The introduction of Value-Added Tax (VAT) in the UAE is part of the government’s strategy to diversify its revenue source, secure its national fund for the improvement of public services, and to reduce its dependence on oil.
The Federal Tax Authority (FTA) released a statement confirming that the number of businesses registered for VAT exceeded 296,000 companies and tax groups during its first year of implementation. The FTA also stated that the compliance rate was remarkably high as a result of the UAE’s flexible and efficient tax system. The UAE is among the first countries in the world to introduce a fully electronic paperless tax system, which demonstrates the highest international standards.
While VAT had a positive impact on the government with a notable increase in its global figures, the pressure was on the existing businesses that meet the general criteria for mandatory and voluntary VAT registration, mainly because failure to register for VAT is a violation of the law. Penalties start from AED 20,000 for failure to submit a registration application within the timeframe specified by the tax law.
Now that one year had passed, Deregistration from VAT is equally important. All companies need to be aware of the criteria for deregistration and submit the application within the specified time frame to avoid late deregistration fine of AED 10,000.
Despite the early challenges of VAT, one of CREATIVE ZONE Tax & Accounting clients, Jimmy St. Ledger, Director, of ALARA Logistics Group said,
If you’re a business owner in the UAE, here are five tips worth considering to safeguard your business from possible penalties:
- Know the law
With stringent policies and FTA’s high monitoring on business compliance, it’s important to be aware of the new law to avoid violations. “There will be more scrutiny from the FTA to ensure compliance, but at the same time, they will be holding tax clinics and seminars to educate and update the people,” CREATIVE ZONE Tax & Accounting General Manager, Zeeshan Toor stressed.
- Keep your records of accounts updated and organised at all times
One of the crucial areas of VAT is maintaining accurate records of all your accounts. “It helps if you are using an FTA accredited accounting software,” Zeeshan suggested. Failure to do so puts you and your business in a critical position and susceptible to fines. However, proper bookkeeping in place will save you from committing violations. “Companies need to be more prepared or may need to have provisions booked,” Zeeshan advised.
- Create notifications and reminders for all your VAT obligations
Now that you have successfully registered for VAT, being mindful of your obligations is of equal importance. Be organised and put in your calendar all your tax-related activities such as filing for your tax returns. Toor is advising all his clients to adhere to the law and always be mindful of any relevant updates.
- Give your team proper training if required and join workshops
To get the right understanding of the UAE taxation system, investing your time on workshops and training will boost your team’s confidence in tackling complicated tax-related tasks. CREATIVE ZONE Tax & Accounting team conducts free monthly VAT workshops to help startups and SMEs in the UAE. “It is part of our job at CREATIVE ZONE Tax & Accounting to keep our clients abreast with the law. That is why we conduct monthly VAT workshops mainly to keep our clients in the loop of the current tax system in the country,” Zeeshan added.
- Work with professionals to streamline your processes and have credible financial management
It is always recommended to seek professional advice to help you build strong financial management while ensuring the transparency and accuracy of all your accounts. If you don’t have an existing process, CREATIVE ZONE Tax & Accounting provides personalised services that your business requires. “You need proper professional handling of your books and things relating to VAT because even the smallest mistake can have massive consequences. For example, a penalty of AED 5,000 is imposed for failure to issue each proper tax invoice,” Zeeshan finally stressed.