VAT is short for value-added tax and it is commonly implemented in the European Union and within the Gulf Cooperation Council or GCC. While many benefits of this system have been recognized, business owners find it a bit challenging for their future growth as it increases the cost of production throughout the manufacturing and till final delivery. Moreover, consumers are eventually charged more for the products because the increased costs are passed down to the final stage, i.e. retail. This system particularly poses some difficulties for SME’s (small and medium sized enterprises) and in order to be VAT ready, these firms including fit out companies in Dubai need to develop a comprehensive VAT framework. This will help them avoid financial troubles later on.
Below is a checklist for SME’s to ensure they are completely VAT ready to avoid getting into trouble:
- Building a robust data storage system that will record all your clients’ phone numbers and addresses and making sure it complies with the Data Protection Act.
- Hiring more personnel for the added administrative work and to handle the increased compliance load.
- Calculating the size of your turnover to make use of schemes like CAS or Cash Accounting Scheme in which businesses are allowed to postpone paying their tax until their customers make full payment.
- Conducting an audit of your commercial fit out company Dubai to determine where your customers reside and to calculate the exact VAT rate.
- Getting registered with the local tax authorities to charge or recover VAT.
In a business similar to property and construction, many additional issues may arise, such as long-term leases, prepayments, VAT recovery of mixed supplies, and dealing with non-registered contractors or partners. The goal is to realize a smooth transition into VAT so that there is minimal interference with the actual business activities. Moreover, to completely understand VAT concepts, one needs to have technical know-how as well as IT related expertise and adequate business knowledge.
Fit out companies in the UAE need to pay more attention to this issue because all their operations could be subject to VAT and the overall accounting might become difficult in the long run. Keep in mind that an underpayment of VAT is subject to penalties and therefore it is important to be VAT ready.
Although VAT works on the principle of reverse charge, it has been found to be considerate towards low-income groups especially in the UAE. However, SME’s in Dubai and other cities need to consider a few points to ensure they don’t end up paying more tax than required. To achieve this, they will first need to determine how they are going to report and pay VAT particularly if they are in a business similar to interior design fit out. They need to know that VAT rates are going to affect their overall pricing at every stage of delivery and therefore it is important to conduct an audit immediately so that financial troubles could be avoided in the long run.