No legal reason for refusing to work with smaller freelancers

Businesses have no legal basis to refuse to work with freelancers who are not registered for VAT.

That was the assessment of one free zone after reports that companies are telling people that they will not work with them unless they have a VAT registration number.

As The National reported on Monday, some companies appear to fear being accused of colluding with those who trying to dodge the tax.

In reality, many freelancers cannot register because their earnings are not high enough.

“Being VAT-registered is viewed as a sign of prestige,” said Salik Khatri, Creative Zone’s senior tax and accounting adviser.

“However, it should not be viewed as a mandatory requirement to engage exclusively with VAT-registered companies.”

Freelancers are split into three brackets for the purposes of VAT: those who generate revenues of more than Dh375,000 a year, who must register for VAT; those generating revenues of between Dh187,500 and Dh375,000, for whom the choice is optional; and freelancers earning under Dh187,500, who cannot register.

Mr Khatri said that the Ministry of Finance imposed the minimum registration limit to protect smaller businesses from the extensive documentation and reporting VAT requires.

“The administration costs to the Government in monitoring and regulating far outweigh the benefits of requiring businesses with a small turnovers below specified thresholds to register for VAT,” he said.

“That being said, it is absolutely legal to work with businesses that are not registered for VAT.

“Starting out as a small business it can be tough to compete against the big boys.

“Most people are aware of the VAT-registration threshold, so voluntarily registering your business for VAT might give the impression that your business is bigger and more successful than it actually is.”