We have heard the buzz word, ‘VAT’ far too many times in the recent months; but a lot of us haven’t listened!
UAE has never seen any sort of tax. This is the first sort of tax that this market will see. For those of you who don’t know what VAT is, it is a consumption tax – meaning that this is not a tax on the business (unless your business falls under exempt category) but on the end consumer.
I will try and touch upon how it will impact businesses and what needs to be done. Practically – that is what you as a business manager or owner needs to do.
Firstly, all businesses need to ensure their bookkeeping is in order. That has been laid out as a mandatory requirement by the Tax Procedures Law. If your business currently does not have a proper accounting set up – you need to start working on introducing one. (MS Excel does not qualify as a ‘proper’ accounting set up).
Second, you need to evaluate whether your ‘taxable supplies’ exceed the threshold of AED 375,000. If they do, you are required to register for VAT and report your taxes on a quarterly basis. On the outset, it seems to be a simple task of making payments and collections at 5% but there are a few things to keep in mind.
Here’s a shortlist of some of the key items:
- You need to make sure your supplier invoices meet the VAT requirement criteria and your supplier is VAT registered (established by virtue of a unique number provided by FTA to each tax registered company).
- If you are into the import export business, you need to be very careful with the regulatory requirements as these regulations are different from GCC to non GCC as well as internal sale within the UAE.
- If you have a mixed supply business (Exempt and Standard rate), you need to ensure you specifically follow the guidance with regards to how much input tax you can claim. This particular scenario is most likely to be faced by Financial Services and some Property Developers.
- You need to ensure the supplies you make to your customer, explicitly shows VAT on the invoice. If not, it is assumed to be included and will ultimately result in a cost to the business. Moreover, businesses need to be careful that they only claim VAT on eligible supplies and not on exempt or zero rated.
- All data pertaining to all transactions must be maintained and stored (digital or hard-copy) for a minimum of 5 years. Businesses must consider e-invoicing or e-archiving or cloud storage.
Thirdly, at the end of each quarter, you need to ensure reporting is done accurately, all capital assets appropriately accounted for and all input and output tax recorded in the relevant periods. The reporting is always a net between your input and output tax. Companies that have zero rated supplies may be in a refund position quite frequently. Companies that do not make as many sales as purchases in a particular quarter may be entitled to a refund.
The solution? a robust accounting system and internal process to ensure effective data capture and reporting VAT at quarter end in a timely and accurate manner. A lack of the above will involve greater time, effort and resources to compute net liability after knocking off input and output tax.
Forward thinking businesses are taking the right steps now, so they can secure the future of their business. Are you?
