Value Added Tax or VAT was introduced in the UAE on January’1 2018. The rate of the VAT is 5%. VAT provides the country with a new source of income which will be continued to be utilised to provide high-quality public services.
The implication of VAT on businesses
The UAE businesses have to record their financial transactions make sure that all financial records are accurate and updated. Based on the financial records the businesses having minimum annual turnover will be needed to register for VAT.
Businesses will be responsible for the documentation of their business income, costs, and associated VAT charges carefully.
Registered businesses and traders will charge VAT to all of their customers at the prevailing rate and incur VAT on goods/services that they buy from suppliers. The difference between these sums is reclaimed or paid to the government.
Criteria For Registering For VAT
A business must register for VAT if its taxable supplies and imports exceed AED 375,000 per annum.
It is optional for businesses whose supplies and imports exceed AED 187,500 per annum.
A business house pays the government the tax that it collects from the customers, but at the same time, it receives a refund from the government on a tax that it has paid to its suppliers.
VAT Non compliance
It is of absolute importance that all business organizations conform to the new VAT system in the Gulf Cooperation Council countries. If the new framework is not followed, there is a serious risk that the current business procedures will not be compliant with the new legislation. Non-compliance with the VAT framework will also invite heavy penalties or prosecution, whichever applies.
According to GAZT, over 30% of all VAT audits in GCC businesses have failed.
Federal Tax Authority (FTA) has approved the complete and final list of all the administrative VAT Fines and Penalties in UAE that will be imposed on businesses for violations of the VAT laws.
Every VAT fine or penalty will be no less than AED 500.
The complete and approved list of the administrative VAT fines and penalties in UAE for breaching the law related to VAT and excise tax can be viewed here:
Top VAT Tips for UAE Entrepreneurs to Avoid Penalties
These tips will help businesses in UAE to avoid financial penalties that may be imposed due to violations, errors or incorrect record-keeping include:
VAT Registration is mandatory if the annual turnover of the company is equal to or more than AED 375,000 in the last 12 months or expected in the next 30 days. The application needs to be submitted within 30 days of archiving the mandatory threshold limit. However business can also apply for Vat registration voluntarily if turnover is between AED 187,500 to AED 375,000.
Businesses are required to issue a VAT invoice and in some cases a simplified invoice. The VAT law stipulates that invoices must:
o Be in Arabic
o Have the words ‘Tax Invoice’ displayed in a prominent place
o Be in UAE Dirham. If the amount is in another currency, it must be converted to UAE Dirham
o Be issued within 14 days of the date of supply of goods or services
o Include the name, address and tax registration number of the supplier
o Include the date of issue
o Include a description of goods or services
o Include the total amount payable and the total VAT chargeable
Maintain regular Accounting books & records
Both register and unregister companies under VAT should maintain regular Accounting books & records as prescribed in law to avoid penalties & for VAT audit compliance.
File VAT return & Pay VAT before the due date as per your tax period
Companies should check & comply as per tax periods mentioned in their VAT certificate to avoid late filing & payment penalties
Record all transactions
The law requires businesses to keep a record of all their business income, costs, and other associated VAT charges, whilst ensuring all records are up to date. These records will be submitted to the FTA. Supposing the FTA arrange an inspection to determine whether or not your company should be registered for VAT, these records are the only means of evidence to make a decision. Otherwise, this may be seen as noncompliance, which would lead to penalties.
Train your staff & be aware of your rights
Help your staff to de-mystify VAT by providing on the job training and a framework to raise, clarify VAT queries & rights.
Understand zero rates and exempt suppliers
The FTA has exempted some businesses in priority sectors from tax. And zero rated supplies still taxable but @ 0%. Such industries include real estate developers, jewellery, airlines, schools, clinics, and hospitals.
Reverse charges are the amount of VAT one would have paid on goods or services if they were purchased in the UAE. These charges apply when goods and services are imported from outside the GCC. As the business is not required to pay VAT at the point of import. In this case, the buyer reports their Input VAT (on the goods purchased) as well as their normal output VAT (on sales) in their return for that quarter.
Get the basics right
A tax invoice must be issued within 14 days of the date of supply. It is mandatory for a tax invoice to include the name, address and tax registration (TRN) of the registrant making the supply. An invoice must have a unique number and date of issue which enables identification of the tax invoice and the order of the invoice in any sequence. Also, it is mandatory for it to clearly state the unit price, the quantity or volume supplied, the rate of tax and the amount payable expressed in UAE dirham should be specified.
Consider VAT Ready Accounting Software For Your Business In UAE
Nowadays, electronic reporting systems are increasingly being used by tax authorities. No doubt, technology can facilitate taxing and companies that use electronic invoicing are likely to improve the timing of VAT recovery on costs.
There is a range of online and desktop accounting solutions that will allow you to manage VAT, budgets, stocks, etc. as well as assist you in invoicing customers and analyzing business performance.
Solutions like Sage Business Management and Accounting software are VAT ready and automate a lot of these processes, so businesses are assured that their data is accurate and up to date. Simple and easy-to-use dashboards give businesses insight into their VAT collections and payments. The software is fully auditable and makes compliance considerations like record-keeping and issuance of VAT invoices hassle-free. Businesses also have access to consultants who can guide them through their system setup and optimization, tailoring the solution to their specific needs.
Some of the best features of this accounting software are:
- Management of income and expenses
- Invoicing customers with professional, and customizable invoices
- Accurate reconciliation of bank statements with accounts
- Automatic calculation and submission of VAT returns
Sage 300 ERP UAE support you to implement and manage any complicated VAT requirements. Sage 300 ERP Dubai, UAE is a completely VAT enabled solution for small and medium sized organisations.
SAGE 50 Middle East Edition:
Sage 50 is VAT Enabled software, generating reports with details analysis. It is Integrated with intelligence Reporting feature, sage 50 ME gives a clear view of invoices and statements.
SAP Business One:
In SAP B1 UAE VAT is automatically calculated in manual journal entries (including those created through recurring postings, postings templates and journal vouchers).
Our support team has been trained in the process in detail. Should you have any questions please feel free to contact us.