VAT filing for small businesses in the UAE is an essential duty for every growing company in the country. The FTA has provided compliance procedures for filing VAT returns and has mandated compliance from all Smaller to Medium sized businesses to avoid being penalized when VAT was introduced. All registered SMEs must file a VAT return monthly or quarterly depending upon what is required by the FTA. Maintaining proper records and preparing accurate invoices is very important so that the business continues to maintain a good reputation with its customers.
Businesses that are below the mandatory VAT registration threshold should also be vigilant about VAT registration. Many small businesses choose to register voluntarily after exceeding the AED 187,500 voluntary threshold to reclaim VAT paid on business purchases and overheads. By planning ahead, registering properly and seeking professional help, the process of filing VAT returns will be easier, safer, and stress free for small businesses.
What Is VAT Return Filing in the UAE?
VAT return in the UAE is where the Federal Tax Authority (FTA) requires all VAT registered businesses to prepare VAT returns which detail all sales and purchases of VAT that have occurred within a specified period. Businesses that have registered to collect and remit VAT must submit a return within the established deadlines and create a more effective tax compliance experience for businesses. Most businesses will file their returns through the FTA e-services portal by submitting a completed form and paying amounts owed to the FTA within 28 days from the last date of the taxable period.
What Is Included in a VAT Return?
There are two primary figures included within a VAT return, output VAT and input VAT. Output VAT represents the tax that businesses have charged their customers for products or services sold. Input VAT represents the tax paid to their suppliers for products or services purchased by the business. Once both figures are established, they will be matched against one another by the effective taxing authority to arrive at the business final tax position. If output VAT exceeds the input VAT amount, the difference will be remitted to the FTA. On the other hand, if input VAT exceeds the output VAT amount, a refund may be requested from the FTA. Most businesses file VAT returns on a quarterly basis, however, some are required to file monthly according to the FTA.
When Should VAT Returns Be Filed in the UAE?
VAT return filing in the UAE is determined by the Federal Tax Authority, based on the filing period assigned to the business. Any business registered for VAT must continue to file returns as given by the FTA in order to remain compliant with laws and avoid facing penalties. In addition, the FTA assigns filing periods according to a business’s annual turnover and size. As a result, it is essential to verify your filing period from the FTA website prior to beginning any filing process. Filing returns on time allows businesses to maintain compliance with laws and avoid facing heavy penalties.
VAT Returns are Filed Quarterly by Most Businesses
Under normal circumstances, most SMEs file VAT returns on a quarterly basis, which equates to filing one return every three months. Therefore, the quarterly return is generally assigned by the FTA as the standard filing period for the majority of businesses. Businesses are expected to file their returns at the conclusion of each VAT quarter and must do so within the given timeframe. Regularly filing VAT returns on a quarterly basis enables businesses to maintain accurate records and be compliant with FTA rules.
Monthly Filing for High Turnover Businesses
Businesses with an annual turnover greater than AED 150 million are generally required to file their VAT returns on a monthly basis. It enables the FTA to closely monitor and track large amounts of transaction related income. Thus, it offers a means of verifying that businesses are filing their VAT returns correctly.
VAT Registration Requirements for Startups in the UAE
Startup businesses need to be aware of VAT registration requirements in the UAE to ensure that they comply with these requirements right from the outset of their new business. The VAT system that was introduced in the UAE is intended to ensure that businesses pay their fair share of taxes towards contributing to the country’s economy and to allow businesses to recover the VAT they have paid on their own purchases. Therefore, if a startup has its VAT registration correct and timely, there are no penalties to be incurred and the startup can operate more effectively. Additionally, as founders become aware of their VAT liabilities they can build an effective system for keeping records, invoicing and planning for their cash flows.
Key Points for Startups
- Startups can use their annual turnover to determine if they need to register for VAT.
- Registering correctly enables a startup to reclaim input VAT for business expenses.
- Registering at the proper time lowers the likelihood of receiving fines and encountering legal problems.
- An orderly plan helps build a successful and legitimate company in the long term.
Documents Needed to Register for VAT
To make VAT return filing for startups in the UAE simple and accurate, proper preparation documents must be prepared before the process starts. By submitting proper documents, the authority will have the ability to swiftly confirm a new business’s record and legal status. In addition to increasing the likelihood of rejection, having complete records will also help accelerate the registration process for VAT. Therefore, as a matter of course, all papers must be available prior to the date of filing to ensure that all returns can be filed in a timely and accurate manner.
Important Documents to Prepare
- Trade licenses provide proof that a business has legal authorization to conduct business within the UAE.
- Owner/partner ID copies establish the identity of shareholders, directors or controlling interest based on their past and current identification.
- Up-to-date financial records corroborate the revenue generated from regular business transactions over a defined period of time.
- Proof of business address serves as evidence of where the business is physically located.
- Business activity information lists a short summary of services being provided within the business and an estimate of anticipated income.
Complete Guide to VAT Registration and Filing for UAE Startups
Startups in Dubai and throughout the UAE need to know about VAT registration and filing in order to run their business successfully. VAT registration and compliance are required by law, if you register correctly from the beginning, you will not experience penalties or other problems. By following the appropriate processes, startups can register for VAT, create a system to submit accurate filings, pay their VAT on time, and take advantage of any available refunds for qualifying expenses.
Registering for VAT on the FTA Portal
Registering for Value Added Tax (VAT) is done electronically via the Federal Tax Authority (FTA) portal making it easy for new enterprises to obtain VAT registration.
Registering Your Account with the FTA
To use the FTA E-Service portal you must have an email address and create a password. You will then receive a verification email from the FTA which you must confirm.
Complete Your VAT Registration Form
You must complete and submit your VAT registration form to include your business name, legal structure, type of business activities,business correspondence address, as well as your estimated annual turnover.
Upload Supporting Documentation
You will need to upload copies of your trade license, identification of owners, financial records or bank statements and proof of your business address.
Submit Application, Receive TRN
You will submit your application for review by the FTA, and once your application is approved, you will receive a Tax Registration Number (TRN) which must be on all your VAT invoices.
Setting Up for VAT Return Filing
Once registered, it is essential to establish the necessary systems to monitor and manage both VAT on sales (output VAT) and VAT on purchases (input VAT), as well as ensuring that your invoices have the required information such as the seller’s TRN number, the date, a description of the goods, the VAT Rate and the total VAT charged.
How to File VAT Returns
All startup companies must submit their VAT returns either monthly or quarterly, depending on the level of their turnover. VAT returns will provide information regarding the value of total sale made (output VAT) and the value of total purchases made (input VAT), plus the total amount of VAT due or refundable.
How to File VAT Returns
To file a VAT return, go to the FTA portal and log in using your credentials. Once logged in, select the VAT return period and then enter your sales, purchases and VAT information. Make sure that you get your VAT return to the FTA before the due date or else you will be penalized.
How to Meet Your VAT Payment Responsibilities
After you have completed your VAT return, you must pay your VAT obligation via your preferred payment option. If you do not pay your VAT obligation on time, you may incur penalties, so it is best to pay earlier than later.
Key Advantages of VAT Registration for Small Businesses
Here’s a simple look at why registering for VAT can benefit your startup. It helps your business stay legal, save costs, and build trust with clients and partners.
Legal Compliance
By registering for VAT, your startup complies with the legislation of the UAE regarding taxation. Companies whose taxable supplies exceed the established threshold must also register in order to avoid incurring a penalty. When you register for VAT early, you can avoid putting your startup’s future by being in compliance from the start.
Business Credibility
When your startup is issued with a VAT Registration Number (RN), it provides additional credibility to your business and makes it more appealing to potential customers, suppliers, and partners. It is because businesses that have a VAT RN are typically viewed as being more professional and trustworthy than those that do not.
Input VAT Recovery
The ability to recover the VAT paid on all allowable business costs, such as office supplies, software, and equipment through the VAT registration process provides startups with an opportunity to reduce overall operating cost while at same time improving their cash flow.
Facilitates Business Growth
A business that is VAT compliant will appeal to many larger companies who wish to do business with a vendor that is VAT registered. The ability to trade as a VAT registered entity also facilitates growth in both the domestic and international markets for your startup.
Transparency and Record Keeping
By being registered for VAT, your business will develop a system to track your purchases and sales more accurately which will enhance your financial management processes, increase transparency and simplify the audit process.
Avoids Future Tax Liabilities
By registering for VAT as soon as you begin trading, you will ensure that you do not build up any unpaid VAT on your sales, thereby protecting yourself from any back-dated penalties and fines.
Enhances Competitive Edge
Many businesses prefer to work with suppliers who have registered for VAT so that they may make a claim for the VAT input tax on the goods provided. If you register early on, you may be able to enhance your position as an apparent preferred supplier in the business to business market.
End
VAT filing for small businesses in the UAE plays a vital role in helping growing companies stay compliant and financially stable. Small enterprises are typically subject to numerous penalties resulting from a lack of awareness. Having accurate books that are filed with authorities in a timely manner allows for the ease of management of VAT and also provides certainty. Small enterprises can often concentrate on their ongoing growth objectives by having the proper infrastructure.
