Certain key measures to be ensured by the management of the company when doing business under VAT in UAE. Important amongst them are –
- Proper documentation and maintenance of records
- Inventory control
- System readiness
- Tax points
- Timely filing of VAT return and payments
- Documentation and Record Maintenance
It is highly essential for the management of the company to ensure that proper documents with minimum contents required for each such document, as specified by FTA or in proper format are required. For instance, Tax invoice requires certain minimum contents to be specified there in at the time of raising the invoice. For VAT compliance all the relevant documents and records required for raising the invoices to customers on supply of goods or services, purchase invoices and related documents from suppliers with their TRN no. (for local purchases) to claim input credit, Tax credit note, records of export of goods and services, records relating to import of goods and services, agreement with suppliers and customers etc. need to be preserved at least for a period of 5 years.
- Keep track of your inventory for VAT
Under VAT concept the input tax you paid at the time of purchase of raw material or semi-finished or finished products can be claimed/set off / recovered against the output tax payable which ensures that no burden on the company’s cost of operations. For confirming the same, the management of the company has to ensure that all the items in the inventory whatever stages or form be, properly maintained and controlled, which otherwise also quite necessary to run the company’s operations successfully. Then the question arose – what is the status of the inventory on hand (closing stock as on 31-12-2017 or opening stock as on 01-01-2018) at the effective date of commencement of VAT implementation by Federal Tax Authority (FTA) in UAE from 01-01-2018?
It may be noted that input tax which paid at the time of purchases only can be claimed/recovered against output tax payable. For items purchased before 01-01-2018, no VAT is applicable and paid, hence there is no question of recovering any tax paid at the time of procuring inventory. Whereas all purchases of inventory from 01-01-2018 for which tax has been incurred can be claimed against output tax payable to the government unless the entity is under the tax-exempt category.
For claiming the input tax credit, proper documentation and record maintenance is highly important to prove before the tax authority (FTA) at any time in the future. The FTA may request those details within next 5 years after a transaction takes place. In order to have proper clarity of details and information, it is always better for the entities to have correct details of inventory before 01-01-2018 and on or after 01-01-2018. This will facilitate the management to have clarity of information whether the tax is incurred on the inventory at hand, its recoverability, and tax reconciliation at the time of filing return.
Therefore, it is always advisable to have full and correct information of all the details of inventory at the close of the year 2018. What the management can do in this regard is to take physical stock verification of 100% of inventory items by 20th of December 2018 and adjust the variations if any in the book stock, with top management’s approval. Thereafter purchases and sales up to 31st December 2018 also be properly recorded and tracked. Once again check (on a materiality basis) and confirm the actual inventory on 31st December 2018, considering the inward and outward movements between the last physical stock date (preferably around 20th Dec 2018) and 31st Dec 2018, on which no VAT has been incurred, just before entering VAT regime.
From January 1, 2018, onwards, the management of the Company will be in a better position to ensure that all inventory purchases are properly tracked, and all input taxes paid are recovered in the same tax period, by ensuring that purchases are made from a tax registered supplier.
- System Readiness – Accounting system and proper accounting
One of the most important steps, management of the companies in SME sector should ensure while entering tax regime is to have a proper accounting system in an accounting software. It should be better if it is in a reliable, user-friendly and one which best suits the needs of the business. Keeping records manually (without double entry system) or excel based record maintenance will be risky and they are not as per accounting standards. The person who records the entries in an accounting system preferably should be a good accountant, with reasonably sufficient knowledge of accounting and related standard accounting practices. If the person who is going to record the transactions are not from an accounting background or not a good accountant, support from good accounting or audit firm should be ensured for proper accounting and timely filing of return for VAT compliance. Security of the accounting system also to be ensured by taking timely backup data preferably, daily.
N.B: TRN No. In order to ensure tax compliance from the effective date and to make the document flow smoothly, you are now required to provide your entity’s Tax Regn. No. (TRN) to the suppliers and need to get the TRN of your customers for raising tax invoices, at the earliest possible. If you have not applied for VAT registration, kindly apply for the same immediately and obtain the TRN at the earliest possible. You may contact your all suppliers and customers to get their VAT TRN in the compliance process. And ensure the same was correctly stated by the suppliers or service providers when they raise a tax invoice to the company. Similarly, when you raise a tax invoice to be sure that customer’s TRN is correctly stated. Regarding Tax points and timely filing of VAT Return, we can discuss later.
- Tax Points
While carrying out the business, most of the transactions (depends upon the nature of business) attract VAT liability. A thorough understanding of all the transactions in the business is required to identify the point of Taxation. Management of the company again, as to their nature of the business, needs to see that all tax events at the time of supply of goods or provision of services are properly taken care of as per VAT law. Same is the case when one is procuring of goods and availing of services to ensure that taxes are properly paid or not unnecessarily paid when dealing with the registered suppliers. Then only the liability of collecting VAT from the customers and payment to Govt. can be ensured after recovering the VAT Input Credit available.
- Timely Filing of VAT return and payments
Registered Businesses and Individuals in the UAE have to file for their VAT Returns and payments on time. The filing of VAT return for Business entities would depend on their turnover for which it is expected to file every month (12 times a year) or every quarter (4 times a year) as decided and communicated by FTA while allotting TRN. VAT Returns are of utmost importance as it is the authentic record of tax compliance by the registered persons for discharging their liabilities in this regard. These records can be used by the FTA for auditing purposes if required in future. The procedure to file for VAT returns will be an online process in the FTA portal (www.tax.gov.ae )where one will find Return Filing option and with the use of TRN and password, one will be able to access it.
Most of the business entities are in the rush to get it registered for Value Added Tax (VAT) under Federal Tax Authority (FTA). The last date for ensuring VAT registration is fast approaching, viz, 30th Nov 2017 for businesses having turnover more than AED10 Million a year and for others it is Dec 4th, 2017. If the turnover was above AED150 Million the last date for submission of the application for registration was 31st Oct 2017. Register for VAT and get the Tax Registration Number (TRN) is a prerequisite and the initial step while going forward for VAT regime, effective from 1st January 2018 in UAE. We invite the management attention to complete the registration formalities and get the TRN at the earliest possible without waiting until the last minute. Non-compliance with registration may attract fine or penalties from the government authority.
Emirates Chartered Accountants Group provides full-fledged Tax Services in the UAE. We have extended our TAX services across the Emirates – Dubai, Abu Dhabi, Sharjah, Fujairah, Ajman & Umm Al Quwain to SMEs, Microlevels & Corporate Groups. For VAT Registration, VAT Training, VAT Implementation, VAT Return Filing Services please do not hesitate to contact our below representatives.