Starting a Small and Medium Business in UAE is a prospective business investment for investors around the world. UAE is the perfect choice for starting a Small and Medium business as the business ecosystem here is growing.
The two business jurisdictions – Free Zones & Mainland of UAE significantly support the growth of Small and Medium Businesses in the UAE. So, considering the business setup cost for Small and Medium businesses, the Free Trade Zones in UAE are the most cost-effective option.
Also, the Free Zones offer a host of cost-effective business setup packages and infrastructure facilities for Small and Medium Businesses. The business can choose from a variety of company formation packages available in the Free Trade Zones in UAE.
AURION will guide Small and Medium Businesses to choose the right Free Zone for their company depending on their specific business requirements. Basically, starting a Small and Medium Business in UAE is a straightforward process and follows certain steps.
Starting a Small and Medium Business in UAE
Small businesses are the economic backbone of the UAE. Furthermore, they are major growth drivers as they help in generating jobs that contribute to the local economy. So, to start a Small and Medium Business in UAE, the investor must follow the below steps:
- Firstly, choose the right Free Trade Zone in UAE for Small and Medium businesses. Expert Business Consultants will guide the investor with the right selection.
- Finalize the Small and Medium company’s trade name and get the pre-approvals
- Select the business activity for the Small and Medium Company
- Choose an office space depending on the specific business requirements
- Submit the documents for the company formation and pay the fee to the Free Zone Authority
- Finally, obtain the trade license and start operating the Small and Medium Business in UAE
Many business investors often make the following mistakes when they are starting a Small and Medium Company in UAE. Starting from financial mismanagement to operational losses, there are many areas the Small and Medium Company must focus on to keep it running profitably.
Hence, every business running successfully in the UAE requires structured financial auditing and accounting practices. Additionally, it will help to manage the daily accounts and avoid financial and business losses.
Thus, Small and Medium Business must handle their finances with strategic planning, control, and management. Invest in new accounting software for cost-efficient financial forecasting, reporting, and monitoring.
6 most common mistakes Small and Medium Businesses make in the UAE
1. Not Maintaining the Records Properly
After the introduction of VAT in 2018, businesses in the UAE have to keep their records clean and audit them periodically. Also, businesses must be filing tax returns at the end of the financial year
Small and Medium companies often find it difficult to manage their accounts amidst daily business operations. Also, they mostly fail to update the accounting software that is in use with input data for any reporting.
2. Not Moving to Computerized Accounting Practices
Many of the Small and Medium businesses in the UAE are still using conventional means to record their business transactions and finance.
Additionally, the computerized accounting practices will help in streamlining financial activities. accounting management, value-added tax (VAT) compliance, invoicing, billing, and inventory.
Hence, migrating to a VAT Complaint business management software is vital for Small and Medium Businesses to ensure compliance with the VAT regime of UAE.
3. Lack of Time Management
The financial accounts must be monitored periodically in every Small and Medium Business by the finance team via internal audits.
Therefore, timely updating the financial reports and using the latest accounting software will help Small and Medium Businesses in planning for audits and preparing reports.
It will help the account teams to reduce the last-minute burden of preparing audit reports and taking stock of VAT filing and returns during the end of the financial year.
4. Lack of Right Talent Pool
Recruiting the right talent or hiring the right professional accounting firm will help Small and Medium Businesses in expense tracking, paying vendors, tracking bank accounts, and processing payroll.
In accounting, mistakes could hamper business relations, hence must be handled effectively through clear communication in case of any errors or misrepresentation.
A well-maintained accounting database would help Small and Medium Businesses to monitor their outstanding payments easily by viewing all the invoices and taking the required action.
5. Lack of VAT & Accounting Knowledge
Small and Medium Business owners, self-employed individuals, and freelancers must gain a basic knowledge of the accounting procedures and perform other routine tasks.
Garner VAT and Accounting knowledge and best practices, reduce data entry errors from time to time.
Implementing VAT Compliant Financial Practices
Develop and practice accounting policies and perform various reconciliations promptly to ensure data entries are corrected and closed perfectly.
Not every accountant would be well versed with VAT laws, and tax compliance policies, such cases outsource certain areas of accounting and bookkeeping to trusted external agencies.
6. Data Inaccuracies
Failing to properly categorize income and expense is a common problem Small and Medium Businesses in the UAE face. The Accounts team must ensure all the transactions of the company are recorded accurately.
Inaccuracies in financial reports lead Small and Medium Businesses to get framed for tax evasion and fraud charges.
Monitor all the Financial Records Thoroughly
Hence, monitoring the calculations for capital assets, discrepancies in profit margin, inaccurate tax codes, & incorrect expense list is vital for Small and Medium Businesses.
Insufficient evidence for VTA reclaims, Balance sheet adjustments, etc., should be rechecked and audited to ensure a robust financial system is in place.
Common VAT Filing Mistakes made by SMEs
Small and Medium Businesses are prone to making errors in filing tax returns mainly due to lack of planning, unavailability of the right resources, not issuing valid tax invoices, not maintaining proper transaction records, etc.
Common Mistakes Small and Medium Business make during VAT Return filing
- Non-maintenance of financial transaction records
- Errors in calculation & paying VAT
- Lack of financial planning and reporting mechanism
- Hiring the wrong resources
- Failure to issue valid tax invoices
- Limited understanding of VAT laws of the UAE
- Finally, not having the right accounting practices
For accurate VAT calculations by Small and Medium Businesses, understanding the concept of exempt, zero-rate, and VAT-free items, etc., is essential.
How Small and Medium Business can streamline their Accounting Procedures to comply with VAT Laws?
Small and Medium Businesses must have a periodic review of VAT compliance practices and conduct financial audits regularly.
Upgrade the accounting software to maintain seamless record-keeping and appoint tax experts for conducting audits. It is essential to train the financial team to follow the best VAT & Accounting practices.
Investing in Accounting Systems & Good Resources
Small and Medium Companies must invest in robust accounting systems and train employees, and hire new talents.
To be compliant with the VAT rules and other financial best practices constant follow-up from the top level and employee involvement are a must-have.
Robust Accounting Software for better Tracking of Financials
A more holistic approach is required to keep track of the financial operations, VAT compliance, and smooth flow of transactions.
Hence, with the latest accounting software, employee training, and building an understanding of the VAT Regime of UAE, the business can avoid any misrepresentation of financials and avoid fines.
To know more about VAT & Accounting in the UAE, talk to our expert team right away!
Contact: Aurion Business Consultants