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VAT Compliance
The usage of labor and goods required at each retail store is subject to VAT, or value added tax. Around the world, more than 180 countries impose VAT, a kind of indirect cost. Ultimately, the cost is borne by the final consumer. The public authority’s obligations are gathered and documented by organizations. On January 1, 2018, the UAE introduced the Esteem Added Tax (VAT). The VAT rate is 5%. It will be required of the enrolled organizations to maintain the records for a defined amount of time and to offer them for review. The UAE will initially establish this timeframe for a considerable amount of time.
-Registration
Companies that fulfil the minimum turnover requirements must register for VAT. All businesses that have registered for VAT will receive a unique tax payer identification number.
Turn over in last 12 months
Companies that fulfil the minimum turnover requirements must register for VAT. All businesses that have registered for VAT will receive a unique tax payer identification number.
Types of registration
Turn over in last 12 months
Compulsory
AED 375,000 and above
Voluntary
Between AED 375,000 and 187,500
Not Required
Less than AED 187,500
excludes the cost of invoices that are exempt.
If a collection of businesses is eligible, they may register under a single VAT registration entity. Such a group is allowed to balance the tax credits of member companies because it is treated as a single taxable entity. Additionally, there is no tax on intragroup trade.
All supplies of goods and services made by a person that are not exempt supplies are taxable supplies (mentioned below). Both standard-rated and zero-rated items are considered taxable supplies.
Zero-Rated Materials
The following supplies are subject to VAT at a zero-rate (0%) under Article 45 of Federal Decree-Law No. (8) of 2017 on Value Added Tax:
- Goods and services exportation outside the GCC
- international passenger and freight transportation services provision of certain sea, air, and land modes of transportation
- specifically constructed structures used by charities valuable metals
- Residential Building Converted
- Services and Resources for Education Suitable Products and Services Relevant Goods and Services for Healthcare Services and Supplies
DO: Because the aforementioned supplies are still taxable, you must ensure that a record of these zero-rated supply is kept in your VAT account. This record must appear on your tax return.
Exempt Materials
According to Article 46 of Federal Decree-Law No. (8) of 2017 on Value Added Tax, the following supplies are not subject to taxation and are therefore free from VAT:
- the provision of some financial services (clarified in VAT legislation)
- Bare Land
- Local Passenger Transportation
- Residential Buildings
DON’T: If all of your suppliers are exempt, you are not required to register for VAT
-VAT Invoice:
A VAT-registered supplier must submit a VAT invoice as proof and documentation that VAT has been paid on all taxable goods and services. The following invoice information is included as required by UAE VAT law:
- Business Name.
- Business address.
- Sequential/Unique Numbering for Tax Registration Numbers Issued On:
- Goods and Services Description Rate of VAT.
- Total VAT (AED).
- Price Per Unit of Goods and Services Name and address of the buyer.
DO: You need to send a VAT invoice within 14 days of receiving goods or services.
-VAT Return
The VAT Return, which is filed on a quarterly and monthly basis, is the record that must be presented to and approved by the FTA prior to the deadline. Along with other information required to complete the VAT Return format, the output tax owed and input tax recovered are included in the VAT Return (VAT201- VAT Return). The VAT Return must be submitted no later than 28 days following the end of the tax period. Additionally, payment must reach the FTA by the end of the 28th day (FTA will not be held responsible if for any technical reason, they do not receive the payment even if it was affected from your end on time).
For instance, if your business needs to file a VAT Return for the January to March quarter, you must do so by April 28 of the same year.
DON’T: Avoid skipping the procedure of submitting your VAT Return because doing so would entail penalties levied by the Federal Tax Authority (FTA).
-Financial Records
Businesses that are registered for VAT in the United Arab Emirates are required to keep many books of accounts and records for at least five years, including the following:
- Documents detailing all purchases and imports of goods and services
- each and every Tax Credit Note and Tax Invoice issued and received
- Records of Disposed Goods and Services
- Records of modifications or corrections made to tax invoices or accounts
DO: Always preserve your company’s financial documents, since the FTA will request and inspect them.
-Audit of records
The government may request an audit of the companies’ tax returns either directly or through the agents it has designated. Companies must keep physical records of all supply and purchases, as well as comprehensive registration information for all suppliers and clients.
Some of the violations and their associated penalties are listed below.
Financial records and VAT registration violations:
- Violation: Failing to maintain the records that are necessary in accordance with the tax legislation and tax procedures law. AED 10,000 is the first offense’s penalty. AED 50,000 for every subsequent infraction.
- Failure to provide the Authority with the necessary records in Arabic is a violation. The fine is AED 20,000.
- Failure to notify the Authority of a modification to tax records that must be provided constitutes a violation. AED 5,000 is the first offense’s penalty. AED15,000 if it occurs again.
- Failure to submit a registration application within the deadline established by the tax legislation constitutes a violation. The fine is 20 000 AED.
Failure to request de-registration within the term required by tax law is a violation. Penalty: 10,000 AED.
-Violations related to VAT
- Failure of the taxable person or business to display prices inclusive of tax is a violation related to VAT. The fine is 15,000 AED.
- failing to inform the authority that tax will be applied based on the margin by the taxable person or entity. The fine is 2,500 AED.
- violation of the rules and regulations governing the transfer of goods in specified zones. Penalty: The fine shall be equal to the greater of AED 50,000 or 50% of any unpaid taxes on the products as a result of the offence.
- When making any supply, the taxable person/business fails to produce a tax invoice or other document. For each tax invoice or replacement document that is absent, there is an AED5,000 fine.
- Lack of a tax credit note or alternative document from the taxpayer or business. Fee: AED 5,000 for each tax credit note or substitute document that is absent.
- Noncompliance on the part of the taxable person with the requirements and guidelines for the issuance of electronic tax invoices and electronic tax credit notes Penalty: AED 5,000 for each document that is wrong.