The UAE Regime implemented the Value Added Tax (VAT) Act on January 01, 2018 to a variety of commodities throughout the nation at an average ratio of 5%.
Several queries are likely to ringer your mind for instance; what is VAT? Why uphold VAT in UAE? And what are some of the implications of the implemented VAT to firms? Below are the answers to the above queries:
What is VAT?
Value Added Tax refers to the Indirect tax imposed on commodities which can be equated to refer to the type of universal consumption tax enforced on the consumption of goods & services. That is a comprehensive multistage consumption tax taxed the supply chain transversely as well as collected by companies on behalf of the government. In the long run, VAT is experienced besides the customer who is the end user incurs it rather than the firms.
Why VAT in UAE?
The primary purpose of the VAT policy is that it will aid towards the provision of additional revenue for the UAE government. Aforementioned will influence towards the unrelenting delivery of excellent public amenities to the future of the nation. The implemented Act is among the regime’s strategies used as a resource to diminishing over-reliance on oil & hydrocarbons as the key resource in income provision.
What will be the impact of VAT on your business?
The law is bound to alter your organization’s financial statements as well as the operational prospect of acquiescence to the implemented Act.
Financial prospect: After adjusting the VAT to your financials, you ought to perform some adjustments on your price tags to adapt probable proliferated rates owing to irretrievable VAT in addition to the valuation of the financial statement, estimated to incorporate VAT influence. The cash flow is bound to influence the working capital because of the elongated credit terms, plus Zero rated sales. There are possibilities that in attempts to recover VAT it is likely to an outcome to a cost to the business, in scenarios where not correctly claimed. In Inter-company dealings (VAT Group) scenarios, some possibilities are probable to lead into an irredeemable VAT, where there lack properly applied VAT action.
Operational prospect: you may have to revise some contracts terms with your suppliers, service providers or customers. Revising your reporting capabilities of your current IT systems to capture VAT data is critical to adjust numerous levels wholly including the transaction level affecting sales, procurements level and within inter-company dealings.
Compliance aspects: Comprises of those necessary registrations centered on yearly revenue, compulsory filing, structures imposed to reinforce internal controls measure and the VAT audits form FTA. Failing to conform to the tax regulations is likely to result in stiffer consequences.