VAT in the GCC: Benefits of voluntary registration, especially for small businesses
From 1 January 2018, any business operating in the Gulf Cooperation Council (GCC) group of nations that earns revenue of Dhs 375,000 or more, will be legally required to register as a value-added tax (VAT) vendor.
FURTHER READ: The Ultimate App to Ace VAT in the GCC
The new VAT law has come as a shock to many businesses – especially small enterprises – who are accustomed to operating in a low-tax environment. With falling oil prices and increasing global competition, GCC countries need to diversify their economies and find new revenue streams if they want to remain competitive.
FURTHER READ: 3 in 10 UAE CFOs concerned about available cash flow
Start-up and small businesses whose revenue does not match the threshold are probably breathing a collective sigh of relief. While collecting tax on behalf of the government should not be seen as a cost to the business, there are implications in terms of processes, systems and people that could incur some expenses, so it makes sense that they would avoid compliance for as long as legally possible.
FURTHER READ: How to set up a company in the UAE
But there’s a case to be made for voluntary VAT registration, and if your business records revenue of 50% of the threshold, you can put your hand up to become a voluntary VAT vendor.
Here are a few good reasons to do that:
- Forward planning. As your business scales, you might not notice when your revenue crosses the threshold for mandatory compliance. If this happens, and you’re not registered as a VAT vendor, you could be liable for penalties of a minimum of Dhs 500 and up to five times the amount of VAT that would have been payable for the period in question. By the time you do reach the threshold, VAT processes will be entrenched in your business, which is one less thing to worry about.
- Business and cash flow security. Medium-sized and large businesses that are legally required to register as VAT vendors will require VAT invoices from their suppliers in order to comply with stringent record-keeping requirements. Because of this, they may decide not to transact with businesses that are not VAT registered so that they can streamline their reporting processes. Voluntarily registering as a VAT vendor secures your place in the supply chain and contributes to a healthy cash flow.
- Perception. Businesses that are registered as VAT vendors may be perceived as being more professional and therefore more appealing to partners.
- Refunds. If the goods or services you supply are zero-rated, you could qualify for a tax refund at the end of the reporting period. Zero-rated industries include education, healthcare, transportation, property and real estate, oil and gas, and precious minerals. The law stipulates different exemptions for each of these sectors.
- Upskilling. There’s a definitive learning curve involved with becoming a VAT vendor. By upskilling your team before you are legally required to collect tax, you not only future-proof your business but also empower your team with new knowledge and skills, giving them an opportunity to familiarise themselves with the processes and requirements of compliance.
- Systems upgrade. To stay on top of the stringent record-keeping requirements of the new VAT law, you’ll need a robust accounting solution that not only automates processes like VAT invoice and credit note production, but that also keeps a record of all transactions for reporting purposes. It can take between nine and 12 months to fully prepare your systems for VAT, so the earlier you start, the lower the risk of incurring penalties.
Small businesses might be tempted to put off VAT registration for as long as possible, but if you have ambitious growth plans, sooner or later, you will have to comply. By partnering with a trusted and experienced business partner like Sage, you can ease into compliance and proactively get your systems, processes and skills in order before the taxman comes knocking.
VAT is nothing new and nothing to fear. It will take some adjustment and learning, but the additional revenue flowing into GCC nations will go a long way to maintaining effective public services and positioning GCC countries as globally competitive nations with truly diversified economies.
UPDATE: UAE VAT Online Registrations Now Open (9th October 2017)
The UAE Federal Tax Authority, FTA, has announced that online registration for Value Added Tax, VAT, is now open, through its website, as part of the Authority’s preparations for the 5 percent VAT, set to be introduced from 1st January, 2018.
The registration portal is available 24/7 to ensure business-readiness by aligning organisations’ financial and technical systems to comply with the regulations and procedures.
Businesses must register for VAT if their taxable supplies and imports exceed the mandatory registration threshold of AED375,000 per year.
Businesses with taxable supplies and imports from abroad that are less than the mandatory registration threshold and exceed the voluntary registration limit of AED187,500 annually can optionally register for VAT. Businesses with expenses that exceed the voluntary registration threshold can also register. This opportunity enables start-up businesses that do not have the required income to optionally register for VAT.
FTA has urged all businesses to adhere to the following timeline those with an annual turnover exceeding AED150 million should register before 31st October, 2017, and those with an annual turnover exceeding AED10 million should register before 30th November, 2017.
All businesses that must be registered by 1st January, 2018, should submit their registration applications before 4th December, 2017, to minimise the risk of not being registered in time for the beginning of 2018.
Khalid Al Bustani, Director-General of FTA, said, “This is part of our commitment to enhancing the readiness of different businesses and raising their preparedness for the easy application of the distinct tax system that is consistent with global best practices and embodies the leading position of the UAE at all levels. The Federal Tax Authority is keen to give the business sectors sufficient time to adapt their operating systems to the requirements of the VAT system.
The FTA has urged all businesses to learn and understand the implications of the VAT system and to align their work with the reporting and compliance requirements by the government. Businesses are also asked to ensure that they meet the conditions that allow them to uphold their obligations, which might call for making certain changes.