The UAE Executive Regulations make provisions for mandatory and voluntary
registration.
A mandatory registration leaves no choice to a person resident in the UAE to
register when the VAT registration threshold is met.
Two tests are applicable to monitor whether the VAT registration threshold has
been or will be exceeded requiring application for VAT registration in the UAE as
set out in Art. 13 of the VAT Law: one test is the Historic Test and the other is the
Future Test.
Mandatory Registration
The historic test looks retrospectively at the level of supplies made in the previous
12-month period to establish if the mandatory registration threshold is exceeded
and the future test looks at supplies that will be made within the next 30 days to
establish whether the same threshold will be exceeded. If the level of supplies
made in the historic or future period exceeds the VAT registration threshold of AED
375,000, a person has 30 days to apply for registration. In respect of the historic
test, the VAT registration has effect from the first day of the month following that in
which the person became liable to register. In respect of the future test.
registration takes effect from the date on which there were reasonable grounds
for believing he would be required to register or an earlier agreed date.
Voluntary Registration.
For voluntary registration, existing traders can register even if their taxable supplies
fall below the mandatory registration limits, and if their annual supplies or expenses
exceed AD 187,500.
With regards to voluntary registration, the same historic and future tests apply.
A business that is not required to be registered may still apply for registration
provided that its supplies or expenses are not below the voluntary registration threshold in the historic and future 12-month period calculated, as explained
above. The VAT registration can take effect from the first day of the month
following the month in which the application is made or from an earlier agreed
date.
Voluntary registration may be chosen as it could be beneficial for intending
traders. These are traders who have not actually commenced trading but
intend to within the foreseeable future. These traders apply to THE AUTHORITY for a
VAT number well before they commence trading. This might be for various factors
but the most common is to enable recovery of VAT from THE AUTHORITY whilst the
business is being set up. you can reclaim input tax from THE AUTHORITY.These would obviously be provisional reclaims and will be dependent on the fact that the business does actually commence trading and makes taxable supplies for VAT purposes.
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