- August 7, 2019
- Posted by: Shuraa Tax Consultant
- Category: UAE Taxation
The United Arab Emirates has introduced Value Added Tax (VAT) since January 1, 2018. Reportedly, the UAE collected Dh27 billion through VAT revenues in 2018, by surpassing the target of Dh12 billion. In the event of 2019 target of Dh20 billion was covered in the first half of the year.
Thanks to high compliance ratio and awareness campaigns by the Federal Tax Authority and ICAI. The Federal Tax Authority (FTA) monitors tax regulations in the UAE.
Hence, to be in accordance with the FTA it is extremely important for every business in the UAE to know about UAE’s value-added taxation. We at Shuraa Tax Consultants have listed the top 10 thing that every business in the UAE must know about UAE VAT.
Read on the points or simply watch the video to understand the UAE VAT procedures –
1.) UAE VAT registration
One of the basic but very important step is to register for VAT in the UAE at the right point of time. UAE VAT registration can be implied either on a voluntary basis or a mandatory basis.
WHAT IS VOLUNTARY REGISTRATION FOR VAT IN THE UAE?
As per article 17 of Federal Decree Law 8 of 2017 on VAT, if a person has taxable supplies or taxable expenses during last 12 months more that AED 187500. It also applies to companies expected to be more than AED 187500 in next 30 days. Then in such a case, the person could apply for VAT registration on voluntary basis.
SO, WHAT IS MANDATORY REGISTRATION FOR VAT IN UAE?
As per article 13 of Federal Decree Law 8 of 2017 on VAT every person whose turnover during last 12 months has exceeded AED 37500 or is expected to exceed AED 37500 in next 30 days must consider VAT registration in the UAE as it is applied on a mandatory basis by the FTA. Please note that once the mandatory threshold is reached VAT Registration must be applied within 30 days of being eligible for registration on mandatory basis. Non-Compliance will lead to penalty of AED 20,000 and additional late return and associate penalties will also trigger.
2.) What is record keeping or bookkeeping in the UAE?
Once the registration is approved, the FTA issues the TRN Number also referred as Tax Registration Number. The day you receive the TRN it is understood as the effective date of VAT registration.
A registrant must carry out necessary amendment in documents, records and accounting system and should adopt effective VAT implementation system.
Issuance of Tax invoice and Tax credit notes must be done as per the FTA specified format and all business records for at least 5 years must be maintained. It is extremely essential to follow the format to avoid any future penalties.
Also, you must note that records related to real estate transactions must be stored for at least for 15 years. Further, VAT on expenses incurred prior to VAT registration which are used for making taxable supplies can claimed upon VAT registration.
Hence, maintaining records of all the input VAT and taxable supplies works tremendously favourable at the time of applying for tax refund.
3.) Filing VAT return within the given time frame
The FTA assigns a VAT return period or a time frame to the registrants. This time frame is allotted during the issuance of VAT certificate. The VAT period can be quarterly or on a monthly basis.
The VAT return filing due date is on the 28th day following the end of tax period. If due date falls on weekend or a public holiday, then next due date will be extended to following working day.
For example, for the tax period Apr-Jun 2019 due date is 28th July 2019. In case if any due date is following on holiday, then due date will be extended to next working date.
4.) UAE VAT liability payment within due date
In UAE VAT liability payment due date is also the same as the due date for filing the VAT return i.e. 28th day of the following month. VAT payment to FTA can be made through various modes like through Bank Transfer, E-Dirham Cards, Credit Cards. Each mode takes different processing time and charges. Charges for payment through Credit card will cost 2-3%. E-Dirham cost per transaction is AED 3. Cost for bank transfer depends on the bank charges.
5.) Error free tax return filing in UAE
It is very important to file the correct VAT data with Federal Tax Authority to avoid any future rectification, voluntary disclosures or penalties. Please mention the output VAT and local taxable sales emirates-wise. Also, do not forget to present zero rated and exempt supplies.
Any adjustment related to reverse charge mechanism should also be made efficiently. FTA has a VAT return window, that auto populates the totalling errors (if any). Please ensure the accuracy of VAT return. Also, the decimal errors can be easily rectified as it auto populates the data.
6.) UAE VAT implementation
Please understand and ensure accurate VAT implementation on your business transactions. Make sure correct VAT rates are charged to your taxable supplies. There are different rates – few transactions are charged at standard rate of 5%, while few are zero rated. Also, there are few supplies those are exempted from VAT.
For examples, zero rated supplies are mainly export transactions, supply of basic health care and international transportation. Financial services, supply of bare land and supply of local passengers are also exempted.
Further, supply related to designated zone (such as mainland and free zones) should also be treated appropriately.
7.) Input VAT in the UAE
The UAE VAT is paid on goods and services used or intended to be used. Some of the taxable good can be reclaimed, while not all types VAT expenses can be claimed. There are few expenses on which VAT in not recoverable. For example, accommodation given to employees which is not mandated as per federal law or expenses as per the free zone laws.
Apportionment of input VAT is must in order to claim input VAT only related to taxable supplies. The VAT on expenses or imports incurred prior to VAT Registration can also be claimed. However, it needs to be claimed, when the company files the first tax returns. Please note that such input VAT recovery is not possible, if it not related to taxable supplies. Also, in case such input VAT is related to capital asset, it will be fully depreciated before the company has registered for VAT.
In another instance, if a person has moved the goods to other implementing states, VAT on such goods cannot be claimed. For example, a newly registered company imports goods of value AED 100,000 by paying VAT of 5%: AED 5000. Out of which, goods of AED 80,000 were sold prior to VAT registration. Hence, the VAT paid related to AED 80, 000 which is AED 4,000 cannot be claimed.
But VAT of AED 1000 can be claimed, as those will be made as taxable supplies after effective date of registration only. Speak to a tax expert to simplify it!
8.) Apportionment of Input VAT
Only those input VAT which are related to taxable supplies should be claimed. Therefore, it is necessary that input VAT is apportioned and only claimed which relates to taxable supplies. For example, for an estate management company, Vat on building maintenance should be apportioned into expenses related to residential property income and expense related to commercial property income. As the input VAT related to residential property is not claimable (exempt supplies) , and VAT related to commercial can be claimed.
9.) Clarifications & Communication with FTA
Communication with the Federal Tax Authority is another important point that companies must take under consideration. Please ensure your email ID and contact number mentioned while VAT registration is added and active. Federal Tax Authority may request any kind of information by calling or emailing the registered contact details. Any change in company records details should be notified to FTA. In case of change of ownership of the Company, it is recommended to change the admin access to the VAT e-services account.
The registrant must have a certified UAE tax agent. The tax agent is responsible to maintain communication. The registrant should assist and provide necessary details requested by FTA. In failure to which the company will be termed in violation of the provisions of Article (21) of the Tax Procedures Law.
Also, it is crucial to keep an eye on upcoming notifications, documents required, public clarification by FTA. As necessary amendments can be done in vatable transactions in order to avoid any penalties.
10.) UAE Tax Audit
Federal Tax Authority can conduct tax audit for the VAT returns filed by the taxpayer. FTA can visit business premises of registrant, check records, documents and seeks more information at any given point of time.
However, the FTA will give an intimation 5 days before the tax audit. In case FTA suspects tax invasion, they may audit the business premises for 72 hours without notice.
So, to know more about VAT in UAE, VAT return filing please contact Shuraa Tax and Accounting Services LLC. For any VAT related query please speak to our VAT and Tax Return experts.