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Values added Tax (VAT) is a tax of consumption that is charged on every stage of the good and services supply. The businesses, including restaurants, have to calculate VAT by adding 5% of the VAT on every item they sell regardless of the nature of business or types of cuisines. From fast food to local cuisines, restaurants must ensure VAT compliance.
Nevertheless, many small cafeterias and restaurants are operating in the UAE. It will not be wrong to say that many of them are not managing proper accounting records. However, the deployment of VAT in the UAE has changed the scenario of small and medium enterprises, considering encouraging them to focus on financial management.
The article is written to explore the impact of VAT on restaurant businesses in the UAE. If you are running a food and beverage business, it is going to help you prepare well for paying the newly deployed taxes well.
Top Ways VAT Affects the Restaurants in the UAE
There is no denying that restaurants enjoy steady success throughout the year. It is because people love to eat out – So, businesspeople have to offer tasty cuisine. Besides this, the restaurant business owners should consider managing their accounting affairs comprehensively for keeping a check on the revenue and other financial matters.
Let’s consider a few aspects of value-added tax in the UAE and its potential impact on the food and beverage businesses, especially restaurants:
Eligibility for VAT
First thing first, it is imperative to understand the VAT eligibility for restaurants to gauge the effects. A threshold has been set to help businesses understand their tax obligation. According to this, the SMEs having AED 375,000/- turnover annually are required to register for VAT.
As per a rough estimation, a cafeteria or restaurant make earnings of a minimum of AED 1000/- through daily sales. It is an average coverage for VAT required by the restaurants in UAE.
Keeping this into consideration, the restaurants having partial or incomplete accounting records should consider effective management by acquiring the services of the best VAT consultancy in Dubai. It is essential for the accuracy of VAT calculations.
Record of tax invoices
The impact of VAT is obvious in restaurants when it comes to the management of tax invoices. It is because different criterion is given for invoices related to VAT for restaurants. The business people have to follow the FTA provided template for invoice management.
Owing to this, restaurant owners need to change the software used for invoicing. Remember! The format of the invoices should meet the requirements issued by the Federal Tax Authority (FTA) by any means.
Besides, it is essential to calculate VAT from the start. You can set the 5% VAT starting from midnight on 31st December. You can also set calculate the VAT by setting it 0% before midnight 31st December. It will help the restaurant businesspeople comply with updated regulations.
Input VAT credit
Almost all businesses have to comply with VAT credit inputs. The expenses related to VAT incurred by the restaurants are deducted as per the given circumstances:
- The end consumer is not authorized to claims input tax refund which means that business is a taxable entity
- VAT is not unduly charged as already calculated and submitted correctly
- The companies must have maintained proper documentation indicating that VAT is paid properly
- The services and good are intended to produce taxable products or supplies
- Businesspeople can claim VAT input refund before at least six months of the expiration for the supply payments.
Revision in the menu charges/prices
The businesses dealing in the food and beverage field must comply with the rules and regulations of VAT in the UAE. For this purpose, they have to revise the prices of food items displayed on the menu. Now, the business people have two distinctive options.
- Firstly, add the VAT calculated amount into the menu prices and display it collectively on the menu books.
- Secondly, display the original prices and add a box containing the VAT charges with every foot item.
It is suggested to use this option because you will be in a better position to clarify VAT charges on every cuisine item displayed on the menu book. Additionally, you must explicitly mention that every food item will contain 5% extra as part of VAT to help the customers understand their billing charges without any difficulty.
Goods and Services Imports
Last but not least, restaurants import many goods, ingredients, and services for ensuring a tasty eating experience. However, it is essential to note that eatery owners must comply with the updated rules and regulations for the import of goods and services.
It is imperative to understand that VAT is usually charged through a reverse charge mechanism. The restaurant owners have to pay this tax in addition to the paid custom duties for the import of goods and services. In this way, the value of VAT is calculated while including the customs duties.
Get help from VAT experts today!
Summing up, from small eateries to fine dining restaurants, it is essential to pay VAT if the businesses meet the minimum threshold of VAT requirements. Being a restaurant owner, you surely understand that it is not easy to comply with all nitty-gritty of financial matters without the assistance of tax experts. So, it is better to acquire the best VAT consultancy in Dubai to deal with the effective management of bookkeeping and invoice management.
Don’t forget to learn about updated rules and regulations of FTA for ensuring better knowledge processing for VAT registration and submission!
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