As the January 1st, 2018 deadline for VAT implementation in the United Arab Emirates (UAE) rapidly approaches, it is vital for businesses to be up to date with the latest VAT updates. Being registered under the VAT law means that a business is acknowledged by the government, as a supplier of Goods and Services and is authorised to collect VAT from customers and remit the same to the government. But, which so much of scepticism surrounding the hot topic, what should be considered true, and what is fiction?
To give a quick brief, VAT registered businesses should charge VAT on taxable supply of goods and services, claim Input Tax Credit on VAT paid on their purchases, which will be deducted from VAT payable on sales. In addition, all registered businesses have to align their business reporting structure in line with the compliance requirements such as accurate and updated books of accounts, tax paid documents such as Tax invoice, credit notes, debit notes, records of all inward supplies and outward supplies etc.
While most businesses are aware how VAT can impact the bottom line, it is necessary to understand key fundamentals about the new tax structure in the UAE.
Not all businesses are liable to register under VAT. Only those businesses crossing the defined annual aggregate turnover threshold are liable to register under VAT. Based on the registration threshold, a business will either be mandated to register or as an option, a business can apply for registration or can seek exemption from VAT registration. On this basis, VAT registration in UAE is classified as Mandatory VAT Registration, Voluntary VAT Registration and Exemption from VAT Registration.
Mandatory VAT Registration in UAE
All the businesses who have a place of residence in the state of UAE and whose value of supplies in the member states in previous 12 months has exceeded AED 375,000 should mandatorily register under UAE VAT. Also, if the businesses anticipate that the total value of supplies will exceed the mandatory registration threshold of AED 375,000 in the next 30 days, then they too will have to register under UAE VAT.
Those businesses, who do not have a place of residence in the state of UAE, will have to compulsorily register under VAT irrespective of the registration threshold.
Voluntary VAT Registration in UAE
All the businesses having a place of residence in the state of UAE who are not required to mandatorily register under VAT, are given an option to voluntarily apply for VAT registration. This can be done, only if the annual supplies or taxable expenses incurred are not less than voluntary registration threshold. The Voluntary Registration Threshold is AED 187,500 which is 50 per cent of the mandatory registration threshold.
Exemption from VAT Registration
The businesses whose value of supplies in the member states is below the voluntary registration threshold of AED 187,500 are not allowed to register under UAE VAT. Also, the businesses who are engaged in making only zero-rated supplies may request for exemptions from mandatory VAT registration.