VAT Registration in Dubai [Key Errors To Avoid]

VAT Registration can be complex and getting it wrong could mean that your application is ‘denied’ or you incur a penalty for incorrect submission. Getting it right could be a small matter of the dates or just a better understanding of the requirements.

Mandatory Threshold

Ultimately if you are an existing business and in the last 12 months your sales exceeded AED 375,000 then you must register for VAT. This is considered mandatory registration. If however, your sales in the last 12 months were below AED 375,000 but above AED 187,500 then you can still register for VAT on a Voluntary basis. The other mandatory requirement applies to expected sales of over AED 375k in the next 30 days. Remember that the sales are taxable sales and not sales that are not considered taxable supplies. If you are unsure if your sales are taxable or not then please contact a specialist to make sure since many services are taxable EVEN if they were delivered to clients outside the UAE.

Creating USER ID and Password

Firstly, you need to create a user name and ID which is a very simple process and takes only 5mins. You can do that by visiting this link: https://eservices.tax.gov.ae/en-us/signup. Once registered you have to wait for the confirmation email to be sent to your email address used in the registration. Note: please do not forget your email ID and PW or security questions as this is not an easy problem to resolve.

Section 1 – About the applicant

Key mistakes made in this section are what to select when the trade license is a professional license? From our experience, we have had no problems with selecting Legal person – Other and then entering Sole Establishment in the ‘If other, please specify’ section. Also it is very important to select Mandatorily v’s Voluntarily. Only select Mandatorily if your past sales are over AED 375,000 otherwise always select Voluntarily. Always select no to Tax Group unless you are registering for a Tax Group (may apply if you have more than 2 companies in the UAE).

Section 2 – Details of the applicant

Legal entity name needs to be exact and do not worry about the Arabic as you can go to the DED website here: http://www.dubaided.ae/English/Pages/default.aspx and actually search your trade name and copy and paste the Arabic wording. Trade License information should be exact and the rest of this section is pretty straightforward.

Section 3 – Contact details

A simple point to note here is that whatever contact number is entered here will receive regular updates and notifications from the FTA.

Section 4 – Bank Details

Bank accounts are now a mandatory requirement to complete the FTA application for VAT and therefore if you do not have a business bank account then you cannot complete the application process.

Section 5 – Business Relationships (optional)

This section has always been optional and therefore we always choose not to complete this section.

Section 6  – About the VAT Registration

Very important section and a ‘must get right’ section. Select the closest activity as you will not always find the right activity.

Turnover is your gross sales for the last 12 months – NOT 12 months of 2017 – but the 12 months till the date of application. You will need provide a sales report and feel free to use our template letter.

Expect turnover in the next 30 days, try to keep it as realistic as possible.

For those of you who do not Import or Export then its simple NO, NO, NO, NO for all questions relating to Import & Export.

Section 7 – Declaration

The declaration will require you to enter all your details again and it does always ask for Proof of Authorization and in the past we have always uploaded the Visa Page of the Manager in this section as it effectively confirms that the person has a Manager Visa from the company and typically this seems to work as a POA to manage the affairs of the company.

If you are operating in the name of a local sponsor then you really need to get a Power of Authority letter drafted and signed by the sponsor giving you authority to act on behalf of the company ‘on all matters relating to VAT Accounting and the FTA’ or use this template.

Section 8 – Review and Submit

I would recommend that you make a printout of the initial submission and review in detail against all IDs and make sure that it is 100% correct. This will save you weeks in time if it is submitted incorrectly.

Once submitted you must make sure that you always have access to the email ID used in the initial registration process as this is where all communication will be sent as well as the mobile number used.

The standard time is takes for the FTA to respond is 20 working days and they normally revert much sooner. Just expect that it can take up to 30 days in total for the VAT registration to complete.

If you have any amendments then it is ideal to make them sooner than later.

Profits Plus Accountants

We are a British Accounting Firm based in Dubai and we help businesses navigate the FTA requirements using the most advanced cloud accounting software in the World.

We make sure that you remain 100% compliant.

As a Silver Partner of Xero Cloud Accounting Software, we have a local team based in Dubai with over 20 years of experience (collectively).

If you are looking for an accountant in Dubai then speak to Mubashir Malik, a Managing Partner at the firm. You can reach him directly on [email protected].

Note: www.profitsplus.ae is a domain belonging to Profits Accounting and Bookkeeping, an accounting and bookkeeping firm registered with Dubai Economy, Trade License No. 796316.

What is a FAF File? [FTA Audit File]

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 should they ever request it.

What is accounting software?

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

Currently, there are many accounting software solutions being used in the UAE the key players in the market are:

When selecting an accounting solutions business owners should ensure that the solution 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, namely the need to generate a FAF File.

FTA Audit File

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 businesses 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 data 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.

Profits Plus Accountants

We are a British Accounting Firm based in Dubai and we help businesses navigate the FTA requirements using the most advanced cloud accounting software in the World.

We make sure that you remain 100% compliant.

As a Silver Partner of Xero Cloud Accounting Software, we have a local team based in Dubai with over 20 years of experience (collectively).

If you are looking for an accountant in Dubai then speak to Mubashir Malik, a Managing Partner at the firm. You can reach him directly on [email protected].

Note: www.profitsplus.ae is a domain belonging to Profits Accounting and Bookkeeping, an accounting and bookkeeping firm registered with Dubai Economy, Trade License No. 796316.

VAT Submission Deadline [must know]

vat submission dealine

VAT Submission Deadline

VAT registered business owners have a responsibility to submit their VAT return on time every 3 months (the first submission period after you register will vary for each company). The fine for failure of the person conducting Business to keep the required records and other information specified in Tax Procedures Law and the Tax Law is AED 10,000 the first time and AED 50,000 if repeated.

Administrative penalties for violations have been issued by Cabinet Decision No. (40) of 2017 and can be found under the Legislation section on the FTA website.

VAT Submission Procedure

Every 3 months you need to calculate the difference between your input and output tax and submit the summary to the FTA with a breakdown of the emirates in which the sales were generated. Ideally, you should generate a P&L and Balance Sheet at the same time and there is a very good reason for doing this.

Although the deadline to submit your VAT return is 28th of the following month after the VAT Period, you should submit the VAT return by the 25th. You need to give yourself enough time to make the VAT payment to the FTA. To learn more about how to make the payment please refer to our blog post on Making A Payment To The FTA.

Profits Plus Accountants

We are a British Accounting Firm in the UAE based in Dubai, we help local businesses to navigate the FTA requirements and we use the most advanced cloud accounting software in the World to make sure that you remain 100% compliant.

Speak to Mubashir Malik, Managing Partner at the firm. You can reach directly on email [email protected].

Note: www.profitsplus.ae is a domain belonging to Profits Accounting and Bookkeeping, an accounting and bookkeeping firm registered with Dubai Economy, Trade License No. 796316.

Understanding VAT in the UAE 2019

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.

VAT is charged at each step of the ‘supply chain’. End consumers generally bear the VAT cost while registered businesses collect and account for the tax, in a way acting as a tax collector on behalf of the Federal Tax Authority.

NEED TO MAINTAIN RECORDS

VAT registered businesses will need to charge and account for VAT however, all businesses are required to maintain their business records and other information as specified in Tax Procedures Law and the Tax Law.

The fine for failure of the person conducting Business to keep the required records and other information specified in Tax Procedures Law and the Tax Law is AED 10,000 the first time and AED 50,000 if repeated.

Administrative penalties for violations have been issued by Cabinet Decision No. (40) of 2017 and can be found under the Legislation section on the FTA website.

EXECUTIVE REGULATION

As per Article 2 of the Cabinet Decision No. (36) of 2017 on the Executive Regulation of Federal Law No. (7) of 2017 on Tax Procedures Accounting Records and Commercial Books shall include the following:

accounting books in relation to that business, which include records of payments and receipts, purchases and sales, revenues and expenditures, and any business, and any matters as required under any Tax Law or any other applicable law, including:

1) Balance sheet and profit and loss accounts.
2) Records of wages and salaries.
3) Records of fixed assets.
4) Inventory records and statements (including quantities and values) at the end of any relevant Tax Period and all records of stock-counts related to Inventory statements.

BRITISH ACCOUNTANTS IN DUBAI

Profits Plus Accountants are British accountants based in Dubai. We deploy the most advanced software in the World in order to make sure that you remain 100% compliant and we leave no room for error when it comes to your accounting records.

Mubashir Malik the Managing Partner can be reached on +971529834145 and welcomes meeting in person to discuss how he can help your business or email us on [email protected]

www.profitsplus.ae is a domain belonging to Profits Accounting and Bookkeeping, an accounting and bookkeeping consultancy registered with Dubai Economy, Trade License No. 796316 and trading with the name Profits Plus Accountants.

 

4 Quick Facts About Registering for VAT in the UAE

Must Know Facts About VAT in the UAE

Registering for VAT in Dubai should not be taken lightly and certainly not considered part of the process of operating in Dubai, you only need to register if you qualify or if you exceed a threshold. Failing to adhere to the Federal Tax Authorities in Dubai is a serious offence and can incur heavy penalties. Below are 7 facts that you must understand before registering for VAT in Dubai.

1. Individual Responsibility
When you register for VAT you are registering the person that is operating a business, not the business itself. Ultimately it is the individual who will be responsible the vat and the responsibilities that come with registering for VAT with the FTA. This responsibility must not be taken lightly and it is ultimately connected back to your Emirates ID.

A person can only hold one TRN for VAT purposes at any one time. It is your responsibility to ensure that duplicate applications are not submitted.

2. When do I need to register for VAT?
There is no need to register for VAT with the FTA when starting your trade license. There is so much incorrect advice on this matter. The principles requirements of VAT are fixed and therefore it is not a choice to register when setting up a company.

Mandatory Registration – if you meet the following criteria then you must register immediately:
• Your turnover was more than AED 375,000 in the last 12 months; or
• You expect that your turnover will be more than AED 375,000 in the next 30 days.

Voluntary Registration – if you meet the following criteria then it is your choice however your next 12 months will play an important factor on whether you should register voluntarily or not:
• Either your turnover or expenses (which will be subject to VAT) were more than AED 187,500 in the last 12 months; or
• You expect that either your turnover or expenses (which will be subject to VAT) will be more than AED 187,500 in the next 30 days.

3. Applying for exemption from VAT
If you have a trade license in the UAE (LLC or Freezone) and do not operate in Dubai and receive all income from outside UAE then you may qualify for exemption from VAT but you still MUST apply for this through the FTA. Banks will request this and may hold payments as a result. This is also known as zero-rated supplies.

4. Branches are not separate legal entities
Only the entity of which they are branches should apply for registration where that entity meets the relevant criteria. Even if you are operating via branches in more than one Emirate, only one VAT registration is required.

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]