What Is VAT and How Does It Affect Your Business

You’ll have a lot of things on your plate once you decide to start your own business. Aside from making sure that you hire the top talents and provide excellent products and services to your customers, you also have to make sure that your business abides by its legal obligations. Operating without complying with your local regulations can put a bad light on your business.


One of the most important responsibilities you’ll have as an entrepreneur is to register your business for VAT. Having a Value Added Tax registration enables your business to charge VAT on products and services that are provided to customers and in return, you’ll have the privilege to reclaim any VAT charges from other businesses and suppliers that play a role in your production. VAT recovery is typically a long process as you’ll have to submit compliant invoices to the tax authorities to prove that your business incurred expenses for a certain period. VAT basically functions as the sales tax that is imposed against your products and services.

For your business to become VAT registered, you need to provide documents that serve as proof of your business activities and bank information. VAT significantly affects your business because once you’re able to register, your business can enjoy the following:


1. Avoid Financial Penalties

Money is one of the most vital resources when you start a business. More often than not, you will have limited financial resources, which is why you should be careful on what you spend on. It’ll be challenging for your business to thrive if you lack financial resources. How can you pay your suppliers? How can you give your employees their salaries? How can you advertise your products and service if you don’t have any budget for marketing?

If you don’t want to face any financial stress during the early years of business operations, make sure that your business is VAT registered. Failure to file for VAT registration, especially as your business starts to grow, will require you to pay several fees. Instead of spending money on improving your business operations, you’ll end up paying for fines to ensure that your business continues to thrive.

2. Boosts Your Business Profile

As a neophyte in the business arena, you have to exert extra time and effort to create a positive image and reach your customers. With the number of businesses operating today, you need to make yours stand out so you can earn profit and continue to operate in the long run.

Aside from harming the internal processes of your own business, failing to register for VAT can also leave a negative impression in the public’s eyes. Do you think they will choose to work with a business that operates illegally? How can your customers trust you if your business doesn’t even comply with its legal responsibilities? Remember, as an entrepreneur, everything you do (and don’t do) can speak volumes about the quality and legitimacy of your business.

3. Better And More Business Deals

Your customers are just one part of the business – you also have to make sure that your business attracts shareholders and other businesses for it to grow. It’ll be challenging for your business to thrive if it doesn’t have any partners in the business arena.

With a VAT registration, it’ll be very easy for you to attract these shareholders and other entrepreneurs because this registration can showcase your transparency as a business. Just like you, these shareholders will invest a lot of their resources in your business, and they would never want these resources to be put down the drain.

4. Have Your Own VAT Registration Number

You’ll have to follow several measures for your business to be known in your locality. If you’re going to enter an industry with very stiff competition, you need to make sure that your business stands out from the shadows – and you can achieve this goal by displaying a VAT registration number in your business’ physical office and website.

Having a VAT registration number will make your business look professional and legit, making it easy for customers and shareholders to instill their faith in you. The relationship you create with these individuals will surely help you level out the playing field.

Invest Smartly

If you want to file and keep track of your VAT activities in the easiest way possible, consider using an app or hiring professionals who can do the job for you. Investing in these resources will be cost-effective in the long run as you’ll avoid having any legal repercussions and still have enough time and energy to take care of other important business matters.

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