Can you advise me please? I have recently started a freelance marketing business but am finding that larger companies do not want to work with me because I am not yet VAT registered. How can I get around this as I really don’t want to lose their business.
This is a really common issue for non-VAT registered small businesses and one which is a result of ignorance of the VAT law, rather than there being any valid basis behind it. Businesses whose turnover falls below the mandatory VAT threshold of Dh375,000 per year are not required to register for VAT. Not being VAT registered does not make a properly licensed business any less legal or valid than a similar business who is VAT registered. A start-up will always inevitably have a period where they are not VAT registered. There seems to be a misconception within large company finance teams that they cannot do business with any supplier that isn’t VAT registered. The Federal Tax Authority (FTA) has said that a business should not deal with another business who they believe should be VAT registered and is not. But there is an obvious difference between a company not being registered when they should be and a start-up or small business not being VAT registered because they are not eligible to be.
The first thing I would try is to write a letter on headed paper stating that you are a start-up business who has not yet reached the mandatory VAT registration threshold of Dh375,000, and that as soon as you reach that threshold you will immediately register in line with the VAT legislation.
If this is not successful you may wish to register for VAT as soon as you get to the voluntary registration threshold, which is Dh187,500. This threshold is based on taxable turnover which not only includes your sales (both local and exported services) but also any imports of goods or services which would be subject to the reverse charge mechanism. The FTA has been rejecting voluntary registrations where insufficient evidence has been provided to support that the lower threshold has been reached (or will be reached in the next month). I’d therefore ensure that as part of the registration process and upload of documents you provide them with comprehensive details of your sales to date to prove you are eligible for registration.
I was due to submit my VAT return on 28 June and I didn’t do it. Can you tell me please whether I will face any penalties if I submit the return now.
CF, Abu Dhabi
I’m sorry to say that yes you will receive penalties for failing to submit your VAT return by the due date and failing to make payment by that date. The legislation covering penalties and fines for violation of tax laws is included in Cabinet resolution 40.
Failing to submit the VAT return on time will result in an immediate Dh1,000 penalty. If you do it again within a 24 month period this penalty rises to Dh2,000 Dirhams. On top of the late filing fee you will be charged a fee for the late payment based on a percentage of the amount of the tax due. An immediate fee of 2 per cent of the tax due is imposed with another 4 per cent added on day 7 if the tax is still unpaid. If you pay within a calendar month then no more penalties will be added. If you have still not paid after a month you will be charged a further 1 per cent per day, which continues to be added until the penalty is 300 per cent of the amount due.
I am seeing examples of companies making the payment correctly by the due date, but failing to submit the return. It’s worth being aware that if you make the payment on time but fail to submit the return you will not only be charged the Dh1,000 fixed penalty but also the percentage of the tax payable for late payment. This may seem odd as you have made the payment but just not submitted the return. The FTA has stated that a VAT payment is not recognised until the associated VAT return has been filed. Therefore you need to do both by the due date to avoid any penalties. One final point to note, making payments to the FTA’s account held with the UAE Central Bank using your GIBAN account is still proving challenging for many banks and therefore its worth making the payment well before the due date to make sure that the funds are in the FTA’s account by the last day for payment. Even if the funds have left your bank account they are not recognised by the FTA until they have cleared funds in their account.
Lisa Martin, a chartered accountant with more than 20 years commercial finance experience, is the founder of accounting, auditing and VAT consultancy, The Counting House. Email any VAT queries to firstname.lastname@example.org