Impact of VAT on Businesses Everything You Should Know

1. IMPACT OF VAT ON BUSINESSES Everything You Should Know

2. Value Added Tax (VAT) is an important component of the UAE’s economic landscape and holds significant relevance for businesses in many ways. Understanding the impact of VAT on businesses is important for compliance, growth and optimization of tax position. The UAE is a highly business-friendly nation that welcomes investors and entrepreneurs with open arms. Its welcoming nature and extensive government support make it a top choice for many. One key factor that sets it apart from other nations is its beneficial taxation laws and policies for companies. This blog is dedicated to helping you understand the intricacies of VAT in the UAE, VAT impact on business and more. Let us start.

3. WHAT IS VAT IN UAE? Value Added Tax (VAT) is an indirect tax in the UAE, imposed on the trading of most products and services. It is applied at each stage of the supply chain that a product goes through, such as the manufacturer, wholesaler, retailer and finally, the consumer.

4. WHAT IS VAT RATE IN UAE The standard VAT rate in the UAE is 5%. By collecting VAT, the government gains a source of income, which they, in turn, can invest in the improvement and upgrading of public services.

5. WHO NEEDS TO REGISTER FOR VAT IN UAE Businesses need to register for VAT in the UAE, but not all of them are required to do so. There is an income threshold that businesses must exceed to be legally obliged to register for VAT in the UAE:

6. UAE VAT FILING WITH FTA Business must submit their VAT returns periodically to the FTA, UAE tax authority, in which they must clearly mention about the taxable supplies, VAT collected or VAT paid during that taxable period. Here is the impact of VAT on businesses during filing VAT returns: If it is found that business has received more and paid less VAT on taxable supplies, the difference amount needs to be paid to the government. In case, business has paid more VAT and received less on taxable supplies, then difference amount can be recovered back from the FTA.

7. IMPACT OF VAT ON BUSINESSES IN UAE There are many ways in which VAT can have impact on businesses, especially for those who are legally obliged to register for it. Here are some of them: IMPACT ON CASH FLOW All VAT-registered businesses in the UAE must file their returns regularly with the FTA and pay any VAT due without delay, even if they have not yet received full payment from their customers. This can impact working capital and create a cash flow strain for businesses. That is why proper tax management is always essential. IMPACT ON PRICING There is impact of VAT on businesses with respect to their pricing and profits. Businesses need to set prices such that they are able to cover the VAT cost while still remaining attractive and competitive in the market. In price-sensitive markets, businesses may even have to absorb the VAT cost to avoid impacting their consumer base, thereby reducing their profit margins. SCOPE OF INPUT VAT RECOVERY IMPACT ON COMPETITIVENESS The competitiveness of an industry and the firms operating within it can be significantly affected by VAT. Businesses strategically and pass it to consumers by adjusting their prices. If they are unable to adjust prices and competitors offer better pricing, a business’s competitiveness can be severely impacted. must manage VAT

8. COMPLIANCE AND ADMINISTRATIVE BURDEN IMPACT ON CONSUMER BEHAVIOUR NEGLIGENCE RISKS

9. ZERO-RATED AND EXEMPTED VAT CATEGORIES There is no impact of VAT on businesses that deal in exempted or zero-rated supplies. Zero-rated supplies examples: Exports of goods and services outside the GCC Global transport and associated supplies New residential homes Some educational and ancillary goods and services Some healthcare services Certain investment precious metals Exempted supplies examples: Some financial services Residential properties Transactions related to bare land Local passenger transport Please refer to the official government guide or contact our tax experts in UAE for more details.

10. Tips for managing impact of VAT ON YOUR BUSINESS The implementation of VAT may bring challenges for many businesses. The most common ones include maintaining tax invoices and records, filing VAT returns on time, and most importantly, calculating liabilities accurately. For small businesses, particularly those with small profit margins, managing VAT while remaining profitable can be tough. Here are some tips to strategically manage VAT impact on business: Train staff regularly Have an efficient accounting system Seek expert guidance Ensure your staff is regularly trained. They should be equipped with best industry practices and have up-to- date knowledge of current tax laws and VAT regulations in the UAE. In a dynamic nation like the UAE, navigating VAT complexities requires the right VAT consultancy services. Experts understand the tax system and can help optimize your tax position while handling registration, filing, and ensuring you avoid penalties. Invest in robust, up-to-date accounting software that supports accurate VAT management, liabilities, invoicing, and return filing. Using software reduces the chances of human error and provides real- time insights for better decision- making.

11. Update pricing strategies Regularly reviewing your pricing is essential. This allows you to adjust for VAT efficiently or even absorb it in specific cases, helping you stay competitive in the market. Be legally compliant Manage cash flow Optimize your cash flow by encouraging early payments from customers (e.g., by offering discounts), extending payment terms with suppliers and implementing strong cash flow forecasting techniques. This helps prevent cash shortfalls and ensures you can meet VAT obligations on time. Always stay informed about VAT laws and regulations issued by the government. Follow FTA updates closely and consult with them if you have any uncertainties. Keep accurate records Maintain all VAT-related documents and records properly. According to UAE VAT law, businesses must retain these records for up to 5 years, including sales, purchases, invoices, and other supporting documents.

12. STAY 100% TAX COMPLAINT WITH DUBIZ It is important for any business setup in Dubai, whether small or large, to fully understand and manage the impact of VAT on businesses operation and other aspects. When done correctly, this helps in optimizing tax liabilities, ensuring legal compliance, and maintaining consistent cash flow. Essentially, for the success and overall performance of your business in the UAE, you should be cautious with taxation Dubiz Business Setup offers complete guidance related to corporate tax in UAE or VAT in the UAE. From registering for VAT to calculating tax liabilities, filing returns, and maintaining records, our experts handle everything with the utmost care. We offer a free tax consultation, so you can book yours to discuss your tax situation first.

13. CONTACT US Phone +971 563695485 Email info@dubiz.co Website dubiz.co Location Office number 2908, Al Manara Tower, Business Bay Dubai.