When introducing VAT, there are considerations that businesses cannot ignore. We will explain the details to you.
How is VAT charged?
Companies have an obligation to document their income and expenses.
Companies must:
- Charge the customer with a 5% VAT
- Value added tax is levied on goods and services from suppliers. If necessary, the difference will be paid to the government or reclaimed
Companies with a value of taxable goods and deliveries in excess of AED 375,000 are required to register for VAT. Registration for VAT is optional for businesses whose taxable goods and shipments are valued below AED 375,000 but above AED 187,500.
When do the VAT returns have to be submitted?
Registered companies must submit regular VAT returns to the FTA within 28 days of the end of the tax period.
You have the option of filing sales tax returns online
Submission of the VAT return
The VAT return is submitted online – manual returns are not possible. It is possible to generate the electronic submission via the portal of the free trade agreement. VAT returns should be filed monthly to quarterly. Delays in submitting feedback can be penalized by the tax authorities.
What kind of documentation has to be kept for how long?
There is a duty to keep books of accounts in accordance with UAE tax law. In addition, the authority can request additional documents such as annual financial statements, direct debits, purchase diary, issued invoices, general ledger, credited invoices, VAT ledger, etc.
According to the Value Added Tax Act, business books and records must be kept for five years.
Is it possible to offset customs duties with VAT payments?
VAT is charged on the customs paid by the importer. The value added tax is therefore calculated on the price of the goods or services including customs duties.
Failure to comply with VAT
Failure to comply can lead to:
No registration for VAT if you are in the taxable category
Failure to file the VAT return or pay the VAT within the specified period
Failure to comply with records required by tax laws
VAT avoidance
In the UAE, VAT would come into effect on January 1, 2018. Companies with annual sales in excess of AED 150 million are required by the agency to register for VAT before October 31, 2017, and companies with annual sales in excess of AED 10 million are encouraged to register before November 30, 2017 to register.
We at UAE21 have our team of experts to help you with business formation, registration and advice. If you have any questions about VAT or tax advice for businesses in the UAE, please contact us.