VAT is an indirect tax levied on the consumers by the government via businesses from 1st January 2018. Every VAT registered business must charge 5% of tax from its customers and transfer it to the government of UAE.
VAT is paid at every step of the supply chain. The maker will add extra value of 5% and charge it from the distributor. The distributor will pay 5% to the maker and collect it from its retailer. The retailer will add that cost to its products and collect it from its customers.
In this supply chain, VAT id further classified as:
Output tax: the amount of tax business is paying to the Government or other businesses on behalf of customers.
Input tax: the amount of tax business is has paid to its suppliers.
Here arises the VAT liability, which is the difference between the input tax and the output tax, meaning, the amount of money collected from the customers and the amount of money paid to the suppliers.
When the output tax that is tax collected from the customer is more than the input tax, then the taxpayer has to pay the difference to the concerned authority (FTA) via tax return.
When the amount collected is less than what is paid to the suppliers, then the taxpayer needs to file return claim to the concerned authority (FTA) via tax return.
To claim the VAT liability, a VAT registered a business has to submit a VAT return filing within 28 days at the end of each tax period.
A tax period is a time for which tax is calculated and paid. According to Federal tax authority, the standard tax period is:
- Every three months for business with an annual turnover below 150 million AED
- Every month for business with an annual turnover above 150 million AED.
A tax period can vary according to industry or by FTA.
Failure to file a tax return within the stipulated timeframe can lead to penalties by FTA according to cabinet resolution 40 0f 2017 on administrative penalties for violations of tax laws in the UAE.
The records you need to keep for the filing of VAT return according to the government rules;
- records of all supplies and imports of goods and services;
- all tax invoices and tax credit notes and alternative documents received;
- all tax invoices and tax credit notes and alternative documents issued;
- records of goods and services that have been disposed of or used for matters not related to the business, detailing the VAT paid on those goods and services;
- records of goods and services purchased for which the input tax was not deducted;
- records of exported goods and services; and
- Records of adjustments or corrections made to accounts or tax invoices.
- Records pertaining to import of services or goods through customs or other than customs.
- Records pertaining to entries booked on account of reverse charge.
Apart from all these documents and some additional documents, every VAT registered business need to have these things accurately documented:
- Inventory records and statements
- Profit and loss accounts
- Balance sheet
- Records of salaries; and
- Fixed assets records
Hiring an experienced professional firm like us will ease your task of maintaining all these records as we are experts in auditing and record keeping.
For filing tax returns a business further need to provide the following records in every single tax return filed within 28 days at the end of a tax period:
- The value of standard-rated supplies made in the tax period and the output tax charged, per Emirate.
- The value of zero-rated supplies made in the tax period.
- The value of exempt supplies made in the tax period
- The value of any reverse charged supplies received in the tax period.
- The value of expenses incurred in the tax period where you seek to recover input tax and the amount of recoverable tax.
- The total amount of tax due and recoverable input tax for the tax period.
- The tax payable (or repayable) for the tax period.
If your output tax is more than input tax, then you have to pay the remaining amount within 28 days of the tax period.
If your output tax is less than the input tax, then you will receive the information about its approval from the FTA in 15 – 20 days of return tax filings. When your claim is approved, then the said amount will be carried forward to the next tax period by the government. During the payment of the next tax period, the approved amount will be deducted.
The government will also check all the documents of a VAT registered business at regular intervals to make sure tax is being paid fairly.
We are a top auditing firm in Dubai who will help you maintain all your records in an appropriate manner so that no loss occurs to your business due to faulty record keeping.
Give us a call for more information about VAT return filing or any other accounting services you need.