Should you register for Value Added Tax (VAT) or NOT?

1.What is VAT?

VAT is a tax collected on the sale of goods or services. VAT is also applicable on import of goods and services in many countries.  The amount of VAT to be paid is calculated after deducting Input VAT on purchases. 

Each country has its own administrative authority for VAT. In the UAE, the Federal Tax Authority is the administrative authority. In the UK VAT is managed by HM Revenue and Custom.

2. When should one register for VAT?

Mandatory Registration:

In some cases, VAT registration is mandatory for businesses.  This is generally triggered upon reaching a certain revenue threshold.  In the UAE this threshold is when your turnover in the past 12 months exceeds AED 375,000. If the businesses anticipate that their turnover will exceed the threshold in the next 30 days, then they too will have to register under UAE VAT. In the UK revenue threshold is £85,000.

Voluntary Registration:

In the UK, you can voluntarily register for VAT at any point until your turnover reaches the Mandatory threshold. Voluntary Registration is slightly different in the UAE. Businesses could request for a Voluntarily Registration when their turnover/expenses in the previous 12 months exceeded AED 187,500. If the businesses anticipate that their turnover will exceed the threshold in the next 30 days, then too they can apply for voluntary registration.

The inclusion of taxable expenses as criteria to determine eligibility is considering the fact that initially all businesses may not earn revenue but would have incurred large setup expenses.

3. Our views

Businesses should mandatorily register for VAT when they meet the required criteria. However, following factors should be considered before deciding on a Voluntary Registration:

Credit / Refund of VAT paid on Initial Expenditure (Infrastructure / Working Capital):

The VAT laws allow claiming back Input VAT paid while purchasing initial capital assets and inventory.  For a business to claim VAT paid to vendors it is important to Register with VAT authorities and file returns.

VAT compliance responsibilities:

Choosing to Voluntarily Register for VAT will add complexity to your business.  In addition to collecting VAT from the customers, businesses must also maintain adequate accounting records.  There is also a requirement to file periodic VAT returns and respond to queries from the authorities within time.

Consistency in Operations:

Change in VAT regime requires re-setting up the accounting system and re-pricing of goods and services. These changes may not be easier when business is up and running.  Change in systems could disrupt the operations. It’s generally difficult to increase the prices once customer expectation is set.  Therefore, many businesses prefer to opt for Voluntary VAT registration to ensure smooth operations from the beginning.

Building Credibility:

Lastly, VAT registration helps build credibility and form business relations.  Many organizations prefer to deal with VAT registered businesses.

Accountant’s Box is a UAE based accounting and VAT advisory firm.  We can assist you in registering your company for VAT in the UAE. Our team will provide all required guidance on VAT registration and take care of the whole registration process.  For information, you could reach us at