VAT Filing for Startups in the UAE: What You Need to Know

Understanding your tax obligations is just as important as launching your product or service. Getting it right from the beginning can save you a lot of stress down the road. One of the essential requirements for many businesses in the UAE is VAT filing. As a startup owner, this article will make you understand what VAT filing UAE entails and how to stay in compliance.

What is VAT?

VAT is Value Added Tax. It is a kind of tax added to the price when goods or services are sold, but it is not paid directly by the customer to the government. VAT in the UAE was implemented on January 1, 2018, at a standard rate of 5%.

When a business sells, it adds VAT to the amount. When a business buys from another registered firm, it pays VAT on the acquisition. It can reimburse itself for the VAT paid.

Why Should Startups Consider VAT?

Even if you have a new company, you may still be asked to register for VAT. The UAE government says that companies will have to register for VAT if their yearly turnover is AED 375,000 or above. If your startup exceeds this figure, you will be asked to register for VAT and file returns periodically.

If your business receives AED 187,500 to AED 375,000, then you can register for VAT voluntarily. However, voluntary registration could be a good idea, as it allows you to claim back input VAT (the tax paid on what you purchase).

VAT Registration Procedure for Startups

VAT registration in the UAE is through the Federal Tax Authority (FTA) portal. Here are the easy steps:

• Register on the FTA website.
• Fill out the VAT registration form, providing details like your trade license, contact details, bank account details, and expected revenue.
• Upload the documents, including your trade license, owner's Emirates ID, passport copies, and proof of business activity.
• Apply and wait for approval.
• After your application is approved, you will receive a new Tax Registration Number (TRN) assigned by the authorities.
• You will now be legally required to charge VAT and file VAT returns.

What is a VAT Return?

A VAT return in the UAE is a form you need to submit to the FTA. It shows how much VAT you charged on your sales (output VAT) and how much VAT you paid for your purchases (input VAT).

If the output VAT is greater than the input VAT, you will need to pay the difference to the FTA. If you have a higher input VAT, you can recover it or bring it forward to the next succeeding tax period.

When and How to File VAT Returns?

Most UAE companies are required to file VAT returns quarterly (every 3 months), but you may be asked to file them monthly. Your frequency of filing will be informed by the FTA once your registration is complete.

The VAT return must be filed online through the FTA portal within 28 days after the end of each tax period.

For example, if your tax date is March 31, file your VAT return by April 28.

Documents You Need to File VAT

To file your VAT return accurately, have the following documents handy:

• Sales invoices
• Purchase invoices
• Debit and credit notes
• Import and export details
• Bank statements
• Books of accounts

Make sure your records are clear, complete, and accurate. You have to keep these records for at least five years.

Tips for Startups to Handle VAT Filing UAE with Ease

Use an accounting software: Using effective accounting software allows you to track VAT on your purchases and sales. It makes filing easier and reduces the risk of mistakes.

Consult a tax professional: Partnering with a VAT expert ensures you're fully compliant with UAE regulations, giving you peace of mind and freeing up your time to focus on your business. They can make sure that you stay within UAE VAT regulations.

Stay informed: VAT rules may evolve over time. Always stay updated with FTA announcements to steer clear of fines.

File on time: Always file your VAT return on or before the deadline. Late filing can lead to heavy fines.

Double-check your numbers: Always review your return twice before filing. VAT submission mistakes can result in fines or even legal issues.

What If You Fail to File VAT?

If you fail to register VAT returns within the deadline, you may face fines. Some of the typical penalties are:

• AED 20,000 for not registering when required.

• AED 1,000 for late filing for the first time, and AED 2,000 for repeated delays.

• 2% of the outstanding VAT amount in advance, and more penalties if it is paid late.

These penalties can be very costly for a new company. So, VAT must be regarded seriously.

Can You Cancel VAT Registration?

Yes, if your business is no longer above the threshold or if you are closing down, you can apply for deregistration of VAT. You have to do it within 20 business days of when you're no longer entitled. Otherwise, you'll incur a fine.

Final Thoughts

VAT returns in the UAE can seem complex at first, especially for new business owners. But with proper support and the right tools, managing VAT can become a simple task. Register for VAT if your turnover is at the specified level, file returns on time, and keep clean records.

Being VAT compliant not only keeps you away from fines but also creates trust with customers, suppliers, and the government. As your business grows, ensuring VAT filing remains under control will uphold smooth business operations and a good reputation.

Stay VAT-compliant with ease—North Star Global offers expert VAT filing solutions tailored for UAE startups to help you grow without the stress.