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.

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.