VAT is coming to the GCC, with implementation in the UAE beginning on 1 January 2018.
As a business in the UAE what should you be doing now? Firstly, keep abreast of the VAT announcements so that you can monitor the impact it will have on your business. Some announcements have been made i.e. the UAE VAT implementation date and that there will be a 12 month implementation period, the VAT rates of 5% and 0% and that Healthcare and Education will be exempt sectors. However we still await details on for example, the VAT registration threshold, the timing of VAT submissions to the VAT Authority, the penalty regime for late or incorrect filing and further details on other sectors exempt from VAT and the scope of the Healthcare and Education exemption. We expect more clarity on these points as further announcements are made in June 2016 and beyond.
In spite of this, one thing is clear, the introduction of VAT is going to bring about a change in the accounting landscape of the UAE. Once VAT is implemented, VAT-registered businesses will have to record the VAT that they charge on their sales to make regular payments to the VAT Authority, and VAT-registered businesses will want to reclaim the VAT that they suffer on their purchases they make in their business. For this process of submitting and reclaiming VAT to work effectively, businesses need to have solid accounting processes and robust record keeping.
Creating accounts purely on spreadsheets is unlikely to provide you with the information you will require for VAT purposes. So this is the ideal time to be considering whether or not your accounting system is up to the job. If you are not currently using a reputable accounting package this should certainly be something you look to implement in the near term. This will allow for an easier transition to VAT when the time comes (all reputable accounting packages will allow you to deal with VAT transactions), but more importantly it could be transformative for your business now.
Having access to accurate numbers on your business performance can help you consolidate your profitable activities and weed out the activities that are not providing adequate margins. With this information you can better use your business’s resources to improve profitability.
This is the positive side of the VAT implementation story – a push for greater structure and discipline in accounting functions, which is particularly transformative in the SME space where previously businesses have not had the same incentives (and potential penalties) for maintaining robust accounting records as larger companies have. This stronger regulatory environment is also likely to gradually push out your shady competitors who don’t trade legally. Seize this opportunity to set up a proper accounting system to provide reliable business information and drive your business to profitability and growth.
Contact The Accounts Dept. for help in setting up an appropriate accounting system for your business, and stay in the loop on VAT announcements by following The Accounts Dept. blogs on our website, social media and Linkedin.
Written by Faiza Khan, The Accounts Dept.
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