilized by the government on providing better public services and infrastructure. This decision has made many business-owners wary of the current business climate. Although, UAE is currently charging a 5% VAT, it still have left a sour taste within the business community.
Dealing with VAT is an uncomplicated, slightly tricky and daunting task that is still somewhat manageable. Here are 4 life-saving tips that you need to know to ensure your business is equipped appropriately to combat against the adverse business climate.
1. VAT is not applicable to all businesses:
Before you start the process of registering for VAT, you need to ask yourself a question:
Is my company going to incur expenses exceeding AED 350,000 annually?
If your answer is in the negative than you don’t need to worry about VAT registration.
As, UAE has implemented VAT only on businesses that have investments that exceed the 350,000 figure. This is determined by reviewing company’s fiscal performance of the previous 12 –months and an assessment is made if the company has exceeded said limit. Similarly, next 30 days are also reviewed to ensure the limit is not exceeded or is going to be exceeded in the near future.
Here, it should be mentioned that: if your expenses exceed AED 187,500 than the UAE government gives you a choice of voluntary VAT registration.
Voluntary VAT: Voluntary VAT is an incentive gambit dealt by the UAE government rather successfully, as it lures in the clueless business-owner and business set-ups by promising them bounties like tax refunds, low-interest rates etc.
VAT registration is a double-edged sword as if you register voluntarily, you might get the above-mentioned benefits. But if you are late in your registration you will surely get heavily penalized. And you may suffer a suspension of your trade licence causing an unwanted lull in your business activity.
2. Knowing what is subject to VAT and what is exempted:
To understand the new and broad VAT landscape, and make it slightly less complicated. You must know which services or goods that your business provides falls under the exempted category.
Because, the zero-rated products which include: educational and healthcare services, vehicles used for public transportation and precious metals are completely absolved off the added 5%. Which means that your business if it deals in VAT exempted products will not be included in the VAT registration net.
A word of caution, while you may be exempted from VAT, but the zero-rated goods that made you a candidate for VAT exemption list, might still land you in trouble if the authorities find out you also deal in certain goods that do fall in the category on which VAT is applicable and you have not yet registered. So, it is still safer to register for VAT in this scenario.
Also, you should always keep an eye on your expenses as these zero-rated goods will be included in the 350,000 limit.
3. 5% VAT is here to stay and will remain unchanged:
This is an exciting news regarding VAT. To encourage new foreign investment and to make sure that the investors already in UAE do not flee, the UAE government has issued a statement in which they assure the business-owners that they are in no way planning to augment or raise the 5% VAT rate.
This is a great incentive for people currently doing business in Dubai, as this rate is lowest in the world and is so minuscule that serious investors disregard this as a small inconvenience. This is because the profit ratio greatly surpasses the cost incurred as UAE’s business climate is extremely nourishing.
This is very sly move on the government’s side as this will encourage business set-ups to voluntary register for the VAT and incur the added cost for no valid reason other than signing up for incentives that voluntary registration promises.
4. Free zones still a better option:
Knowing where to set-up a business in Dubai is still the most important step. As, new policies and regulations are formed on a daily basis. Free zones were made to assist businesses and to this day these free zones are a better option with regards to the ease they provide business-setups. Some Free zones in Dubai as well as across UAE are unaffected by the new VAT law. Which makes the move to register for VAT seem pre-emptive.
A move to a VAT free – free zone might be more beneficial for you in the long run if your business solely deals in goods that are under the new 5% tax. Which will in turn save you unnecessary trouble of losing your customers due to the sudden hike in prices.
Sometimes, a move to the exempted zones is just not possible as cons outweigh the pros. The best thing to do in these situation is to consult a specialist. A specialist will give you the best possible solution to your current problem by looking at the bigger picture with a neutral perspective.
At Trade Mark Registration Dubai we offer unparalleled consultancy. Our elite team of skilled professionals will take care of the VAT registration process from start to finish.
Contact us today to book your free consultancy today which is absolutely commitment free.
Hire us to have a dreamlike business set-up experience. We handle all your worries so that you can channel your energy into one thing: Making your Dubai dream happen!
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