VAT has been implemented in 2018 in the United Arab Emirates. It is applicable to supplies of goods and services in the UAE. All the businesses which operate in the UAE requires to get Tax Registration Number (TRN) only when they meet the threshold criteria.
Threshold limit for VAT Registration
- Mandatory VAT Registration: If the business has exceeded the taxable supplies of AED 375,000 or to be anticipated to exceed the taxable supplies, entity shall apply for VAT registration.
- Voluntary VAT Registration: If the business does not exceed the taxable supplies AED 375,000.00, however taxable supplies exceeded AED 187,500.00 or to be anticipated to exceed the taxable supplies, business entity may apply for VAT registration.
VAT Registration on the basis of Order amount
For any business, it is very crucial to diagnose the VAT registration requirement and especially for start-up or newly established enterprise. Registration may be required based upon taking the order.
If the order value is more than AED 375,000 (Mandatory threshold), in this case first we need to apply for VAT registration on the basis of the order.
Registration can be applied immediately after receiving order of or more than the threshold limit. Meanwhile, the business can issue invoices to its customers. In this case, neither Tax invoice can be issued nor VAT can be collected from customers till the business is allocated a TRN by Federal Tax Authority (FTA).
If a business mention Tax Invoice and charge VAT before getting TRN, it is against the VAT decree-law and penalties and fines would be applied and have to face consequences at the time of FTA Audit.
If FTA provides an effective date of VAT registration which is backdated then VAT is paid for the supplies made for the said period even if VAT is not charged from customers.
Let’s understand the provision by an example:-
Example – ABC LLC received an order for AED 385,000.00 on 10th May 2019. After receiving the order company immediately applied for Tax Registration to FTA. Until VAT registration is granted company made supplies of AED 57,000.00. The company did not recover VAT from customers. FTA approved VAT registration on 28th May 2019 and provided the effective date of registration as 01th May 2019.
In the above example, first VAT return will be filed by the company for a period 1st May, 2019 to xxxxxx period and tax will be paid on AED 57,000.00.
If the start-up and newly established business have anticipated order more than AED 187,500.00 they may apply Voluntary registration to FTA, it will take 20 working days to get approval and also, they may apply for VAT registration if their taxable expenses exceeded the AED 187,500.00.
Penalty for Non-Registration of VAT
Failure to submit a VAT registration application within the time-frame specified by the tax law, penalty of AED 20,000 would be imposed.
Flying Colour Tax Consultants competent team could assist you in:
- VAT Compliance and Registration
- VAT Implementation & Changes in current accounting system as per VAT Law
- Timely and Correct Submission of VAT Tax Return (Form VAT201)
- Timely and Correct Submission of VAT Tax Refunds (Form VAT311)
- Preparation of FTA compliant Books of Accounts
- Assistance in FTA compliant Record Keeping & Documentation
This blog post is written by Mr. Taher (Tax Adviser) at Flyingcolour Business Setup, Accounting & VAT Services in Dubai and across UAE. Feel free to call our Tax Advisor for quality consultation relating to your TRN and other VAT related queries. Please send inquiry to email@example.com or or call +971 4 4542366.