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1. What is VAT?

VAT is a tax collected on the sale of goods or services. VAT is also applicable on import of goods and services in many countries.  The amount of VAT payment is after deducting Input VAT which is paid by the business while purchasing goods and services for the purpose of business.

Each country has its own administrative authority for VAT. In the UAE, Federal Tax Authority is the administrative authority while in the UK VAT is managed by HM Revenue and Custom.

2. When should one register for VAT?

Mandatory Registration:

In some cases, VAT registration is mandatory for businesses.  This is generally triggered upon reaching a certain revenue threshold.  In the UAE this threshold is when your turnover in any of the past 12 months exceeds or is likely to exceed (in next 30 days) AED 375,000 and in the UK £85,000.

Voluntary Registration:

You can also register for VAT on a voluntary basis at any point up until your turnover reaches Mandatory Turnover threshold in the UK.  Voluntary Registration threshold is slightly different in the UAE, businesses could request for a Voluntarily Registration when their turnover or taxable expenses in any of the past 12 months exceeds or likely to exceed AED 187,500 (in next 30 days).  

It is important to note, the UAE VAT includes criteria of Taxable Expenses for requesting a Voluntary Registration considering, initially all businesses may not earn revenue but would have incurred large setup expenses.

3. Our views

While it is Mandatory to register for VAT when a business meets the criteria, it is important to assess whether you should request for a Voluntary Registration with VAT authority.  Here are some of the factors a business should consider before deciding on a Voluntary Registration:

Credit / Refund of VAT paid on Initial Expenditure (Infrastructure / Working Capital):

The VAT laws allow claiming back Input VAT paid while purchasing initial capital assets and inventory.  For a business to claim VAT paid to vendors it is important to Voluntarily Register with VAT authorities and file required VAT returns.

VAT compliance responsibilities:

Choosing to Voluntarily Register for VAT will add complexity to your business.  In addition, to collecting VAT from the customers, business also must maintain adequate accounting records.  In addition, there is a requirement to file periodic VAT return and respond to queries from the authorities within specified time limits.

Consistency in Operations:

Change in VAT regime requires re-setting up of accounting system and re-pricing of goods and services. These changes may not be easier when business is up and running.  Change in systems could disrupt the operations and it’s generally difficult to increase the prices once customer expectation is set.  Therefore, many businesses prefer to opt for Voluntary VAT registration to ensure smooth operations from the beginning.

Building Credibility:

Lastly, VAT registration helps build credibility and form business relations.  Many larger organizations may prefer dealing with only VAT registered businesses as it could give them an indication of their size and commitment to business.

Accountant’s Box is a UAE based accounting and VAT advisory firm.  We can assist you in registering your company for VAT in the UAE.  Our dedicated team will provide all necessary guidance on VAT registration and take care of the whole registration process.  For information, you could reach us at info@accountantsbox.com.