VAT Registration: The biggest error made by service exporters

“But 100 per cent of my supplies are zero-rated. Isn’t VAT registration required only when VAT is payable or recoverable? I am neither recovering nor want to recover any VAT input credit”, the owner of a free zone service company asked me.

”Just because 100 per cent of your supplies are zero-rated, it does not mean that you are not exempted from submitting a VAT registration application.”, I replied to her and explained the VAT registration provisions in detail.

VAT registration threshold

As UAE VAT is nearing 5 years of its implementation, almost all of us are aware that the threshold for mandatory VAT registration is AED 375,000.

To check the threshold, the laws require to aggregate inter-alia the turnover of ‘taxable supplies’ of the last 12 months or of the next 30 days. The turnover needs to be aggregated on a rolling basis and not on a calendar year basis.

It is the usage of the expression ‘taxable’ which leads to a confusion for the business owners. As no tax is payable on zero-rated supplies, business owners incorrectly assume that the VAT registration is also not applicable to them as if their supplies are not taxable.

Taxable supplies, the common mistake

The expression ‘taxable supplies’ has been defined to mean a supply of goods or services for a consideration by a person conducting business in the UAE, and does not include exempt supply.

All supplies except the exempt supplies are treated as ‘taxable supplies’. In other words, ‘zero-rated’ supplies are also taxable supplies.

“If you allow me to use tax jargons, it is not that the zero-rated supplies are not taxable. Such supplies are taxable at 0 per cent VAT rate”, I continued while reviewing their past revenue numbers.

It is a common mistake to assume that zero-rated supplies are not taxable supplies.

Exception from VAT registration

UAE VAT law is very pragmatic and supports ease of doing business. If 100 per cent supplies of a business are zero-rated, the law does not mandate to burden the business owners with periodic VAT compliances.

In the VAT-registration application itself, the applicant has an option to request for an exception from registration as 100 per cent of its supplies are exported (zero-rated).

FTA is not obliged to accept such requests and acceptance is at the FTA’s discretion. If the request for exception is approved by FTA, the business/applicant will not be required to submit periodic VAT return. The applicant is granted a Tax Identification Number (TIN) instead of a Tax Registration Number (TRN). A TIN Is also a 13 digit number suffixed with letters ‘XC’.

Requesting for such exception is purely optional. A business owner may decide to go ahead with the normal registration and periodic VAT compliances.

But in either situation, a timely submission of a VAT registration application is necessary.

Penalties

Once the taxable supplies (including the zero-rated supplies) exceed the registration threshold, a business owner is required to make an application to FTA for VAT registration. The registration application should be made within 30 days.

Delay in the submission of the registration application (beyond 30 days) could attract a penalty of Dh10,000.

“As we often say in our webinars, businesses often assume that correct tax payments ensure tax compliance. They also need to be mindful for penalties for non-compliance not involving tax payments”, I concluded as we prepared a VAT registration application.

The writer is the managing director of AskPankaj Tax Consultants. For feedback and queries, you may write to info@AskPankaj.com. Views expressed are his own and do not reflect the newspaper’s policy.

• Dubai