Value Added Tax

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Understanding VAT in the UAE: Your Path to Compliance and Savings

Value Added Tax (VAT), an indirect tax levied on consumption of good and services has been adopted by almost 175+ countries around the world.

The UAE government introduced VAT in the state on January 1, 2018. It’s a tax imposed on the value added to goods and services at each stage of production or distribution.

If you are a business owner or looking to establish your business in the UAE, there are legitimate provisions under the VAT law which need to be strictly followed by the businesses to avoid penalties imposed by FTA.

At Xecutiv FBS, we enact the role of your tax consultant, and we work closely to cut down your load of tax complexity. We all the way look after your VAT related matters.

1. Mandatory Registratio:

The mandatory VAT registration limit is AED 375,000 (USD 100,000).

 if the taxable supplies/sales and imports of a UAE based business exceed or expected to exceed AED 375,000 in a period of 12 months, it becomes mandatory for the business to get registered for the Value Added Tax (VAT) of UAE.

 The VAT registration application should be submitted immediately if the company’s taxable supplies or imports is expected to surpass the mandatory registration threshold of AED 375,000 in the next 30 days.  

 The penalty for the late VAT registration application is AED10,000.    

2. Voluntary Registration:

The voluntary VAT registration limit is AED 187,500 (USD 50,000).

 A business can apply for the VAT registration even if it does not meet the mandatory VAT registration criteria.

 If the taxable supplies/sales and imports of the business are more than AED 187,500 in a period of 12 months, in such case business can get registered for VAT under the Voluntary Registration scheme.

This registration is not mandatory for the business but optional/discretionary.

 At Xecutiv FBS, we get your company’s VAT registration done for you in the shortest possible time and we ensure to comply with the VAT regulations.

VAT Group Registration is a tax registration procedure where two or more companies/ business entities join together to form a VAT group, with the intention of having one tax number for the group and paying taxes to Federal Tax Authority (FTA) as a single entity.

A VAT group allows companies that are closely linked financially, economically and organizationally to operate as a single VAT person.

Under group registration all the member companies are allowed to invoice each other without VAT.

Timely application of the VAT Deregistration is as important as the registration itself. Companies can be penalized by the Federal Tax Authority (FTA) for not submitting the VAT Deregistration application on time.

The failure of the Registrant to submit a deregistration application within the timeframe specified in the Tax Law, the penalty is 1,000 AED in case of a delay and on the same date monthly thereafter, up to a maximum of 10,000 AED.

At the time of VAT Deregistration, FTA has the right to audit all, or any specific vat returns previously filed by the companies. Approval from the FTA on the VAT Deregistration is subject to the fulfilment of all the audit requirements.

At Xecutiv FBS, we get your company’s VAT Deregistration done in timely manner. Our team of experts also help you step by step on each stage of the VAT Deregistration and on the audit requirements demanded by FTA.

In another milestone towards the implementation of VAT across the Gulf, GCC countries have signed an agreement known as the Unified VAT Agreement. VAT was mutually agreed to be introduced in GCC to dilute the dependency of the entire economy on oil and gas industry.

Various laws at GCC and Country level were passed resulting the VAT accounting.

Essential Documents for VAT Accounting:

The below mentioned are the set of essential documents which every business need to prepare and maintain with the aim to comply with the VAT Accounting principles,

a) Record of all supplies/sales and imports of goods and services

b) All tax invoices, tax credit/debit notes and related documents

c) Records of goods and services that have been disposed of or used for matters not related to the business, showing tax paid for the same.

d) Records of goods and services purchased and for which the input tax was not deducted.

e) Records of adjustments or corrections made in accounts or documents.

f) Apart from these, the Federal Tax Authority (FTA) can also ask for Annual Account details, General Ledgers, VAT Ledgers, Purchase daybooks, Invoices issues, Credit and Debit notes, etc.

Penalty for Not Maintaining the Vat Accounting Records:

Failure by person or business to keep a track of proper records would result in a penalty of AED 10,000. If the offense is repeated, a sum of AED 50,000 maybe imposed.

At Xecutiv FSB, we educate our clients about the compliance requirements of the VAT Law, and we work closely with them to ensure the documentation of the business transactions as per the VAT accounting principles.

A VAT return summarises the value of the supplies and purchases a taxable person has made during the tax period and shows the taxable person's VAT liability. The liability of VAT is the difference between the output tax payable (VAT charged on supplies of goods and services) for a given tax period and the input tax (VAT incurred on purchases) recoverable for the same tax period.

Where the output tax exceeds the input tax amount, the difference must be paid to FTA. Where the input tax exceeds the output tax, a taxable person will have the excess input tax recovered; he will be entitled to set this off against subsequent payment due to FTA or apply for the VAT refund from FTA.

Every Taxable Person is required to submit a VAT 201 RETURN form in their EMARATAX portal on monthly or quarterly basis depending upon the company’s tax period allotted by FTA.

At Xecutiv FBS, we prepare the explicit Vat reports for our clients and submit VAT 201 RETURN form with FTA. We ensure every business transaction is recorded precisely and is abide by the VAT law.

Taxable Persons are able to request a VAT refund at any point when there is a credit or when the input VAT is greater than output VAT.

Every Taxable Person is required to file a VAT return summarizing the VAT due to the FTA for the tax period. When the input tax is greater than output tax on a VAT return, the Taxable Person is able to request a VAT refund after submission of the VAT return or at any later time when there is a credit owed to them.

Taxable person is required to submit a VAT 311- VAT REFUND form in their EMARATAX portal in order to apply for the vat refund from FTA. This form needs to be submitted along with some supporting documents and FTA has the right to reject this refund application in case of missing or inaccurate documents.

At Xecutiv FBS, we take care of the whole vat refund application process for our clients. We also prepare supporting documents required to get the approval on the refund application from FTA.

A Voluntary Disclosure (VD) is a form provided by the Federal Tax Authority (FTA) pursuant to which the Taxpayer notifies the FTA of an error(s) or omission(s) in a Tax Return, Tax Assessment or Tax Refund application.

For example, M/S ABC LLC had filed VAT Return Form 201 for April 2023 by declaring standard rated sales as AED 10,00,000 with output VAT AED 50,000. Later, they discovered that the actual standard rated sales were AED 15,00,000 and the output VAT was AED 75,000.

This states that M/S ABC LLC has underpaid the tax by AED 25,000 (AED 75,000 – AED 50,000) for April 2023 VAT Return. Now that it is discovered, they have to voluntarily notify FTA about this error(s)/omission(s) by submitting the Voluntary disclosure form (VD). Correct figures should be disclosed to the FTA in the Voluntary disclosure form (VD) together with the supporting documents which demonstrate the error(s) made and the corrections done to rectify the error(s).

Condition to file Voluntary disclosure form (VD):

Voluntary disclosure form (VD) can be filed only in case of errors or omissions which has resulted in the calculation of tax payable being less than the required and the differential amount is more than AED 10,000, you need to make a Voluntary Disclosure to the FTA within 20 business days from the date when the Taxable Person became aware of the error.

At Xecutiv FBS, we have a substantial experience in submitting the successful Voluntary disclosure forms (VD) with FTA. We also substantially assist our clients in preparing the supporting documents which blend with the Voluntary disclosure form (VD).

 

VAT Reconsideration Request Form allows a taxable person to appeal for the review of the decision made by FTA. There are many situations when the businesses follow the rules and regulations of FTA and still get fines and penalties. In such circumstances, when the taxpayer is not convinced with the decision made by the FTA then the taxpayer may apply for VAT Reconsideration Request.

Any business or a person who received a penalty from FTA can apply for VAT Reconsideration in UAE within 20 business days after receiving the penalty. The authority will review the decision and might waive off the penalties if the business proves the case by UAE VAT reconsideration. VAT reconsideration request form need to be submitted by the taxable person along with the supporting documents (in Arabic) which explains the whole situation to the FTA.

At Xecutiv FBS, we have a considerable exposure in submitting the VAT Reconsideration Request Forms with FTA. We also substantially assist our clients in preparing the supporting documents which blend with the VAT Reconsideration Request Forms. We are also well versed in handling all the Vat related matters and conflicts with FTA.

VAT Compliance Audit is a process through which companies can ensure their books of accounts are being kept and maintained as per the VAT Law regulations. VAT Compliance Audits are performed by the external vat auditors like Xecutiv FBS. The role of the vat auditor is to check and examine the accounting & vat records of the company in accordance with the VAT Law and providing his comments, observations, findings and recommendations that came to his attention during the course of the VAT Compliance Audit. 

VAT Compliance Audit Reports help the companies to improve their system of internal vat control and result in compliance efficiencies.  This also protects the companies against the unwanted penalties from FTA by catching and rectifying the error(s) in the vat return(s) in advance.

At Xecutiv FBS, we perform VAT Compliance Audits with exceptional accuracy and focus. Our VAT Auditors are well versed with the UAE Vat Law. We provide mock VAT Audit service to the clients who would like to ensure that they are extensively compliant to the law.

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