Impact Of VAT On Business Corporations
It is almost nine months since VAT has been implemented in UAE. Many business corporations are gradually feeling and facing its effects on diverse intensities. While many companies have settled in smoothly, numerous business owners continue to feel the pressure. In fact, there are several companies who are facing the consequences of a hasty registration process and have not still considered how the new laws are going to affect their corporations. This article will act as a quick guide and give you more information on VAT issues and identify its benefits and downsides.
Who has to register for VAT?
UAE companies must register for VAT if the value of their taxable supplies exceeds AED 375000.00 over a period of 12 months accruals accounting. It is crucial to register within 30 days. Moreover, if you are planning to establish a new company in the UAE, it is necessary to register if the supply or import of goods exceeds AED 187,500 subject to VAT. This must be done irrespective of the revenue at this stage of your business.
Products and services that are covered under VAT
A standard rate of 5% is charged on all business products and services. However, the ones that are considered vital do not have these charges. They are either charged a 0% rate or are given exemption.
What are the benefits of VAT implementation
- Increase in economy revenues
The implementation of VAT is expected to bring in a significant revenue to the UAE government. According to an inside source, the country’s revenues will hike from 10bn to 12bn in the just the first year of implementation. This can help in flourishing the country’s economy which will have a positive impact on small and medium business enterprises.
- An improvement in infrastructure
Along with flourishing the country’s economy, this can help in improving the infrastructure, making it faster and easier to establish businesses. Generally, investment in infrastructure has a multiplier effect which means every AED1 invested in the country will impact the GDP thoroughly.
- Increase in business efficiency
Even though the initial costs for establishing a company would be higher, there are multiple benefits associated with this new law. Firstly, the business efficiency can increase, along with up-to-date accounting systems. This will gradually decrease civil fraud and corruption in the company.
What are the downsides of VAT implementation
- Increased costs
With this implementation, your business has an extra function to perform which will be both time-consuming and expensive. This includes training new employees and updating your IT which can lead to making mistakes and incurring high-penalties.
- A change in business structure
This new law will not affect the cash flow but also lead to a change in the business structure with the new production and distribution process. In fact, this can be problematic especially if you are handling more than one entity of products and services.
- Time to be accountable
Once your company is VAT registered, you will have to keep your records updated, so that your company does not incur any fines or penalties.
If you are still unsure about this new law, a business consultancy specialised in VAT registration could be the best solution. This will help you to run your business smoothly without any drastic effects.
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