VAT Services and Legal Requirements in UAE

 Ashish Mishra
  Aug 01, 2018

January of 2018 saw the UAE begin implementation of the law on Value Added Tax. This does not apply to all commodities and is different from the law in India. However, it is bound to affect operations, either directly or indirectly. The average VAT demanded is 5%. This has left many people with questions on how the tax will be implemented. We sort to provide answers to these questions and others that may regard taxation for your business.

What is Value Added Tax or VAT?

Value added tax is a universal concept that allows government to tax all goods and services at a uniform rate. It is imposed on several stages of consumption of both goods and services. It is collected by all companies, including Indian businesses, doing business on behalf of the government. It is the end user or consumer who will feel the impact of this tax as opposed to the selling firm. This is why it remains a consumer-end tax.

Why VAT was introduced in UAE

While many nations have had value added tax on their goods and services, UAE hadkept away from this path. However, the need to boost revenue for the government saw the introduction of this tax. This would enable the government to provide better services and infrastructure to the people and Indian businesses in Dubai. The government also wanted to reduce reliance on oil because of fluctuating market prices.

Effect of VAT Law on Your Business

Your financial standing and responsibility will definitely be affected by the new law on VAT. It is also a consideration when people are setting up their businesses in UAE. Here are some of the direct and indirect effects of VAT implementation on Indian businesses in UAE.

  • Cost of your products- you will be required to raise the cost of your goods and services by the VAT percentage of 5%. This is because the tax is paid by buyers and not the company selling. You will only act as an agent to the government to aid in collection.

  • Financial position- your suppliers will also require you to pay VAT on the goods and services you purchase. This means that you have to anticipate changes in your financial position. Your working capital will also be affected because some of the money has to be paid as taxes.

  • Zero rated commodities- though VAT does not apply to all commodities, you will be required to pay for all commodities that are not zero rated. Engage a consultant to guides you on what is zero rated and what has VAT applied.

  • Cost of collecting VAT- you are definitely going to incur cost for collecting the VAT. You need to employ accountants or engage agents who will help you in collecting the taxes. This is an operational cost that you have to consider when accounting for your finances. In case you are dealing with multiple products and services, you have to factor the differences in your work. If some products attract taxes while others do not, you have to make adjustments on your systems. This comes at a cost.

  • Operational costs- you have probably signed long term contracts with your suppliers and other clients. The terms for these contracts will have to be revisited. The charges indicated have to be adjusted to reflect the new taxation regime. This cost could affect your anticipated cash flows as clients seek better alternatives. However, you must be ready for such adjustments. Inter-company dealings, procurement levels and sales are affected by the VAT laws.

  • Compliance costs- there is an overlaps between compliance and operational costs that arise out of the new VAT law. For instance, most Indian firms manage their finances through IT systems. These systems have to be reconfigured to reflect the new 5% additional cost passed by your suppliers. You also have to make adjustments on your billing to reflect a similar 5% that will be charged to your customers. These are costs that would otherwise not have been incurred.

Compliance also involves making necessary filings at the end of the year. The law expects diligence and accuracy when filing your annual returns. There are forms to be filled and internal control mechanisms to be put in place. This will have an impact on your operations and business structure.

Outsourcing VAT Services in UAE

The VAT regime in UAE is different from India and any other country in the world. By outsourcing your VAT services in UAE, you provide a chance for an experienced and knowledgeable team to handle your VAT compliance needs. You will never incur unnecessary costs or be at crossroads with the law because of not paying or failing to collect VAT. This allows you to continue running your business in peace.

VAT Services and Legal Requirements in UAE

Ashish Mishra

Hi, i am Ashish Mishra. A Digital Marketing Expert and a Blogger Too. I began writing on my personal interest and then discovered my passion in writing.

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