VAT is the tax consumption established on the costs of the goods. It is an indirect tax carried from the buyer to release an invoice. VAT was implemented in 2018 in the UAE and is mandatory for business firms that make Dh 375,000 or more annual turnover. However, it is also essential for them to understand the process for VAT registration, more importantly, the VAT filing procedure in UAE.
Confusion or lack of knowledge of VAT return filing may result in inaccurate return filings and eventually expose the business to penalties. Thus, every company needs to be updated with the local regulations to avoid any issues with the Federal Tax Authority.
Being updated on these critical processes not only help in VAT return filing & but also gives a clear view of every business activity functioning and how to calculate it.
Businesses registered in UAE must be familiar with all the requirements of VAT return and, most importantly, VAT return filing to evade problems with the Federal Tax Authority.
5 Key Considerations for Businesses for VAT Return Filing
1) Standard Tax Period for Tax Return
Federal Tax Authority determined three calendar months as a standard tax period for the taxable person or entities to pay their tax return. However, if needed, the authority can extend or shorten this period
This tax period is different for each entity. The filing of a VAT return must be no later than the 28th day from the end of each Tax Period, but if the vat return day falls on a weekend or a holiday, tax return filing is on the following working day.
2) Emirate-specific VAT return on Sales and Maintaining Records for 5 Years
The filing of VAT return tax on sales is Emirates-wise, which means that the standard-rated supplies are briefed individually for Abu Dhabi, Dubai, Sharjah, Ajman, Umm Al Quwain, Ras Al Khaimah, and Fujairah.
The VAT Registered business/an individual should maintain the records of 5 years and 15 years in the case of real estate owners after the end of the standard tax period. Regardless, FTA may require the person to retain the records for a further period in specific cases.
3) Reporting on Import of Services and Foreign Currency Transactions
Import of services briefing is a must under the reverse charge mechanism. Meaning the VAT return amount is shown both as an asset and liabilities. The input VAT is claimed as a credit once all the required compliance by FTA completes.
Reporting Foreign currency Transactions in Dirhams (AED) is a must, as per the UAE Central Bank Rate. The central bank of UAE’s official website provides the exchange rates against Dirhams for VAT-related deficits.
4) Conditions on recovering Input Tax.
Recovering the Input tax is done in the first tax period, given two conditions are acquired:
- The tax invoice is received.
- Payment of consideration / a purpose of making the payment of reference of the supply before the end of six months is made, after the decided date of payment;
The taxable person can recover the input tax in the immediate next tax period if the input tax is un-retrieved in the standard taxation period in which both conditions are satisfied,
If tax input is un-retrieved during the first two standard tax periods, in such a case, the taxable person or entity must submit a voluntary disclosure.
5) Zero-rated Supplies & Excused Supplies and Maintaining documents for Exports Goods
The zero-rated and excused supplies do not affect the VAT return Amount. FTA is reported of these supplies through the periodical return submissions.
Although the exported goods get reported as zero-rated, the UAE VAT regulations define those businesses, in respect of Goods leaving, must maintain export documents issued by the local Emirate Customs Department. The commercial evidence shall include an airway bill, bill of lading, certificate of shipment, consignment note, etc.
A business entity needs to be cautious when submitting details to the FTA regarding the VAT return filing. Providing inaccurate information will cause huge penalties. To avoid such problems, tax registrants must do proper research and hire a professional in VAT regulation. Hiring an expert Vat Consultant will help them concentrate on other essential business processes without worries of inaccurate data or mistakes.
Also Read VAT Fines and Penalties
