Just Invest AED400 and not AED4,000 to be VAT Ready in the UAE

Even though VAT legislation is still not gazetted in the UAE or any other GCC country, the authorities have indicated the turnover threshold for VAT liability is AED375,000 per annum. Many small businesses are making this amount and thus will be liable for VAT.

Self-styled VAT consultants are appearing out of nowhere in the UAE. Some will make you believe that you need to attend a seminar in a 5-star hotel by paying AED4,000 in order to be VAT ready. Others will say you need to hire them by paying AED15,000 so that they will make you VAT ready. The truth is there is no need for a small business to spend such amount on consultants.

VAT payable by a business is the difference between the output tax collected on sales and the input tax paid on the purchases. As long as a business keeps documents and records of sales and purchases it would be sufficient for tax purposes.

What should a small business do to be VAT ready?

Street shops, cafes etc do not have the personnel to handle an accounting software. They are mostly dealing with B2C customers and they just need to issue a bill. They should invest in an electronic cash register if they don’t have one. The basic one sells for about AED400 and advanced one with POS function is about AED1,200 on souq.com. The cash register will make bills to customers and will give sales report a the end of the day. Sales reports and purchase invoices should be filed. These documents will be sufficient to calculate the VAT payable.

Small offices are mostly dealing with B2B customers and they have to issue VAT invoices. They can prepare a VAT invoice in Excel but it is better for record keeping if they use an accounting software. They need to enter purchase invoices in the software separating the input tax. The software will produce sales and purchase reports to calculate the VAT payable. There are many user-friendly small accounting software available in the market and some are free.

Wave is a free accounting software available in the cloud. It is a pretty good software which can handle all the invoicing and bookkeeping functions. For commercial software, QuickBooks and Xero are popular and are pricewise reasonable. QB is available in desktop and cloud version whereas Xero is available on cloud only.

QB desktop basic version is about AED700 for download. Cloud versions have different plans but for a small business with inventory QB cloud will cost about AED33 a month and Xero about AED110 per month.

VAT is not rocket science. Many small businesses around the world are already paying VAT. They don’t spend AED4,000 in attending VAT seminar in a 5-star hotel.

Article written by Yoga Yoheswaran, Chartered Accountant