What does VAT mean?
Value Added Tax is an indirect tax levied by the government on the sale of goods and services at each step of the supply chain. The ultimate burden is on the consumer. On behalf of the government, the businesses collect and account for the tax. UAE and other gulf countries introduced it at the beginning of 2018. The rate of VAT is 5%. VAT services in the UAE provide professional help to businesses in this matter.
Governments have found the need to broaden their income sources. VAT becomes another source for the government to earn revenue which will contribute to the continued provision of high-quality public services in the future. The Federal Tax Authority (FTA) handles and collects federal taxes. Moreover, it is also responsible for executing the tax-related systems in the UAE.
What is taxed, and what is exempted?
There are two kinds of goods and services, the exempted goods and the taxable. The former are those on which the VAT is not levied such as the local passenger transport, residential properties, specific financial services, etc. The taxable supplies are further sub-divided into two. There are a few commodities on which the standard rate or full rate of 5% VAT is applicable. The other is the zero rate where VAT is levied at the rate of 0%. It includes the export of goods and services to and outside the Gulf Co-operation Council, the supply of specific healthcare and education services, specific investment-grade valuable metals, etc. There are several VAT services that can help you in understanding and implementing it accurately.
Implications of VAT on small businesses:
If your company has an annual turnover of dirham 375,000, you will be obliged to register for VAT.
● Increased costs:
If VAT is not applied correctly or reported accurately quarterly, it may become an additional cost to the business. Further, not following the tax laws will lead to severe penalties. Therefore, a company registered for VAT needs to educate itself on the various aspects of how it works. If the firm wants to make sure they are complying with the new laws, they have to update their IT systems and train their employees regarding the whole process.
Moreover, they need to include VAT into their accounting systems. They may require VAT consultants in UAE for the same. All fo this can prove to be expensive, especially for small-scale businesses that do not have a huge budget.
● Change in business structure:
The VAT is charged at each stage of the supply chain, which can prove to be an obstacle if you have more than one business entity selling the same commodity. Hence, this will require the firms to revamp their business structure. It is practically impossible to do all this in a short time frame.
● Hinders expansion of small businesses:
The Value Added Tax will affect the small firms significantly because of the factors mentioned above. It curbs the capacity for small and medium businesses to expand and develop on account of the additional costs that they need to incur.
