VAT is a globally accepted transaction tax levied in GCC countries form First January 2018 at 5 %. Within 100 days of VAT implementation, there has been a total compliance of 98% according to Federal Tax authority of Dubai, a highest in the world.
Implementation and execution of VAT involves calculations at every transaction. Transfer of VAT from one hand to another hand generates two kinds of variations in it.
Output tax: A tax that is payable to the supplier of your goods constitutes Output tax.
Input tax: a tax that you receive from your buyers makes input tax.
Due to the formation of these two variations in the tax, there arises tax liability i.e.; the difference between the output tax and the input tax payable to the government.
Tax liability can be of two types: when output tax you have collected from the customer is more than the input tax you have paid to your suppliers, then you have to pay the difference between them to the government via tax return.
When the input tax you paid to your suppliers is more than the output tax you have collected from customers, then the difference can be claimed back from government or carried over as excess tax paid to the next period via a vat return
All these transactions and calculations come under VAT return filings.
They are done according to the compliance set by federal Tax authority of UAE which needs professional diligence and expertise. Failing to do so can result in a penalty from the government.
These calculations are done on the major transactions of VAT while dealing with government or another business. But there are many other calculations needed to be done within the company and also while calculating the VAT values of various products.
VAT values depend on the type of products and services. Variations in implementation of VAT are:
Exempted supplies: education, basic food items, healthcare, transport, first residential transaction come under exempted supplies.
Taxable supplies: major products and services except few like financial services have a VAT of 5% levied on them.
Zero rate supplies: it means on these items VAT is still applicable, but the VAT charged is 0%. some items like gold, silver, platinum are zero rated and VAT value is calculated as zero on them.; meaning no VAT is charged.
You need to record these zero rated items and provide the record on your tax return filing. Exports made from UAE and Dubai also come under zero rated supplies.
You have to maintain a list of all these goods and services independently to provide them to the government on tax returns filings.
The main work begins after implementing VAT in your business in maintenance of records of all financial transactions within the company and also during transaction with customers and businesses alike.
As per the government policy, a VAT registered business must have a complete financial record of past five years of the company for the government officers to audit. To make sure a business is following the VAT compliance set by the government,
there are going to be regular audits of a business by government officials. The defaulters will be levied with hefty fines.
According to Federal Tax Authority of Dubai, both registered and unregistered businesses need to maintain records pertaining to:
For this to occur, business would need to change their core operations including financial management processes. Procedures of accounting including keeping books and records. They may also need to upgrade the technology used for accounting and
also hire professional tax advisers and accountants for a smooth transition to VAT.
There is a penalty of 10,000 AED for business who fail to maintain all these records. If the defaulter repeats the mistake, then they have to pay 50,000 AED to the government.
Apart from avoiding fine, maintaining these records will help both a large scale and a small scale business to keep an eye on the finances of the company and steer the company in a better direction with all the data they have on their hands.
Hiring a professional accounting firm like us in Dubai can help you in more than one ways. Many ways which we can help you are:
Give us a call to get a VAT audit of your business.