The Impact of VAT Adjustments on UAE Businesses: What You Need to Know

VAT Adjustment UAE

Since its implementation in January 2018, Value-Added Tax (VAT) has been a significant aspect of the UAE’s economic landscape, and VAT Compliance has become imperative. It’s designed to diversify the nation’s revenue sources away from oil dependency, and VAT adjustments have had far-reaching impacts on businesses across various sectors. Understanding these adjustments and their implications is crucial for businesses to remain compliant and financially sound. This blog explores the key aspects of VAT adjustments and their impact on UAE businesses.

The Basics of VAT in the UAE

Goods and services are subject to VAT, which is a consumption tax. In the UAE, the standard VAT rate is 5%, which is relatively low compared to global standards. However, even minor adjustments to VAT regulations can significantly impact business operations, financial planning, compliance strategies, and VAT accounting.

3 Reasons Behind VAT Adjustments

VAT adjustments may occur for several reasons, including:

1. Economic Factors:

Adjustments may be made in response to economic conditions to stabilize the economy, boost revenue, or control inflation.

2. Compliance and Evasion Prevention:

Changes in VAT regulations can close loopholes, enhance compliance, and reduce tax evasion.

3. Harmonization with GCC Countries:

The UAE is part of the Gulf Cooperation Council (GCC), which aims to harmonize tax rates among member states. Adjustments can be made to align with broader GCC tax policies.

5 Key Impacts of VAT Adjustments on Businesses

1. Increased Operational Costs

VAT adjustments often lead to increased operational costs for businesses. Companies may need to invest in updated accounting software, staff training, and compliance mechanisms to adhere to new regulations. These additional costs can strain smaller businesses with limited budgets.

2. Cash Flow Management

Changes in VAT rates or regulations can affect cash flow management. In order to cover VAT payments, businesses must ensure they have sufficient liquidity. Delays in VAT refunds or adjustments to payment schedules can also impact cash flow, making efficient financial planning essential.

3. Pricing Strategies

This can influence pricing strategies. Businesses may need to adjust their prices to reflect changes in VAT rates, which can affect consumer demand. Careful consideration is required to balance the need to pass on VAT costs to consumers while remaining competitive in the market.

4. Compliance and Administrative Burden

Compliance with new VAT regulations can increase businesses’ administrative burden. Keeping accurate records, timely filing VAT returns, and adhering to updated guidelines require dedicated resources. It is imperative to stay informed and prepared to avoid penalties and legal complications associated with non-compliance.

5. Sector-Specific Impacts

Different sectors experience varying impacts from VAT adjustments. For example:

Retail Sector:
Retail businesses must update their point-of-sale systems to accurately reflect VAT changes. They also need to communicate price changes effectively to customers to maintain transparency and trust.

Real Estate:
The real estate sector faces unique challenges, such as determining VAT applicability to property sales and rentals. Adjustments in VAT regulations can significantly affect real estate pricing and demand.

Healthcare and Education:
While many healthcare and education services are exempt from VAT, any adjustments in the scope of exemptions can impact the cost structure and service delivery in these sectors.

4 Steps to Mitigate the Impact of VAT Adjustments

1. Stay Informed:

Keep up-to-date with regulatory changes by monitoring updates from the Federal Tax Authority (FTA) and seek guidance from tax professionals.

2. Invest in Training:

Ensure your finance and accounting teams are well-trained and aware of the latest VAT regulations. This can help them seamlessly adapt to new rules and reduce the risk of non-compliance.

3. Use Advanced Accounting Software:

Invest in reliable accounting software that can automatically update and integrate new VAT rules, making compliance more manageable and more efficient.

4. Consult with Experts:

Engage with tax consultants and advisors who understand UAE VAT regulations deeply. VAT adjustments can be effectively managed by leveraging their insights and developing strategies.

Conclusion

VAT adjustments in the UAE present businesses with challenges and opportunities. By understanding the reasons behind these adjustments and their potential impacts, businesses can take proactive steps to maximize their financial strategies. Staying informed, investing in training and technology, and seeking expert advice are essential measures to successfully navigate the complexities of VAT adjustments.

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.

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 a.afzal@profitsplus.ae.

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 accounts@profitsplus.ae.

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.

Cheapest Way To Pay VAT In The UAE [FACT]

How to pay the FTA your VAT

In this article, we discuss the methods of paying your VAT liability to the FTA:

  1. Paying via e-Dirham or credit card through the FTA Portal. Log in and pay via e-dirham or Credit Card (Visa or Mastercard). This option is simple, quick and for those last-minute payments probably the best option. A payment using an e-Dirham card will typically incur a charge of AED 3, while a payment using a credit card will typically incur a charge between 2% – 3% of the total payment amount.
  2. Paying via Bank Transfer (GIBAN) – Local Transfer. A GIBAN is a unique IBAN number that is given to every taxable person and should be displayed on your FTA Portal. Once you get your GIBAN you can then proceed to make a normal local bank transfer via your bank and add the FTA as a beneficiary using the GIBAN number and FTA Details. Please note this option can take up to 24hrs to appear in your account. In case you made the transfer to the wrong GIBAN, it is not the FTA’s responsibility to receive/ follow up on the payment and therefore, you are required to contact your bank and fix the matter. In case a payment is not received on time, a penalty of late payment will apply.
  3. Exchanges (UAE Exchange or Al-Ansari Exchange). It is now possible to make a payment to the FTA through a number of exchanges in Dubai. You will require the following information:
  • TRN No
  • GIBAN Number
  • Amount Payable
  • And take some ID (always handy)

This is the cheapest way to pay your VAT to the FTA but make sure to do it 2-3 days before the deadline.

REMEMBER: In case a payment is not received on time, a penalty of late payment will apply. In order for the payment to be credited to your account by the 28th you should make the payment before by the 25th of the month (at the latest). 

For help on submitting your VAT Return, Profits Accounting and Bookkeeping offer a vat submission-only service. Visit our website on tax consultant in Dubai. It is possible that this information is out-of-date and you should confirm the facts by visiting the FTA Payment User Guide by clicking FTA Portal.