Voluntary registration is an option available to businesses which do not have a turnover in excess of the Mandatory Registration Threshold but would still like to be registered for VAT. There are a number of reasons why a business may choose to voluntarily register for VAT, for example:
- to be able to recover VAT on their expenses;
- to ensure that any incurred VAT does not become embedded in their pricing, therefore forcing the business to increase prices because they cannot recover the VAT incurred; and
- to obtain the TRN to obtain cash flow advantages when purchasing goods from outside the UAE (by being able to use the reverse charge).
A person can voluntarily register for VAT if:
- at the end of any month, the total value of the person’s taxable supplies and imports, or their expenses which were subject to VAT, in the previous 12 months exceeds the Voluntary Registration Threshold of AED 187,500; or
- the total value of the person’s taxable supplies and imports, or their expenses which are subject to VAT, in the next 30 days is expected to exceed the Voluntary Registration Threshold of AED 187,500.
A voluntary registration is effective from the first day of the month following the month in which the application is made, or from such earlier date as may be requested by the person and agreed by the FTA.
Check the below example to understand the Voluntary VAT Registration concept
XYZ LLC is setting up in business as a sports shoe retailer. They have not yet begun trading but are in the process of fitting out the retail premises and purchasing stock prior to the opening of their first store. They begin incurring costs on 1 February and intend to begin trading on 1 April.
They expect to incur VAT-bearing costs of AED 200,000 prior to starting business on 1 April and therefore may apply to be voluntarily registered.
As XYZ LLC’s expected taxable expenditure in the following 30 days will exceed the Voluntary Registration Threshold, they may apply to be registered for VAT.