The United Arab Emirates introduced Value Added Tax (VAT) in 2018 within all the Emirates, including Abu Dhabi, to add new revenue sources and diversify the economy of the country. It impacts both businesses and consumers alike, thus becoming a fundamental part of the UAE’s tax system. However, as a business, it might be often overwhelming to navigate the complexities of VAT, such as VAT registration Abu Dhabi, VAT calculation, VAT filing, and more.
In this article, we have put together a series of information, covering everything related to VAT in Abu Dhabi, including VAT registration services in Abu Dhabi.
Value-Added Tax in the UAE
VAT is an indirect tax applied to a product at each stage of the supply chain, starting from its production to its final sale. Businesses collect the VAT from the consumer of the product and send it to the government. Further, they claim credit for VAT they paid on purchases made for the production of the product. This mechanism ensures a fair system for businesses of all sizes by allowing them to only pay tax on the value they add,
Let’s learn it with a quick example –
A manufacturer buys raw materials for AED 100 and adds a value of AED 30 during production. The manufacturer then applies 5% VAT (AED 6.5) on AED 130 and sells it further to a retailer for AED 136.5. The retailer adds the value of AED 20 to AED 136.5, making the total value of the product to AED 156.5. He then applies a 5% VAT (AED 7.82) and sells the product to the end consumer for AED 164.32, which is the final VAT cost.
The VAT collected in the end is remitted to the government, after deducting the VAT paid on inputs.
Importance of VAT registration Abu Dhabi
Let’s have a look at some of the key benefits of registering for VAT in Abu Dhabi, UAE –
- Legal compliance – VAT registration services in Abu Dhabi help businesses stay compliant with the UAE laws. If businesses with the specified registration threshold fail to register within the defined timeframe, they get exposed to unwanted penalties. Hence, avoiding these foreseeable risks can be beneficial for both financial prosperity and business reputation.
- Improved management of finances – VAT registration Abu Dhabi promotes a culture of comprehensive record-keeping of financial transactions. The FTA regulations mandate businesses to maintain precise records of VAT-inclusive transactions, both purchases and sales. This not only enables accurate tax reporting but also helps businesses manage their cash flow in a better way.
- Government benefits – VAT registration allows businesses to benefit from the potential tax refunds and various government incentives in Abu Dhabi. If their input tax exceeds the output tax, they could qualify for a VAT refund, significantly reducing their overall tax liability.
VAT registration Abu Dhabi – Types
All local businesses and international corporations operating in Abu Dhabi are required to register for VAT if they meet the specified threshold. There are two options for VAT registration Abu Dhabi:-
Mandatory VAT Registration –
If the taxable supplies of the business exceed AED 375,000 within the past 12 months or are anticipated to surpass the limit in the next 30 days, they have to mandatorily register for VAT. Failing to complete the process under these circumstances can lead to penalties.
Voluntary VAT Registration –
On the other hand, if the taxable supplies and imports exceed the threshold of AED 187,500 but do not exceed AED 375,000, they can opt for voluntary registration. This option allows startups and small businesses to claim input tax credits on purchases.
Penalties for Non-compliance
Businesses that fail to comply with the UAE VAT laws can be subject to penalties of up to AED 50,000, with legal action involved. Causing any delay in VAT registration can result in a penalty of AED 10,000. Similarly, failing to pay VAT dues on time can result in a 2% penalty of the unpaid tax, followed by a 4% monthly penalty for the dues one month after the due date of payment.
Process of VAT Registration Abu Dhabi
In this segment, we will discuss how you can register for VAT in Abu Dhabi while ensuring compliance with the tax regulations –
Determine the eligibility – Before diving into the process, confirm whether your business is eligible for mandatory or voluntary VAT registration. The eligibility criteria depend on the annual taxable turnover of the business as specified in the UAE VAT rules.
Gather the required documents – Once confirmed, get started with the registration process by gathering the required documents and information, such as:
- A valid trade license and other business registration documents
- Details of your business activities and the taxable supplies
- Passport copies/Emirates IDs of authorized signatories
- Contact information including the address and PO Box of the company
- A bank letter verifying the bank account details of the company
- Financial records of the company, such as income statements and balance sheets
- Details of the business partners and their financial involvement
Access the FTA’s online portal – The Federal Tax Authority (FTA) has introduced an online platform, the E-Services Portal, to streamline the VAT registration process. The businesses must visit this portal and create an e-services account in order to access the VAT registration form and other services easily.
Complete the VAT registration form – Log in to the account and fill out the VAT Registration form with all requested information such as business activities, turnover, bank details, etc. Also, make sure that the products and activities are properly classified under the right VAT categories.
Submit the application and pay the fees – After filling out the form, check once more for accuracy and submit it along with the supporting documents. Upon submission, the portal will provide clear instructions on the fee amount and the available payment methods.
Obtain the VAT Certificate – After you have paid the registration fees, the authorities will assess your application and, if approved, issue a Tax Registration Number (TRN) and a VAT Certificate that will help identify your business for tax purposes. The businesses must mention the TRN on all relevant documents such as invoices and bills.
The entire process may take up to 30 days. However, to expedite the process and avoid any delays or rejections, it is recommended to seek professional assistance from Shuraa Tax specialists.
Documents required for the VAT Registration process in Abu Dhabi
In addition to the above-listed documents, here are other supporting documents required to complete the VAT registration procedure:
- Memorandum of Association (MOA) outlining the legal structure of the company and the roles and responsibilities of associated members
- Yearly Turnover Report
- Customs Details, if required
- Power of Attorney Documents
VAT registration services in Abu Dhabi
Professional tax specialists in the UAE like Shuraa Tax offer comprehensive VAT services that include the following:-
- VAT registration
- Accounting
- VAT filing
- Audit and assurance
- Management consultancy
- Corporate finances
Streamline your VAT duties with Shuraa Tax
Complying with the VAT laws is thus crucial for businesses to operate lawfully in Abu Dhabi or UAE. However, it also requires you to monitor different aspects of VAT responsibly. Hence, to avoid any issues, it is better to seek expert VAT Registration services in Abu Dhabi.
Shuraa Tax possesses an in-depth understanding of the UAE VAT procedures, and therefore, helps businesses prepare, file, and manage their VAT responsibilities. By leveraging their knowledge and expertise, you can not only save your valuable time but also minimize the risk of errors.
Contact [email protected] and seek cost-effective solutions for all your tax problems.