Why should free zone company register under UAE VAT
From what we understand, in normal course of businesses in United Arab Emirates, till the introduction of VAT there were two popular basis of classifications of the companies in UAE.
1. Non free zone companies (having license issued from Economic Department or municipality of any other mainland based authority with requirement of local sponsorship)
2. Free zone companies (having license issued from one of the various free zones in Dubai, Sharjah and other emirates without requirement of local sponsorship)
In our opinion UAE VAT Law does not classify companies on aforesaid categorization.
UAE VAT Law No. 8 of 2017 speaks about "Person" (A natural or legal person.) And "Taxable Person" (Any Person registered or obligated to register for Tax purposes under UAE VAT LAW. Any person whose taxable supply exceeds AED 375,000 then their registration is mandatory and for person's whose taxable supply is less then AED 375,000 but is in excess of AED 187,5000 could register voluntarily.
Why registration under UAE VAT is in favor of companies based in free zone ?
Export of goods and services has been considered at zero rates other then exempted items. Taxable supply is currently subject to either 5% standard rate or zero rate of VAT.
Vat would be payable by the companies at 5% on goods and services imported for resale in UAE other than exempted items + 5% standard rate on purchase of goods and services from other companies in UAE
In case of a free zone based company, where all the sales of goods and service are exported then there would be no liability of vat being export zero rated. Such free zone companies could claim refund/ credit in future of the entire vat paid on import of goods and services + purchase of goods and services other uae companies subject to vat refund/credit rules and regulations in UAE VAT.
If part of the total sales and services are made to other uae based companies then on that much sales of goods and services vat at standard rate of 5% could be charged and paid under VAT returns. Such free zone companies could set off the 5% VAT liability collected from uae companies and customers from the VAT paid on import or local purchase of goods and services and if balances could recover as refund/credit subject to vat refund/credit rules and regulations in UAE VAT.
If a company does not register then the vat paid on local purchase of goods and service would not be recoverable. To claim the vat refund/credit it’s necessary to be a VAT registered business. Thus by registering under vat the company could recover as refund/credit of the VAT paid which otherwise would be a cost to company and hitting the profit margin/ bottom line, subject to the fact how much VAT refund/credit is lost.
In case you need any assistance and support on VAT in UAE, please contact us firstname.lastname@example.org . Gupta Accountants competent team as Vat Consultants in Dubai, provides supports at all the stages of the VAT in UAE .
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Gupta Accountants as Vat Advisor, as Vat Consultants in Dubai and Dubai Free Zones, Vat Consultants in Abudhabi and Abudhabi Free Zones, Vat consultants in Sharjah and Sharjah free Zone, Vat consultants in Ajman and Ajman free Zones, Vat Consultants in Fujairah and Fujairah free zones, Vat Consultants in Ras Al Khaimah and Ras Al Khaimah free zones, Vat Consultants in Umm al Quwain and Umm Al Quwain free zones provides Vat consultancy and Vat Advisory.
Ramesh Kumar Gupta is a young and dynamic Chartered Accountant and has 21 years of experience in assurance, accounting, audit and business management. He is a member of the Institute of Chartered Accountants of India (ICAI). He is the Managing Partner of Gupta Accountants an accounting and advisory firm in Dubai UAE