Does your startup need to register for Value Added Tax in the UAE?
Since the implementation of Value Added Tax (VAT), thousands of companies in the UAE were mandated to register for VAT, provided that they meet the criteria for registration. After almost two years, the new rule has been well-received by both the business community and the public.
Such a positive response is pivotal for the UAE government in enforcing a conscientious act of responsible entrepreneurship along with the foremost objective to diversify the country’s resources.
Entrepreneurs have now become more cautious and compliant on their tax obligations because failure to do so puts their businesses in a critical position. And while existing companies may have already undergone the initial VAT registration as soon as it took effect in January 2018, newly setup startups and SMEs are more prone to incurring violations if they lack the knowledge and understanding of the new taxation system of the country.
So, if you have a business setup in Dubai, here’s everything you need to know to determine whether you need to register for VAT or not.
- Mandatory VAT registration
A mandatory VAT registration applies to your business if the taxable supplies and imports have exceeded that mandatory threshold of AED 375,000 in the last 12 months. Additionally, if you anticipate that your business will exceed the mandatory threshold of AED 375,000 in the next 30 days, then you need to register for VAT.
- Voluntary VAT registration
Voluntary VAT registration is particularly applicable to your business if the value of your supplies or taxable expenses has exceeded the voluntary threshold of AED 187,500 in the last 12 months. At this point, you may or may not choose to register for VAT if your business meets the voluntary criteria. You may also opt to register for VAT if you anticipate that your business will exceed the voluntary threshold of AED 187,500 in the next 30 days.
Applying for VAT Deregistration
When you are a VAT-registered business and eventually stops generating taxable supplies or if the value of your taxable supplies is less than the voluntary registration threshold of Dh187,500 over the last 12 consecutive months, then you must apply for VAT deregistration to the Federal Tax Authority (FTA).
The same VAT deregistration application must be made when the total value of your anticipated taxable supplies or expenses in the next 30 days will not exceed the voluntary registration threshold of Dh187,500.
It’s also important to note that application for deregistration must be made within 20 business days from the occurrence of the aforementioned circumstances.
VAT Registration and Deregistration Violations and Penalties
- A penalty of AED 20,000 is imposed on businesses for failure to submit a registration application within the timeframe specified by the tax law.
- A penalty of AED 10,000 is imposed on businesses for failure to submit for de-registration within the timeframe specified by the tax law.
Once your business is registered for VAT, you are also mandated to maintain a book of accounts where all your financial transactions are accurately recorded. Failure to keep a record of accounts is a violation of the law that will cause you a penalty of AED 10,000 for the first time and AED 50,000 for each repeat violation.
As a budding startup entrepreneur, a basic understanding of the UAE taxation system is indispensable as you scale up a business that is compliant with the rules and regulations of the country. After all, you will only know that you are made to run and own a company when you take the time to educate yourself not only about the business but also the laws that govern it.