Businesses that are not required to register for VAT still have the opportunity to apply for voluntary VAT registration. Voluntary registration is possible if the annual consumables or taxable expenses incurred do not fall below the criteria for voluntary registration.
The threshold for voluntary registration is 19,250 OMR, which is exactly 50% of the threshold for compulsory registration.
Although the law allows for voluntary registration, the key question is whether a company should apply for his VAT registration on a voluntary basis. Does voluntarily registering for VAT have any advantages?
The answer is yes. There are several benefits to registering for VAT that are particularly important for new or start-up businesses. Recognise the advantages of voluntary VAT registration for businesses.
Entitlement to input tax credit
VAT registration entitles a business to input tax credit. In other words, the VAT paid on purchases can be claimed as input tax and used to reduce the VAT liability. Allow me to illustrate briefly with an example.
Purchase amount
Purchase amount
VAT 5P0025070035100050
Total input tax amount
335
Sales amount
Sales amount
VAT 5.004 00 4002060030
Output VAT Total
450
From the above example, The total VAT paid at the time of purchase is OMR 335, which is called input tax. The total VAT collected on the sale of OMR 450 is called output VAT.
You are now entitled to claim input tax credit of OMR 335 and offset the input tax amount of OMR 450. The final VAT paid is 115 (450-335). Input tax charges can only be claimed if you are VAT registered. Otherwise, you must treat all VAT paid at the time of purchase as an expense.
Tax refund for new businesses or start-ups According to
VAT, a company can register on a voluntary basis even if its expenditures in the previous 12 months, including the current month, exceed the threshold for voluntary registration. You can optionally register even if you expect your total spending to exceed the threshold in the next 12 months, including the current month.
Simply put, you can apply for VAT registration even if your overseas supplies (sales) do not exceed the threshold, but your expenses exceed the threshold.
Applying this to the context of a new business or start-up, there are typically significant start-up costs and a long time before sales pick up. If you are currently VAT registered, you can claim the VAT paid on your purchases/expenses. Originally, it would be incurred as an expense.
Assuming you paid OMR 300 VAT on purchases/expenses and collected OMR 100 VAT on sales, you can offset OMR 100 against the VAT collected on sales and get the remaining OMR 200 as a tax refund. can be claimed as. The cost of voluntary registration is included to enable companies to claim input tax credits.
Price Competitiveness
Companies subject to consumption tax can apply for input tax credit. VAT paid on purchases/expenses can be claimed and set off against the VAT collected at the time of sale.
Now imagine that he is not VAT registered but pays his VAT of 5% on purchases/expenditures. This means your product is 5% more expensive compared to registered companies. The reason is that if it is not registered, the VAT paid at the time of purchase will be treated as cost, forcing you to increase the price.
Registered company
Unregistered company
Purchase
100
Purchase
100
VAT
5
VAT 444 4 4 444 5
Purchase invoice total
105
Purchase invoice total
105
Cost
100
Cost (Purchase + VAT)
105
Input tax amount
5
Input tax amount
444 4 0
(not allowed)
Profit 444 4
10
Profit
10
Selling Price (Cost + Profit)
110
Selling Price (Cost + Profit)
115
Observing an unregistered company, the cost is 105 including VAT . This is because, as an unregistered company, you are not legally allowed to claim input tax credits on purchases, which will be added to your costs. Therefore, the selling price will be higher than that of a registered business.
Apart from the above factors, VAT registration increases the credibility and reputation of a company. There are some compliance tasks, such as invoicing, accounting, and tax return filing, but there are also many business benefits.
You can also Register for VAT Registration on our website:
https://thevatconsultant.com/
