Voluntary VAT registration and other related questions

If you are running a business in the United Arab Emirates (UAE), it is important to understand the registration requirements for Value-Added Tax (VAT). While the Federal Tax Authority (FTA) recommends completing VAT registration within 30 days of reaching the specified revenue threshold, small businesses, entrepreneurs, and freelancers who have not yet reached the statutory limit can opt for voluntary VAT registration in the UAE.

By voluntarily registering for VAT, your company can become eligible for VAT refunds on business supplies. This might help you manage your expenses effectively.

This blog covers different aspects of voluntary VAT registration, including eligibility, process, benefits, and other important questions related to VAT in the UAE. Keep reading to know more.

Overview of VAT in the UAE

VAT is a consumption tax that is applicable to products and services at every stage of the supply chain. In the UAE, this indirect tax was introduced on 1^st January 2018, with a standard rate of 5% applicable on most goods and services. However, this rule has some exceptions, as certain supplies qualify for zero tax while others are completely exempt from VAT.

The FTA plays a vital role in administering VAT in the UAE. The government body is responsible for implementing and enforcing VAT regulations, ensuring compliance, and collecting VAT revenues to support the country's infrastructure and services. In addition, the FTA also guides businesses on VAT registration, filing returns, and maintaining accurate records to facilitate smooth tax operations.

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What is voluntary VAT registration?

Freelancers, small businesses, and entrepreneurs in the UAE can voluntarily register for VAT, even if the annual taxable turnover has not reached the mandatory threshold of AED 375,000.

This provision is particularly beneficial for startups that anticipate significant growth in the near future. Apart from availing the possible benefits of VAT registration early in their growth journey, voluntary registration can also help your organisation manage your finances effectively.

Eligibility for voluntary VAT registration

If you are considering voluntary VAT registration in the UAE, you must satisfy the eligibility criteria set by the FTA. 

• Your annual taxable turnover is above AED 187,500 but less than AED 375,000.
• You must have crossed this limit in the previous 12 months or expect to exceed it in the next 30 days. 
• If your startup has no turnover but taxable annual expenses are above AED 187,500, you can voluntarily register for VAT in the UAE. This provision allows you to claim input tax credits on taxable expenses incurred during the initial stages.

Documents for voluntary VAT registration

To start the voluntary VAT registration process, you need to collate specific documents that provide essential information about your business. Here is a list of documents required by the FTA to verify your details and ensure compliance with the law. 

• A copy of the trade licence, which serves as proof of your business's legal existence and operations in the UAE.
• Passport copies of the business owner and partners, which are required for identification purposes.
• Emirates ID of the owner and partners, which provides additional identification and residency verification.
• Memorandum of Association, that details the structure and objectives of your business.
• Bank account details of your organisation, which are necessary for VAT refunds and other tax-related transactions.
• Description of business activities, which helps the FTA understand the nature of your business and its VAT implications.

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Process of voluntary VAT registration

Here are the key steps you should follow for voluntary VAT registration in the UAE:

• Pre-registration analysis: Before initiating the registration process, carefully analyse the finances and projections of your company. This will help you decide when voluntary registration is required. Consider factors such as your current turnover, projected growth, and the potential benefits of VAT registration for your business.
• Create a tax group: If your business is part of a group of companies, consider creating a tax group for VAT purposes. This can potentially streamline the VAT registration process and facilitate compliance within the group.
• Online enrolment: Register for an account on the FTA website to begin the VAT registration process. This straightforward process involves providing basic details about your business, such as your business name, address, contact information, and bank details. 
• Prepare supporting documents: Gather necessary documents such as your business licence, financial statements, passport copies, Emirates ID of partners, Memorandum of Association, organisation’s bank account details, and a description of business activities. Keep digital copies of these documents handy to ensure a smooth registration process.
• Apply and wait for the decision: Complete the VAT registration form on the FTA e-Services portal and submit the required documents. After submission, the FTA will review your application and decide on your eligibility for VAT registration. This process can take up to 20 working days.

Benefits of voluntary VAT registration

Registering for VAT offers a variety of benefits, here are some of them. 

• Claim input tax credit to save on costs: Through voluntary registration, you can deduct the tax paid on qualifying purchases from the VAT charged on your sales. This can bring in huge cost savings if your business has high operating expenses.
• Improved financial management: Registering for VAT requires you to maintain financial records accurately and submit VAT returns regularly. This can lead to improved financial management as it encourages you to proactively track the input tax (the VAT you pay on your purchases) and the output tax (the VAT you charge on your sales). 
• Access to VAT refunds: If the tax paid on purchases exceeds the tax charged on sales, you may be eligible for a VAT refund. This can be a major financial boost for your enterprise, particularly if you are in the early stages of growth or have incurred high capital expenditure.

Common questions about VAT in the UAE

Is VAT registration mandatory in the UAE?

Like mentioned above, VAT registration in the UAE is necessary for companies when their annual taxable supplies and imports exceed the specified mandatory registration threshold of AED 375,000. 

However, you may also choose to register for VAT voluntarily if the total value of your taxable turnover (or taxable expenses) exceeds the voluntary registration threshold of AED 187,500. This option lets you decide what best suits your financial situation and growth plans.

Do zero-rated supplies count towards the VAT threshold?

Yes, zero-rated supplies count towards the VAT threshold. While no VAT is charged on zero-rated transactions, they are considered taxable supplies and, thus, count towards the VAT registration threshold. This is an important consideration as it impacts your VAT obligations and potential eligibility for VAT voluntary registration in the UAE.

Can I claim back all the VAT paid by my business?

Yes, you can generally claim input credit for tax paid on the purchase of goods and services for business use, provided you have valid VAT receipts. This is known as input tax credit. However, it is important to note that if the product purchased is also used for personal purposes, you can only claim back the proportion of VAT for the actual business element of the use.

Can I cancel my VAT registration in the UAE?

Yes, you can cancel your company's VAT registration if it is no longer required. This could be the case if you stop trading or making taxable supplies. You need to cancel the registration within 20 business days of becoming ineligible, or the FTA might charge a penalty of AED 10,000.

There are also scenarios where you can voluntarily deregister for VAT in the UAE, even if your business is still operational. To be eligible for this, your enterprise must meet one of the following criteria:

• Taxable supplies over the past 12 months have not crossed the voluntary registration limit of AED 187,500
• Under the voluntary registration scheme, your company has been registered for VAT for at least 12 calendar months.

The VAT deregistration process involves applying the FTA through their portal, along with any outstanding tax payments and final VAT returns. The FTA will review your application and, if approved, will cancel the VAT registration.

What are taxable supplies as per the UAE VAT Law?

The UAE VAT Law specifies taxable supplies as the supply of goods or services (from a company) that are subject to taxation. The tax rate can be either 5% or 0%. This includes zero-rated supplies but does not include exempt supplies.

In simpler terms, if your business sells a product or service in the UAE and it falls under the category of taxable supplies, then VAT is applicable. If the supply is zero-rated, it means that the item is taxable but at the rate of 0%. On the other hand, exempt supplies are completely outside the scope of VAT, and no tax applies to them.

Conclusion

Understanding and complying with VAT regulations is not just about avoiding penalties. It is about ensuring your business operates smoothly and efficiently. If you are considering voluntary VAT registration in the UAE or are already registered, staying informed about the latest rules can help you make informed decisions. However, managing VAT compliance can add another layer of complexity.

This is where having a reliable partner like Alaan can make a considerable difference in navigating the complex financial landscape of the UAE. With Alaan’s corporate card and expense management solution, you can get real-time visibility and control over all your spending. From tracking every payment to automating routine tasks such as VAT calculations and submissions, Alaan offers a range of features designed to streamline your business spend and make VAT management efficient.  

Alaan’s solutions also include unlimited virtual and physical corporate cards with customised spending controls and real-time alerts, ensuring you stay on top of your VAT processes at all times 

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Think Alaan can help streamline your accounting? Talk to our team to schedule a demo!