Many startups get caught up in the growth phase (and rightly so), but forget about tax compliance. Read ahead to be on top of your UAE VAT Registration.
The bottom line: As a start up, you need to make sure that you register for VAT on time because:
1) You need to meet the compliance requirements of the UAE.
2) It will give you the opportunity to claim most of the input VAT on your expenses, which will help you save money.
3) The penalties for late registration are hefty.
What does the law say?
A company must complete their UAE VAT Registration, when its taxables supplies cross the mandatory threshold of AED 375,000, either over the last 12 months or over the next 30 days.
A company has the option to register for VAT when its taxables supplies cross the voluntary threshold of AED 187,500, either over the last 12 months or over the next 30 days.
Given our experience in handling VAT registrations in UAE we have seen that it is slightly more difficult to prove the threshold if it is crossed over the next 30 days as compared to the last 12 months.
Quite often, we have noticed that many businesses wait to reach the mandatory threshold to register, and then get too late. This leaves them exposed to hefty penalties.
There are obviously various scenarios that different start ups go through. However, the most common is where the startup grows slowly. First, crosses the voluntary and then the mandatory threshold. In such a scenario, the best solution is to complete their UAE VAT registration right after crossing the threshold, this makes the process much easier, and avoids any penalties.