Most Common Mistakes in UAE VAT Filing
Most Common Mistakes in UAE VAT Filing
The number “5” has taken on a new meaning for UAE residents for the past two years. It serves as a reminder to the majority of businesspeople operating in the GCC countries of the proportion of VAT (Value Added Tax) that applies to goods and services. Beginning with GCC nations like Saudi Arabia and the United Arab Emirates, the GCC (Gulf Cooperation Council) instituted this VAT scheme in early 2016. Businesses in the UAE impose a 5% VAT levy on all qualified commercial transactions in accordance with this tax law. Many small firms (also known as SMEs) have had to adjust to filing VAT returns because the UAE and a few other GCC countries have never had a taxation system in place before. Businesses have been forced to work extremely hard to ensure compliance with the mandated implementation of VAT, as non-compliance carries penalties that can reach 50,000 dirhams. Therefore, how can companies avoid fines associated with VAT reporting non-compliance? By making sure they stay clear of the errors that were noted by a number of companies in the early stages of the GCC’s VAT implementation.
VAT Filing Mistakes
Improper Interpretation of VAT Law
A number of businesses misunderstood the VAT laws pertaining to the input tax deduction. As a result, numerous similar mistakes were made, including:
• Inaccurate VAT deduction for exempt supplies or restricted items
• Inaccurate VAT deduction on invoices that are not in compliance
• Inaccurate capital asset recovery input VAT
• Import VAT payment was incorrectly deducted.
Inadequate Accounting and Planning
The difficulties of guaranteeing adherence to a new tax regime such as VAT were not fully understood by many enterprises. They were unable to have a well-trained and knowledgeable accounting setup necessary to handle VAT return filing in the most expedient manner because they either engaged the wrong individuals to handle VAT or lacked a solid plan to update their accounting team.
VAT Registration Delay
Businesses found it difficult to comply with all applicable VAT requirements, even though VAT registration was made essential for them. For a number of enterprises, the VAT registration process was delayed due to the difficulty in navigating VAT requirements. Businesses that neglected or postponed their VAT registration were required to pay a 20,000 dirham fine.
Issuing False Credit Notes and Tax Invoices
Invoices issued by firms are deemed void if they lack any of the required information. Many small businesses have experienced this on a regular basis. Additionally, companies who do not submit a proper invoice or credit note are subject to a punishment of 5,000 dirhams per document.
Unusual VAT Return Filing
Companies are expected to submit their VAT returns by the specified deadline. Since this is a relatively new practice for many businesses, several have been discovered to be lacking in this area and have either submitted their tax returns late or not at all.
Having tax professionals on your side is always advised. The FTA has approved IBR Group UAE as a tax agency. We assist businesses in meeting their VAT compliance obligations. Our tax advisers and accountants can help you with VAT registration, deregistration, and figuring out your VAT responsibilities.