Value Added Tax has been part of taxation since the 1950s, in many countries around the world. The United Arab Emirates have been relying wholly on revenue from oil. However, the thought of an alternate revenue method, considering the volatility of oil prices, resulted in the implementation of VAT. The business firms operating from Dubai and other regions in UAE are liable to pay VAT.
VAT is applied from the initial stages of production until it reaches the final customer. It means that the firm has to pay VAT for the raw materials too.
The VAT regulations apply to both Mainland and Free Zone companies. Every business organisation that has crossed the threshold of AED 375,000 has to register for VAT in UAE. Those companies that can cross the subject limit in the next one month also must comply with VAT registration.
Your company may be a new one, which is expected to reach the VAT limits. Or a well-established one growing at a rate with which it will cover the VAT limit in the near future. You must understand the basic requirements for complying with VAT formalities. And introduce the necessary measures for the implementation of VAT calculation.
Your company may have an in-house accounting and audit team for all kinds of financial calculations. You must ensure that the team is trained/ educated for carrying out VAT calculations. The existing software and other calculation methods must be modified to suit the need. There is advanced software available that is helpful in VAT calculations.
Besides the aforementioned, you can outsource the VAT calculations to professional accounting and audit firms in Dubai. They will have experienced tax professionals. The agency will process the VAT documentation. You can consider their support for training your in-house team too.
The ultimate customer in the line pays the VAT in reality. The VAT applied on raw materials, accessories and other materials used in the production result in a higher price of the product. Consequently, the customer may turn hesitant to buy a high-priced product if a cheaper one is available. The company must recognise the issue and find methods to avoid such a condition. Only a professional accounting expert may be able to help you from the stalemate.
Further, the VAT calculation is complicated. It can confuse the accounting team at your company. The errors in calculation can negatively affect your profit. The team must be aware of the calculations, the ways to obtain optimum benefits, the regulations to be followed to claim reimbursement and so on.
Proper Maintenance of Documents
Once you register for VAT, all the records indicating purchases, sales etcetera are to be up to date. The cash registers, ledgers, receipts, tax documents are required to be maintained at least for 05 years. The accounting team at your company must make sure that the documents are maintained in the stipulated manner.
The Federal Tax Agency (FTA) of the UAE can perform audits without notice. You must submit all the documents and original bills as directed by the officials. The accounting team must be educated regarding the proper upkeep of certificates, bills and documents. And submission of the same as and when sought by the authority.
The VAT calculation has to be complied properly to prevent the company from paying VAT twice. There is a possibility of making a mistake if you have a business that handles multiple stages of a product. Or has several sub-entities.
Independent accounting firms in Dubai will be a viable option in this case. They can guide you and help you in VAT calculation and submission of all the necessary documents.
Lack of Clarity about the Future
The present rate of VAT is 5%. In addition, there are products with zero VAT. However, the rate may change anytime. The zero-rate products also may be included in the VAT category. This uncertainty about the future is bothering companies. The calculation methods will have to be amended based on the new rates as and when announced. It may be another complicated affair.
Planning the Business
You must plan the business including the VAT-related payments. A professional approach is necessary for preparing your company for the best performance. You may assign professional agencies for accounting and audit of your firm. Thus, alleviating any chances of errors, miscalculations and losses due to mathematical mistakes.
The Tail End
VAT is a mandatory payment due to the government. Every firm that has turnover above the stipulated amount must abide by the VAT regulations. The VAT will certainly impact your business in the UAE. It is unlawful according to the federal laws to present false statements to escape from VAT.
Having said that, you can eliminate the chances of paying extra VAT by recruiting an experienced accounting team. Their expertise can be leveraged to benefit the firm by optimising the calculations. You can formulate the business strategy to gain from the allowances provided by the government. This will turn highly profitable to the firm in the long run.