VAT for Small Businesses in the UAE – 5 key takeaways

The key points you should know about VAT for Small Businesses in the UAE

For starters let’s understand that VAT will ultimately not be a cost to the business.

VAT is an alternate source of income. It will help to build and provide the country with high-quality public services for the long term. As such it will help the government reduce dependence on income derived solely from limited sources and speedup implementation of the plans to achieve its vision of a better future.

With VAt the business acts as a middle man between the consumer and tax authority. Businesses collect the taxes from the customers and pay it to the government and get refunds of the supplier tax that it has paid in the process of procurement. Thus the resulting receipts collected show the total of the value-added during the whole process of VAT.

The taxpayers are provided with several amenities and public services like hospitals, roads, public schools / parks, waste / sewage control, and police / law and order services etc. These services are paid for using the taxes under the government budget.

What type of businesses need to register for VAT in UAE?

VAT was introduced in the UAE from January 2018 inwards. Value-added tax is a tax that accumulates the charges from every point during the sale process. The consumer is the one who finally pays these accrued VAT charges.

If a business’s sales or taxable supplies exceed the prescribed annual limit it has to register for VAT. VAT has a number of benefits for both for the UAE as a whole and businesses operating therein.

Does VAT mean change in Business Structure?

VAT is charged at every phase of production and distribution. This aspect of VAT needs to be understood correctly. If you have more than one business entity providing the same product or service then you need to prepare for your VAT filings in accordance. Take the help of an expert VAT consultant.

Businesses having multiple bodies, will have to consider significant restructuring to upgrade and avoid VAT leakages during the process.

2. VAT Cost Distribution for business :

It is the consumer who will pay the most, according to the new VAT laws but businesses must plan in advance and account for the pre-implementation and post implementation costs. The company will ultimately pass all these extra charges to the customer through sales channels.

3. Bringing in more Accountability in the system:

As soon as you move into a systemic approach to managing business you need bettr management and with VAT registration, you are legally required to prepare and maintain a range of business records pertaining to your business transactions. The authorities can conduct inspections to ensure that the business documents are in order and that VAT compliance is maintained. Be it large or Small businesses, you must keep records such as annual accounts, general ledgers, purchase daybooks, the invoice issued and received etc. Record keeping and maintaining them safely for a period of time is required as prescribed by the law. Needless to say ensuring that they are valid and ready for inspections and audits is the businesses responsibility.

4. More Advisory & Consulting Expertise :

VAT consulting firms in UAE will increase in number as the time goes by and VAT takes deeper effect. Companies and Entrepreneurs may not have the resources to engage retraining and adapting to the new VAT system’s complexities internally. Better to have a domain expert look into building the new VAT systems and processes. Companies will hire consultants to look into the new VAT laws and so their business can adapt faster. The gain for all enterprises is that VAT implementation will provide the basis to set up a new VAT-compliant system which will lead to better financial and business management. Many entrepreneur’s waiting to enter this sector where demand is expected to be high for some time will find good growth opportunities.

5. Business Efficiency and the Impact of VAT

While it may seem that there is an initial rise in cost for small business owners, the long term benefits are worth the changeover to the VAT based system. The cost of administration and implementing the process are the primary costs but the result will be replacing unproductive and outdated accounting systems leading to more efficiencies. This way of working helps accumulate many long term benefits for all sizes of businesses.

It is highly advisable to take the advice of a VAT consultant who can assist your business while registering for VAT. This will save your time, effort, and money.