VAT Services

Understanding VAT Compliance in the UAE: A Guide for emerging businesses

August 19, 2024 Comments Off on Understanding VAT Compliance in the UAE: A Guide for emerging businesses

VAT was implemented in the UAE since the beginning of the year 2018 with the aim of diversification of revenue resources and improvement of public services. It is crucial for the entrepreneurs to know how the VAT works, in order to optimize their business activities. Business can also take the help of external agencies such as charted accountant firms in UAE to have a better understanding of VAT.

VAT compliance is not just an issue of the law, it is a core feature of good business practice. Failure to adhere to them can result in severe consequences, loss of reputation and even interruption of the business. VAT compliance processes such as record keeping, filing of returns and computation of the VAT payable or recoverable can be easily done through tax consultancy firms in Dubai.

Registration of VAT

The first thing that one has to assess in VAT compliance is the threshold at which the business is required to register for VAT. In the UAE, any business that makes supplies of goods and services, with a value exceeding AED 375,000 per year is mandated to register for VAT. Companies with the annual supplies and imports exceeding AED 187,500 can voluntarily register for VAT.

The registration process is done online through the FTA’s e-Services where companies are required to input information such as their business operations, financial statements and identification documents. After registration, companies get a Tax Registration Number (TRN) that must be displayed on all the tax invoices and communications with the FTA. A qualified chartered accountant firm in Dubai or a FTA approved tax agents in Dubai can streamline the VAT registration process.

VAT Classification

  1. Standard Rated Supplies: This type of supply is the most common and any good and service supplied is charged the 5% VAT. This includes consumer goods including food and clothes, durable goods and professional services.
  2. Zero-Rated Supplies: There are some goods and services that have a zero rate which implies that no VAT is levied on such products but the business can recover VAT on the expenses. These include export of goods and services, some healthcare services, educational services and specified categories of international transport.
  3. Exempt Supplies: These supplies are exempt from VAT and businesses cannot recover VAT on goods which are connected with these supplies such as goods not entering UAE, financial services, income from, residential properties and local transport services.

Businesses need to correctly allocate supplies under the correct category to meet the right VAT rate and to avoid running afoul of the FTA.

Filing VAT Returns

Filing VAT returns is an obligation which is central to VAT compliance. In UAE, the VAT returns are usually submitted on quarterly basis but in case of higher turnover, the businesses may file monthly. The returns are filed through the FTA’s e-Services portal. VAT returns can be filed using the services of top accounting firms in Dubai, such as chartered accountant firms in Dubai or accounting and bookkeeping companies in UAE.

VAT returns should be filed within a period of 28 days from the end of the tax period. Delays in filing returns attract penalties. This process can be made easy with the help of FTA approved tax consultants in Dubai to keep records in-check and work to the set deadline.

Maintaining Accurate Records

VAT compliance is basically anchored on proper record-keeping. The FTA provides that VAT records must be kept for a period of not less than five years. These records include:

  1. VAT invoices and receipts.
  2. Credit and debit notes.
  3. VAT returns and payments.
  4. Import and export documentation.
  5. Correspondence with the FTA.

Efficient record keeping does not only help in a VAT audit but also helps the businesses to defend their VAT calculations and reclaims in case of a challenge by the FTA. For efficient record keeping purposes it is best to take the aid of bookkeeping companies in Dubai or accounting service companies in Dubai.

Penalties and Voluntary Disclosure

The FTA provides for penalties in cases where the VAT law is not complied with. Common penalties include:

  • Late Registration: AED 10,000 for late filing of VAT registration application.
  • Late Filing: AED 1,000 for the first late submission and AED 2,000 for any subsequent delay within 24 months.
  • Incorrect Filing: Penalties differ depending on whether the error was a mistake or was made intentionally and depending on the type of error.

In case a business finds that there is an error in the return filed for VAT, it is allowed to file a voluntary return within 20 business days. Voluntary disclosure enables the business to correct the error and may lead to less penalties. The returns of VAT and financial records should be cross checked by approved auditors in Dubai on a frequent basis to rectify any compliance issues.

Conclusion

For the businesses in the UAE, it is essential to have proper knowledge of VAT compliance to keep the records of the business and to make sure that they follow all the rules and regulation of FTA. Even when it comes to registration for VAT, creating legal and compliant invoices, returns filing, and payments management, all the processes demand a lot of focus and adherence to the legal rules. Such process can be streamlined by engaging the services of auditors and tax consultant in AbuDhabi from the list of auditors in AbuDhabi. Adhering to best practices and being aware of the changes in the legislation, the tax consultants in Abu-Dhabi can assist the businesses to avoid the problems connected with the VAT, penalties and other issues that may appear in the UAE environment for the businesses.

At Jaxa Chartered Accountants, UAE, we can provide expert guidance on audit requirements in Dubai, ensure compliance with UAE auditing standards and optimize your financial affairs. Jaxa Chartered Accountants, UAE, ensures that you are choosing a reliable partner for your tax consultation needs. Jaxa Chartered Accountants, UAE will aid you to develop, improve efficiency and comply with regulations.