VAT or value-added tax is a tax levied on the consumption of services and goods. Currently, it has been set at 5 percent in all the GCC countries and is seen to be the lowest levy across the globe. There are countries that charge a VAT that is as high as 20 percent.

The tax gets levied across all stages present in the supply chain. This means that each business present at each point of the chain will get taxed – from the manufacturer, wholesaler, to the retailer. But there are certain industries that are exempt from paying VAT such as local transport, residential real estate transactions, etc.

How Will Your Business Be Affected?

If your company or business records an annual turnover of Dh375,000 or more, you will need to register for VAT. If the business records or generates half this amount, you will have the option of making a voluntary registration. It is an option that comes with its own set of advantages and disadvantages.

One thing to note from all this is that VAT cannot be viewed as a business expense. It is a cost which ultimately gets passed on to the end consumer when purchasing products. Your business will act as a tax collection agent, as it will be collecting tax for remittance to the government.

There are indirect costs that are linked to being tax compliant. The costs are likely to affect numerous areas of the business such as accounting, pricing, financial planning, and cash flow. Noncompliance costs which are fines are also there. The minimum noncompliance cost has been set at Dh500. Please refer to our blogs on penalties.

As a business, there's is little time to analyze the cost implications of the introduction of VAT in the UAE markets and make the necessary adjustments. Of course, the amount of work required depends on the size and complexity of your enterprise. Contact us for any queries on VAT compliance laws in UAE.