Consequences of Taking Order without TRN

What Happens If You Accept Orders Without a TRN?

Unfortunately, many small businesses and start-ups are unaware of the need to monitor their taxable supplies. The obligation to register for VAT is both a requirement of law and a means of ensuring all aspects of your business remain compliant and minimise the risk of receiving an unanticipated tax fine by the Federal Tax Authority in the event of non-compliance. If you are required to register for VAT or if you choose to do so, you must monitor your gross revenue, outgoings, and incoming orders on a continuous basis.

Business owners need to understand that VAT is not just applied to what has already happened but also to what they will do in the future. Therefore, if a supplier expects to exceed the threshold, then he or she does need to register for VAT before the threshold is crossed. To keep customers happy and maintain a good working relationship, you should register for VAT as soon as you anticipate making any taxable supply to a customer and ensure that proper tax invoices are provided in accordance with UAE tax legislation.

Threshold limit for VAT Registration

1. 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.
2. 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.

Importance of Applying for VAT Registration Before Issuing TAX Invoices

The reason why applying for VAT registration should be done before issuing a tax invoice. The main reason is that a huge number of new businesses issue tax invoices without having received their VAT registration number. Without a TRN, a business is not allowed to charge VAT, and therefore;

• Collections can be incorrect. 
• Fines for non-compliance. 
• Problems will arise when the FTA audits in the future. 

The FTA requires a business to pay VAT for any period prior to registration becoming effective, regardless of whether the business has actually collected any VAT from customers. Consequently, this results in immediate loss of funds for the business and can be particularly damaging to startups, which typically operate on very limited budgets.

Why Start-Ups Should Consider Voluntary VAT Registration?

Start-ups and new businesses often face problems regarding the amount of revenue they will generate. If you expect to have an order that can exceed AED 187,500 annually, or if you expect your tax-deductible expenses will exceed the voluntary registration threshold. Then you have to register early can be advantageous for you. Voluntary registration allows you to take advantage of the following opportunities:
 

• You can legally create tax invoices, which allow you to recover your input VAT.
• By registering voluntarily now, you will not need to register at the last minute due to having exceeded your AED 187,500 threshold.
• Voluntary registration enhances the company's credibility with existing and potential suppliers and customers.
• Your accounting system will be prepared to meet the requirements of full compliance once you are registered for VAT.

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:

1. VAT Compliance and Registration
2. VAT Implementation & Changes in current accounting system as per VAT Law
3. Timely and Correct Submission of VAT Tax Return (Form VAT201)
4. Timely and Correct Submission of VAT Tax Refunds (Form VAT311)
5. Preparation of FTA compliant Books of Accounts
6. Assistance in FTA compliant Record Keeping & Documentation

How Flyingcolour Business Setup Consultants Helps Businesses Stay Compliant?

Flyingcolour Business Setup Consultants provides excellent assistance to businesses as they strive to remain compliant with laws related to VAT legislation in the UAE. The businesses need constant attention to compliance, on-time filing of VAT returns, and familiarity with the requirements set forth by the FTA. As VAT Consultants, we offer our clients the following resources:

1. Complete assessment of VAT obligations, review and assessment of taxable supplies and expenses to file on time.
2. establishment and adjustment of clients' accounting systems according to VAT legislation.
3. assistance with the preparation and submission of VAT Returns and Refunds, and guidance through FTA audits/inspections.

Frequently Asked Questions About Consequences Of Taking Orders Without TRN

1. What happens if I receive a significant order before applying for a TRN?

If your order is valued at more than AED 375,000*, then you should apply for VAT registration. Until you receive your TRN, you will not be able to issue tax invoices or charge VAT.

2. Can I take an order if I don't have my TRN?

You cannot charge VAT without a valid TRN as per the UAE VAT regulations. If you charge VAT before receiving your TRN from the FTA, then you have to pay the charges as per VAT law.

3. What happens if I charge VAT without a TRN?

Charging VAT without a TRN is against the UAE VAT law. You have to pay heavy penalties, and you have to pay the VAT amount if you didn’t collect it from the customer. 

4. What is Voluntary VAT Registration, and who can apply? 

You can apply for voluntary VAT registration if your taxable supplies or taxable expenses exceed AED 187,500*. Voluntary VAT registration can be beneficial for new and small-sized enterprises. 

5. How long does it take for the FTA to approve my VAT registration?

VAT registration can be completed within 20 working days. The time also depends on the documents you submit and how quickly you respond to any inquiries from the FTA.

6. What is the penalty if you do not register for VAT in time?

If you fail to register for VAT before the deadline, you have to pay a penalty of AED 20,000* from the FTA. You can also face financial penalties if you incorrectly invoice or file VAT returns late.

8. Can I recover the VAT on my business expenses?

Yes, you can recover VAT on eligible business expenses starting from your effective registration date. You may reclaim VAT from your business expenses when you have the relevant documentation that supports the expense and complies with the FTA's rules and regulations.

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 info@flyingcolour.com or or call +971 4 4542366.