The UAE introduced a value-added tax (VAT) regime in January 2018, amid concerns that SMEs in particular would face problems implementing adequate systems to deal with the change.
Yet it seems that for some, at least, the transition has been straightforward enough. “Interact found changing over to be VAT-compliant to be a relatively smooth process,” said Shane Curran, CEO of Interact Group International, a corporate interior design firm.
Part of the ease of implementation was the fact that the group’s other branches are in countries with existing VAT regimes. “We have businesses in the U.K. and in Ireland which are already using VAT, and the system and the infrastructure we are using is a Tally.ERP 9 system, which had a VAT function.”
Other firms employed external advisers to navigate the intricacies of the new system. “It wasn’t very clear when we started if we were exempt, and what the documents were and how we should apply for the VAT tax registration number,” said Ibrahim Colak, co-founder of online service provider mrUsta. The company started its implementation process in the last quarter of 2017.
“We consulted with an external financial company … they helped us on this process and they educated us on this project,” he added.
However, some hiccups were inevitable.
Curran recalled an initial confusion within some of Interact’s departments, including the firm’s estimation arm. “When we were getting in prices, some prices included VAT and some prices excluded VAT, and it was just a small bit of working through that with our accounts,” he said.
“We would explain how we would do that, but relatively all departments found it pretty easy to make a change across the VAT.”
mrUsta’s Colak commented that communicating the change clearly to customers was crucial.
“We had to update our pricing and we had to pass it on to customers. It was required from the government and in some cases we had to round up the prices and round down the prices, but mainly … we kept VAT amount on top of our prices and we clearly mentioned it in every communication to our customers and suppliers.”
mrUsta quickly realised that in a price-sensitive and highly competitive industry, it was essential to be specific and clear about pricing structures.
“Even 5 percent would make real sense to customers,” he pointed out. “So when the prices are changed 5 percent and you don’t communicate it with the customers, customers don’t understand the changes and they feel (they’re) not trusting you.”
In order to create and maintain trust, “everything should be crystal clear,” he remarked.
Curran had different observations with regard to the interiors industry. “We haven’t noticed any price fluctuations in our industry … since the implementation of VAT,” he said.
Instead, the impact was more subtle. “There were some things that we did need to consider before signing contracts where you have payment terms,” he said.
“In some cases the VAT is due for payment prior to us receiving payment from our client, so we have to factor that into our cashflow for the job and then for the company,” he explained.
Curran’s advice for start-ups? “It’s very very important to be sure of your numbers and to have good accounting software in place, and definitely whether it’s in-house or outsourced, you need a good strong hand on accountancy.”
He pointed out that VAT adds another element to the accountancy element because there is accountability “to make sure that you’re paying the correct VAT whether it be too much or too little and to understand the implications for your company around that.
“So my advice to any SME that’s coming on board is to make sure you have the right ERP system and have somebody that’s competent to look after your books and your accounting,” he added.
Colak said that the introduction of the VAT regime has resulted in an increased awareness of the accounts in mrUsta.
“I believe we are more careful on keeping our book records now, we are more careful about our financials and we use our financial software much more efficiently now,” he said.
So has there been any adverse impact as a result of the new tax regime? Curran believes that it has not put potential investors off doing business.
“From a country where VAT is 21 percent, I think the implementation of VAT at 5 percent here hasn’t had a massive bearing on doing business ... The proof will come later when you see how the tax that has been charged is reused, or used, to the continued growth of Dubai amd the UAE as a whole,” he concluded.