Value Added Tax (VAT) was introduced in the UAE on January 1, 2018, mandating all business entities to comply with the new VAT laws. Filing tax returns with the Federal Tax Authority (FTA) is a crucial requirement for firms registered under the VAT law. It’s essential to be meticulous while filing these returns, as even minor errors can lead to significant penalties and fines.
VAT Return Filing in UAE
The VAT system in the UAE is based on the consumption of goods and services. It was implemented to offset the declining revenue from the oil industry, with the revenue reinvested to develop infrastructure. Entities or sellers registered under VAT law collect VAT on behalf of the authority at the point of sale and then remit the payment to the authority within a specified period. When making these payments, entities must file a VAT return with the FTA to confirm their tax payments. Below are some common errors made by registered entities while filing VAT returns:
Not Recording Zero-Rated and Exempted Sales
While many entities correctly file output and input VAT along with VAT payables and receivables, they often miss recording and filing zero-rated and tax-exempt sales. Firms must identify and accurately report zero-rated and exempt sales to the authority.
Lack of Proper Maintenance of Records
The FTA mandates that all registered entities maintain proper records of every transaction for at least the past five years for most firms. These records may include purchase and sales records, payments and receipts, import and export records, bank statements, salary and benefit records, VAT and company ledgers, etc. Proper maintenance and updating of these records are crucial.
Delay and Missed VAT Return Filing
The authority clearly specifies deadlines for filing VAT returns during the VAT registration process in the UAE. Firms must ensure they file their VAT returns on or before these deadlines to avoid hefty fines and penalties for delays or missed filings. Seeking assistance from an accounting firm can help firms follow the filing process correctly.
Errors in VAT Calculation
Firms must ensure they apply the correct VAT rates and perform accurate calculations. Incorrect calculations can result in significant fines and penalties. Staying updated on applicable VAT rates is essential for accurate VAT calculations.
Mistakes Regarding Reverse Charge Mechanism Transactions
The reverse charge mechanism applies to firms importing goods and services into the UAE. If the Tax number is linked with the customs code and reflected in the taxable person’s account, accounting for VAT becomes easier. However, firms often fail to link their VAT number with the portal, causing issues when claiming input VAT. Firms may also forget to include transactions subject to the reverse charge mechanism, mistakenly considering them VAT-free. Import transactions are reflected on the customs portal, so firms must be vigilant when recording transactions.
Lack of Proper Planning and Strategy Regarding VAT Compliance
VAT law is relatively new for UAE-based businesses, making it challenging to understand and comply with. To tackle this, firms must formulate a proper strategy for VAT compliance. Given the complexities and frequent updates to VAT laws, firms should consider consulting an accounting firm with expertise in VAT compliance to avoid penalties and ensure compliance.
How Unicorn Global Solutions Can Help You Avoid These Mistakes
Unicorn Global Solutions is dedicated to assisting clients with accounting, bookkeeping, VAT compliance, and other financial services. Our specialized team ensures that clients are not exposed to business threats or losses. When it comes to VAT return filing, Unicorn Global Solutions can help firms maintain required records, avoid delays or missed filings, plan for VAT compliance, and accurately calculate VAT returns. As one of the leading accounting firms in Dubai, Unicorn Global Solutions offers custom-tailored services to meet the unique needs of each client.
For more information, feel free to contact Unicorn Global Solutions. Let us help you navigate the complexities of VAT compliance and avoid costly mistakes. Text us on WhatsApp or call us today.
