With the emergence of VAT in the UAE, small businesses should be well-prepared even if they don’t reach the threshold of AED 375000. So, let’s explore in brief how the small businesses should adapt to VAT. To be precise, it is an indirect tax which is paid by consumers when they buy goods and services. It was introduced in the Gulf Corporation Council as a way to diversify the economies of its member nations.
VAT is an Indirect Tax which Emanates from the Supply Chain
Note that VAT is levied through the supply chain of a particular business. A small business in the UAE may need a VAT invoice when providing goods and services. In these types of situations, the business has no choice rather than registering for VAT. This is the reason that small-scale businesses should always be prepared to comply with the various norms of VAT.
On the other hand, if the business is already registered for VAT and is supplying goods to non-VAT registered businesses, then a set of different factors need to be considered. Communication is the key here to identify who are the effected customers so that they are prepared to tackle the change.
The Need for an Accounting System
When small businesses are registering for VAT in UAE, then they would need to consider an accounting system to use. This would enable them to accumulate the information related to the quarterly return of VAT. It is interesting here to note that if a business is sending invoices via hand-written bills or word/excel, then the collection process would be quite burdensome. This is the reason that your business should use cloud based accounting software.
The Cash Flow of a Particular Business
In the UAE, the credit payment terms are known to be longer than a month. Moreover, if this is longer than 90 days, then a cash flow problem will be present. In case a small business cannot collect payment from goods and services supplied within a specified time period, then they would need to seek funding. This would also enable them to make the quarterly VAT payments. This is the reason that small businesses would need to ensure tighter controls on payments from their respective customers.
Once your company is registered, you need to levy VAT on your domestic sales. A business may also decide not to pass the tax on to its customers.