VAT and all you need to know about it.

UAE has always been considered as a hub for investment opportunities. Investors from around the world are attracted to the many new chances of investment which continue to emerge from this place. In 2018 the UAE government imposed VAT ( Value Added Tax) which was the implementation of 5% tax on goods and services. Cost of living in the UAE, at this point, saw a slight rise.

 

Criteria:

In order to be eligible to pay VAT there is a certain threshold that needs to be met with. While registering for the VAT with the federal tax authorities in dubai it is the individual owner that registers for it with their Emirates ID so accountability falls completely on the individual and not the business entity that he or she owns.

The eligibility to register for vat depends on the company’s turnover. If the turnover of the year is greater than 375000 AED the company has the option to voluntarily register for VAT.

After registration with the FAT of UAE you will need the help of experts to help keep track of your accounting books and that is where the Expert accounting services come in hand. The accountants are generally experienced in 20 years or more of britsh VAT system which is almost similar to the UAE vat system. Vat records are generally required to be kept fo some years yto avoid penalties

 

Penalties

Consultants are important when it comes to handling VAT. They help avoid penalties and overlook the documents and figures that are submissited to the FAT. they are well informed about the procedures and requirements of the entire process.

 

The need for an accounting software

VAT compliant accounting softwares are generally used to help manage invoices, generate bills,and manage all the tax rates and reports.

They make it easier to track your deadlines and have a team of expert accountants that overlook the entire information reports generated.

 

So unless you have an alternates that exempts you from the VAT having an accounting software and expert accountants helps cater to the financial needs of the company. It helps avoid penalties that are taken as a serious offence by the FTA of UAE.

 

When to register your business for VAT; Voluntary or Involuntary

The world of tax as it applies to you and your small business is an incredibly important one, and yet often more than a little confusing; one of the areas that seem to confuse most is that of VAT (value added tax). Most business owners know that they must register their business for VAT but are a little unclear as to the exact rules. If and/or when one should register for VAT is a common question that many businesses would like a simple answer to. Most accounting firms in Dubai will offer you different types of registration, so be mindful of whom you pick.

There is in fact more than one type of registration, which is probably what confuses people; ‘compulsory registration’ is, as its name implies, the point at which the law says you have to register your business. Here in the UAE, this is when the value of your business’ taxable commodities and services reaches £70, 000 in a year. As well as the previous twelve months, the law also states that if you are aware that you will reach this figure in the next month you are also obliged to register.

You are obviously not obliged to register for VAT if your business does not reach this threshold, but many businesses do choose to do so; this is called ‘voluntary registration’ and it has both advantages and disadvantages.

One of the reasons that a business may choose to voluntarily register for VAT before they reach the UAE threshold is that when a business regularly invoices other VAT registered customers they are able to claim back some or all of the VAT charged on their purchases.

Voluntarily registering your business accounting for VAT can also improve your business profile by leading other businesses to infer that you have a much higher turnover than you actually do. This will open streams of business to you from those wishing to do business only with larger concerns as they include you in the mix.

However, once you have registered for VAT you will be required to submit a VAT return each year; adding to your business’ paperwork and form filling obligations will obviously add to your workload; something to be considered if you are a small business owner struggling with an already full-time table.

It is not recommended that you voluntarily register for VAT if your only customers are the general public, who cannot claim back the VAT that they pay, as you will have to add an extra 17.5% to your prices, which could make you uncompetitive, better then to wait until compulsory registration kicks in, at which point your larger turnover may allow you other ways to increase your commerciality.

Whatever size business you have, making a decision about when to register for VAT without first sitting down with your accountant and discussing all of the options open to you would be fool hardy to say the least; most accountancy professionals have a good working relationship with HMRC and an in-depth understanding of the benefits and disadvantages of each alternative, so use their knowledge to make the best decision for your firm.

In simple terms, you must register for VAT if your business is over the VAT threshold, but if it is under it you have a choice; choosing to register voluntarily is beneficial for some businesses and less so for others, but the ways in which this will affect your own business are probably best explored by someone with an understanding of its financial history and its future forecasts.

The main advantages of voluntary registration:
If you are charging business clients who are VAT registered themselves (not the general public), then if you choose to register for VAT this will represent “money in your pocket”, as you can claim the VAT back on some or all of your purchases. Your customers will not mind as they can recover all the VAT back you charge them on your invoices.

Being VAT registered is sometimes viewed in a more favourable manner by other businesses. They may assume that you are VAT registered because you have a higher turnover, even though that is not the case. In essence, being VAT registered could mean that other organisations view your business as more credible.

If you are a business where most of your supplies are zero rated for the purposes of VAT, then it may be worthwhile voluntarily registering, as you will be in a repayment situation each month and can claim the VAT back that has been charged to you.

The main disadvantages of voluntary registration:
If you register for VAT you will be required to submit VAT Returns, and also account for all the VAT on your taxable supplies and purchases, as part of your record keeping. This extra administration can cause a drain on your time and an additional stress if you are a small business.

If you register for VAT voluntarily but your customers are the general public, then you will need to add on 17.5% to your prices; they will not be able to claim this back and therefore this represents a real hike in the cost of your services to them. Therefore, from a commercial point of view, this may not be a good idea as you may price yourself out of your market.

Like all other decisions, as regards tax and accounts compliance, you should make sure that you fully consider all of the consequences before you make a final decision. It is crucial that you consult with your accountant, so that he can look at whether or not it would be beneficial for you to voluntarily register for VAT based on your own circumstances.

So, you’re looking for accounting companies in Dubai, or more specifically a VAT accountant, then check this out!

 

 

 

 

 

Understanding VAT in the UAE 2020

You may know nothing about VAT Accounting, but that doesn’t mean that you should remain ignorant. If you’re a VAT taxpayer, the more you know about it, the more benefit you and your business can derive from it. Here are five essential things that you need to know about VAT in UAE.

VAT Registration and De-Registration

How do you know whether you should register or de-register for VAT? If your turnover is more than AED 375,000 per year, you must register for VAT. If your turnover for the year is under AED 375,000, you are allowed to de-register or apply for voluntary registration. Once you’ve registered for VAT, that’s when a VAT consultant will be useful to you. They can advise you on the latest regulations and keep you and your business on the good side of HM Revenue and Customs.

VAT Schemes

Businesses that are registered for VAT need to account for tax when they invoice customers or when their own suppliers invoice them. HM Revenue and Customs has a number of VAT schemes that allow your business to save time or only account for VAT when they are actually paid. To work out which scheme bests suits you, seek the qualified advice of an experienced VAT advisor.

VAT Records

It is your legal and mandatory obligation to keep accurate VAT records regarding any tax paid or received. You need to keep these records for a fixed number of years and there are penalties for poorly kept records. Keeping accurate VAT records helps you to avoid paying too much tax. To find out more about keeping accurate VAT records, speak to a VAT accounting specialist.

VAT Responsibilities

Do you know what your VAT responsibilities are? If not, you could fall foul of the VAT penalty system. A VAT consultant will let you know your VAT responsibilities and help you to stick to them. You don’t need to be a VAT expert when you have a VAT adviser, they’ll keep you informed of all your responsibilities regarding Value Added Tax.

VAT Penalties

As of 2017, a brand-new VAT penalty system is in place. There are two scenarios under which a penalty will apply. The first is in the case of failure to notify about an under-assessment. This occurs when a VAT Return is not submitted, and Customs have to estimate the assessment. If this assessment is lower than the actual figure it should be and the taxpayer does not inform HM Revenue and Customs, then a penalty is liable.

Second, when someone submits a document that includes an error, this will also trigger a penalty. An error when reasonable care was not taken will be punished with 30% penalty. An error which is deliberate but not concealed from HM Revenue & Customs will be punished with a 70% penalty fine. Finally, an error which is deliberate and where concealment can be proved will result in a 100% fine. By using a professional VAT consultant, you can avoid making mistakes and paying the price for it.

Exemption from VAT

If you have an alternate license in the UAE (LLC or Freezone) and do not function in Dubai and obtain all profits from outside UAE, then you may qualify for exemption from VAT, but you nevertheless MUST practice for this through the FTA. Banks will request this and may also hold repayments as a result. This is also regarded as zero-rated supplies.

To benefit from the expertise and experience of a VAT adviser visit profitsplus.ae to find out how they can help you manage your VAT accounting.

Zero-Rated VAT for Companies in the UAE

Zero-rated vat agencies based totally in the UAE review their unique VAT application.

There are numerous customers who while being located here in the UAE, are using zero-rated supplies which begs the question, whether this person should consider registering themselves for VAT.

Many clients, who were part of the esteemed profits tax consultants, have been reported to register for vat during the closing of 2019, or else they would have faced banking problems with transactions.

Some of these clients even as far to confess that their institutions made them register for vat as they had large sums of money coming and going via their own accounts.

Which again begs the question that, what is the appropriate approach to registering for zero rated vat?

So we went ahead on your behalf and asked the FTA, their answer is as quoted;

‘If you only make zero-rated supplies, you can also follow to be excepted from registering for VAT.

You still need to complete a VAT registration application, but you should reply “Yes” to the question: “Are you applying for an exception from VAT registration?”

This actually means that if you have an organization in the UAE producing zero rated supplies, then it a dire necessity to have to register for vat in UAE with the FTA. The only problem is the softwares which need to be set up properly for them to work.

Let us put it into perspective that, all of our zero-rated buyers have put in the incorrect vat utility and can no longer declare that they are taking advantage of an exception to the generally followed rules.

Some of our customers have experienced losses or penalties of up to 20,000 AED because of asking for amendments in the wrong way. They failed to realize that all their supposed amendments needed to be made within the 20-day limit set by the FTA

So, it is our profound recommendation that you thoroughly check your initial vat application, and that it was made in the correct order. With that being stated, we can surely rely on the FTA to begin inquiries into companies who stated on their forms, sales of up to 6m AED but failed to reach that milestone.

 

4 Quick Facts About Registering for VAT in the UAE

THE TRUTH About VAT in the UAE

Registering for VAT in Dubai should not be taken gently and certainly now not regarded section 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 offense and can incur heavy penalties. Below are 7 records that you have to recognize earlier than registering for VAT in Dubai.

Individual Responsibility

When you register for VAT you are registering the character that is running a business, no longer the enterprise itself. Ultimately it is the character who will be accountable the vat and the duties that come with registering for VAT with the FTA. This duty ought to not be taken lightly and it is eventually linked returned to your Emirates ID.

A character can solely preserve one TRN for VAT purposes at any one time. It is your accountability to make sure that reproduction functions are not submitted.

When do I want to register for VAT?

There is no want to register for VAT with the FTA when beginning your change license. There is so a good deal incorrect advice on this matter. The principles requirements of VAT are constant and consequently, it is no longer a desire to register when setting up a company.

Mandatory Registration – if you meet the following criteria then you must register immediately:

  • Your turnover was once greater than AED 375,000 in the final 12 months; or
  • You anticipate that your turnover will be greater than AED 375,000 in the subsequent 30 days.

Voluntary Registration – if you meet the following criteria then it is your preference alternatively your next 12 months will play a vital element on whether you have to register voluntarily or not:

  • Either your turnover or charges (which will be difficult to VAT) have been extra than AED 187,500 in the ultimate 12 months; or
  • You assume that either your turnover or prices (which will be a challenge to VAT) will be extra than AED 187,500 in the subsequent 30 days.

Exemption from VAT

If you have an alternate license in the UAE (LLC or Freezone) and do not function in Dubai and obtain all profits from outside UAE, then you may qualify for exemption from VAT, but you nevertheless MUST practice for this through the FTA. Banks will request this and may also hold repayments as a result. This is also regarded as zero-rated supplies.

Branches are not separate felony entities

Only the entity of which they are branches practice for registration where that entity meets the applicable criteria. Even if you are running by using branches in extra than one Emirate, only one VAT registration is required.

VAT Submission Deadline [must know]

vat submission dealine

VAT Submission Deadline

VAT registered business owners have a responsibility to submit their VAT return to FTA on time every 3 months (the first submission period after you register will vary for each company). According to the FTA, AE, fine for the 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 AE FTA  portal.

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 AE 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 to the FTA is 28th of the following month after the VAT Period, you should submit the FTA VAT return to the FTA by the 25th. You need to give yourself enough time to make the VAT return 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 Ali Afzal, a 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.

 

Profit Margin Tax Scheme [Used Car Sales]

Profit margin tax is a value-added tax (VAT) scheme created by the FTA AE for the benefit of the used goods industry.

The scheme allows VAT to be applied only to the profit portion of the goods sold, provided full VAT has been charged on the goods previously.

Working Example

Ahmed buys a brand new car from a dealer in Dubai. He pays AED 100,000 plus 5% VAT. Regardless of how he purchases the car i.e. full cash or on finance VAT of 5% has been paid on the total value of the car. Now since he is a consumer and not a UAE business that has undergone VAT registration, he will NOT be able to claim for VAT return, according to the FTA rules.

6 months later Ahmed decides to sell the Car to Khaled (a used car dealer) based in Dubai. After agreeing on the price of AED 80,000 Khaled pays Ahmed in cash. Ahmed then sells the car through his showroom for a price of AED 85,000.

Let’s calculate his VAT liability

Purchase PriceAED 80,000
Selling PriceAED 85,000
ProfitAED 5,000
VAT Liability (5% of AED 5,000)AED 250

Common Mistakes

  1. Deducting expenses before calculating the Profit; there is no provision in any FTA portal publications that allow for the deduction of expenses on the used car before calculating the Profit element on which the VAT is applied. Therefore you cannot deduct car polishing, car repairs, and other expenses before calculating the Profit on which VAT is applicable.
  2. Charging Profit Margin Tax to used cars 2017 or earlier; Profit Margin Scheme can only be used for cars where the FULL VAThas been previously applied, therefore since cars previous to 2017 or earlier have not had the full vat applied it is not possible to apply the Profit Margin Scheme to these cars.

NOTE: Profit Margin Tax can still be applied to cars 2017 or earlier but only if the full vat was applied by a used car dealer in the chain of events.

If you are looking for an accountant in Dubai then speak to Ali Afzal, 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.

 

Submitting a VAT Correction?

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 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 of more than AED 10,000, you should make a Voluntary Disclosure. We would urge you to review the FTA publication named Voluntary Disclosure

To avoid doing this incorrectly contact the experts.

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 Manam Tariq, Senior Accountant at the firm. You can reach him 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 solution business owners should ensure that the solution complies with the FTA registration requirements.

Any competent accounting software should be able to produce Sales Invoice, Accounts Receivable, Accounts Payable, and General Ledger but the FTA has 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 realize when the FAF is requested at which point it could take weeks to rectify.

Key Elements to be present in the 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 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 Ali Afzal, 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 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 registration 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 in UAE.

Section 4 – Bank Details

Bank accounts are now a mandatory requirement to complete the FTA registration application for VAT registration in UAE 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 in UAE

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 VAT registration in UAE.

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 a VAT registration in UAE and the FTA’ or use this template.

Section 8 – Review and Submit

I would recommend that you take 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 taken for the FTA in UAE 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 in UAE 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 Ali Afzal, 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.