Zero-Rated VAT for Companies in the UAE

Zero-rated vat companies based in the UAE should review their original VAT application.

We have many clients who are based in the UAE and deal in zero-rated supplies. The question this creates is whether or not this client should be registered for VAT or not.

Firstly we have had many clients join Profits Tax Consultants where they registered for VAT last year in 2017 assuming they had to be registered or else they would have banking issues. In fact we have even had clients claim they were forced to register by their bank account managers because they had large amounts of money going through their account.

So, what is the right approach?

Well we asked the FTA and this is the reply we got;

‘If you only make zero-rated supplies, you may apply to be excepted from registering for VAT.
You must still complete a VAT registration application, but you should answer “Yes” to the question: “Are you applying for an exception from VAT registration?” (Please refer to the additional instructions provided in the Authorized Signatory section in the application).’

So what does this mean, well firstly if you have a company based in the UAE making zero-rated supplies then you still have to register with the FTA BUT that the Vat application must be done correctly.

To put is into perspective till date every one of our xero-rated clients have made their vat application incorrectly and have not made it clear that they are applying for ‘an exception’.

This causes major problems and as such some of our clients have experienced AED 20,000 penalties as a result of requesting amendments incorrectly. Amendments must be made within 20 days of ‘realising’ the error.

Going forward, please check that your initial vat application was made correctly, we expect the FTA to start asking companies to explain why they are not making AED 2m to AED 6m sales when it was clearly stated on the application.

Note: zero-rated must not be confused with exempt of vat which we will discuss in our next post.

Let Profits Tax Consultants with over 20 years of VAT experience and dealing with UK tax inspectors deal with your VAT matters email us on [email protected]

Submitting a VAT correction? This is a must read!

Considering submitting a correction to your previously submitted vat calculations?

If you become aware that a VAT Return that you have submitted previously contains errors that resulted in a calculation of payable tax being less than required by not more than AED 10,000, then you can correct this error in the current VAT Return in which you have discovered the error. Under the “VAT Amount” column, you should only declare the VAT amount of the correction.

If the error has resulted in a calculation of payable tax being less than required by more than AED 10,000, you should make a Voluntary Disclosure. We would urge you to review the FTA publication named Voluntary Disclosure – User Guide https://www.tax.gov.ae/pdf/Voluntary-Disclosure-user-guideEnglish.pdf

To avoid doing this incorrectly contact the experts: Profits Tax Consultants on [email protected]

What is a FAF File? [FTA Audit File] by Profits Tax Consultants

What is a FAF File? Also known as the FTA Audit File.

The FTA has produced a very concise document on the required functions of accounting software which are needed to produce the FTA Audit files (“FAF”) for VAT and Excise Tax.

Profits Tax Consultants are a specialist VAT and Accounting practice registered with the Dubai Economic Department under Trade License No.796316 and a Bronze Partner of Xero Cloud Accounting Software.

What is accounting software?

Accounting software should be a key part of any modern growing business whether a retail store or a service provide and it is not something reserved just for large corporations.

Furthermore, looking at the FTA document on Tax Accounting Software it is evident that all companies should implement a competent software that complies with the requirements of the FTA.

Any competent accounting software should be able to produce Sales Invoice, Accounts Receivable, Accounts Payable, and General Ledger but the FTA have very specific requirements.

FTA Audit File

Also known as a FAF is something that could be requested by the FTA whilst conducting a periodic audit to ensure that tax and returns have been prepared correctly. It is strongly recommended that business check with their software vendors to make sure they are able to produce FTA Audit Files (FAF) if required otherwise it would be a very costly exercise to do on-demand.

NOTE: It may be possible that your software is able to produce date in FAF but your accounting partner failed to implement and monitor the documenting of the transactions as per the FTA Requirements and you only realise when the FAF is requested at which point it could take weeks to rectify.

Key Elements to be present in FTA Audit File (FAF) are:

  • Company Information such as Company Name and TRN No.
  • Master Files
    • Supplier File
      • Name of Supplier
      • Location of Supplier by Emirates
      • TRN No. if applicable
    • Customer File
      • Name of Customer
      • Location of Customer
      • TRN No. if applicable
    • Source Documents
      • Purchase Invoices, Imports, Credit Notes (with all details)
      • Sales Invoices, Credit Noted Issued to Customers (with all details)
      • Payments
        • Transaction Date
        • Payment Date
      • General Ledger
      • Product File

In summary your accounting software must be able to produce all or any of the above if requested by the FTA during a periodic audit of your VAT Return.

This document is copyright by Profits Tax Consultants. Check out our accounting plans by visiting: https://profitsplus.ae/our-plans/

VAT Deadlines in the UAE

VAT deadlines have been extended again thanks to the Federal Tax Authority (FTA). They have extended the date after which companies will face a AED 20,000 penalty for failure to register. It is strongly recommended to all businesses  doing sales over AED 375,000 to register before the new deadline – April 30 – to avoid penalties.

Read More

Understanding VAT in the UAE

Value-Added Tax or VAT is a tax on the consumption or use of goods and services levied at the point of sale. VAT is a form of indirect tax and is used in more than 180 countries around the world. All OECD countries except for the US have VAT (or a variation). While it feels exactly the same as a general sales tax to end-consumers, VAT is a more sophisticated tax and overcomes many challenges that affect the general sales tax.

Read More