VAT Implementation in the UAE: Challenges and Impacts

The UAE has one of the simplest tax systems in the world but recently announced a new 5% value added tax  is going to have a great impact on the businesses both small scale and large ones across the country. This move was taken as part of the effort to raise revenue and invest more in the economy’s infrastructure.

This new change to the tax system seems to make a big change in the way businesses in all the Emirates across the UAE operate. This is going to affect them to a greater extent. Let us look at the VAT Implementation in the UAE while discussing how this might impact your business in the days to come.

What does VAT mean?

 VAT which is short for value-added tax is a kind of tax on the consumption of goods and services. VAT in the UAE has been capped at 5% on all consumer goods and services. Yet, it is the lowest in the world, with some nations going beyond 20%, this current change in the UAE tax system is going to have a big impact on the businesses across all the Emirates.

How it is going to affect business in the UAE

With the passing of this bill, to implement VAT has become mandatory for all businesses from the 1st January 2018 onwards. If you have a business with an annual turnover of Dhs 375,000, you will need to implement VAT. But if your revenue per annum is half this set threshold, you have a choice to implement VAT or not, which has its own advantages and disadvantages.

Note that is not going to be a money burden on businesses because it VAT is a tax on the goods and services people take. But this can, for sure, affect your revenue generation in other ways like discouraging your potential customers.

According to some business owners, “Because of this new move, we may have to require more time to learn about the new system or revamp our financial systems and operating structures.”

Nasrullah Chaudhry, who is a co-founder and CEO of Deutsche Technic Automotive Workshop says, “Passing the VAT burden to customers might only discourage people from hiring their services.

What should you do to cope with this new change to the tax system?

Where VAT implementation affects your business it also has advantages provided you have prepared your business for it. To cope with it, you need to take the right pro-active remedial measures that can help you address deficiencies. Implementing VAT right may result in reduced cost on the operation and enhanced efficiency for business. For that, you need to update your cash accounting scheme and record keeping system.

Do reshuffle in your IT system to make it more efficient. Also, a small investment in the training for personnel would be a good idea.

If you haven’t already, it is time to Implement VAT in your business system. You should invest in an accounting solution that streamlines the VAT collection, record-keeping, and reporting processes.

Looking for a partner with expertise in VAT implementation for businesses in the UAE?  TAX WORKS may be the right choice for you.