VAT for Supermarkets in UAE

VAT is an indirect government tax borne by the end consumer of goods and services.

When a business charges VAT on a sale they are collecting that money on behalf of government. A business can reclaim VAT they have paid on purchases. The difference between what they have charged on sales and paid on purchases is sent to government.

Impact Of VAT For Supermarkets

Supermarkets and retailers are getting prepared for price hike as VAT is enacted across UAE. Standard rate of 5% will apply on many of the goods which are luxury goods. Zero rate will apply for the food items listed as per GCC.

Retail such as Super Markets, grocery stores that may sell staple food items that may not attract Tax, but most non-staple items will be taxed. Retail must ensure that either they prepare separate invoices for each category or include the tax rate for each item separately. Each invoice must then declare the sum of the tax charged in each category to enable the buyer to calculate the tax credit available.

Rate of Taxation:

Taxation rate in UAE will be 5% on all goods and services. Government has decided upon the marginal rate of 5% in the interest of the residents, as purchasing power of the consumer will not be hampered to an extent. Thus implementation of VAT will not have adverse effect on the people who are on the lower end of the spectrum.

However GCC has agreed on three VAT rates that will levied by the member states at the time computation of tax:

• Standard Rate
• Zero Rate
• Tax Exempt

Standard Rate

The rate of 5% will be applied on the all the business sectors.(does not hold good for zero rated and exempted goods).It is mandatory  that all  invoices feature tax value separately and then be added to the final bill value. All invoices must also display VAT registration number to enable buyer to claim VAT credit.

Zero Rated:

As the term suggests, the tax is computed at the zero rate. The tax column in the invoice of the sold good will be zero. Only the cost of the good will be charged.

In the contrary if tax has been paid for zero rated goods, tax credit of purchases can be availed for the sold good. You will need to record any zero-rated supplies in your VAT account and report them on your tax return.

Zero Rated Items:

• Exports outside GCC
• Food items as per GCC list
• Medicine and Medical Equipment as per GCC list
• Supply of sea, land and air means of transportation
• International and Intra GCC transport and services
• Charity organizations
• Gold, silver and platinum – 99% and more purity
• First supply after extraction of gold, silver and platinum
• Supply for educational purposes and related goods and services beneficial for educations
• Residential real estate – first supply

TAX Exempt:

The Tax Exempt supplies are not charged with VAT; however any tax paid earlier on purchases of the item is not available for credit.

GCC: Tax Exempt List

• Imports of goods which are custom exempt
• Local passenger transport
• Bare Land

UAE: Additionally exempt

• Residential buildings other than zero rated
• Some specific financial services – margin based

For the supermarkets standard rate of 5% will apply except for Food items as per GCC list.

How to prepare VAT Invoices in the UAE:

VAT is expected to be implemented in  UAE with effect from 1^st January 2018. VAT Invoices should be maintained for every businesses in the UAE as per the latest information by the Federal Tax Authority (FTA).

According to the  FTA, there will be two kinds of inovices for VAT in the UAE. Supply for less than the specified amount will be considered to maintain a simplified VAT invoice – specifically for supermarkets and retail industry. However, supply for more than the specified amount will have to make a detailed invoice.

Simplified VAT invoice for supply less than the specified amount should consider the below:

• “tax invoice” in a prominent place
• Name, address & TRN of supplier
• Date of issue
• Description of goods or services
• Total amount payable
• Total VAT chargeable

The VAT invoice for supplies above than the specified amount should consider the below:

• “tax invoice” in a prominent place
• Name, address & TRN of supplier
• Name, address & TRN of recipient (where they are a registrant)
• A sequential or unique identifying number
• Date of issue
• Date of supply if different to the date of issue
• Description of goods or services
• Unit price, quantity or volume supplied, rate of tax and amount payable in AED
• Value of any discount offered
• Gross value payable in AED
• Tax amount payable in AED
• Statement relating to reverse charge if applicable

Key actions to consider

Few points to ponder for smooth implementation of VAT:

• Identifying someone in the organization to develop and lead the VAT implementation strategy. This lead person should be senior enough to coordinate with all departments as VAT impacts on procurement, sales, IT, HR and legal.
• Sales and consumers facing staff need effective training in understanding VAT and how it impacts sales negotiations to ensure margins are not impacted in error and your consumer doesn’t value your product or service any less.
• Most business contracts would have provisions for future taxes within the pricing structure to ensure that there is clarity over whether the pricing is VAT inclusive or VAT exclusive. However it is worth reviewing all contracts to ensure that any contracts that require clearer provisions regarding indirect taxes are addressed before 1 January 2018.
• In many countries, VAT is based on the invoice date, not when the invoice is settled, for remittance to government collection agencies. If this approach is adopted in the UAE, carefully consider long term contracts to ensure that VAT on invoices received from the suppliers are in step in terms of timing with VAT on your invoices to consumers to help support cash flow management.
• In particular for the retail industry, consider how your Point of Sale systems are capable of dealing with VAT. Best practice is to run test stimulations in advance of the implementation date. For businesses not involved in retail, it is still important to assess existing systems.

No impact on consumers

Since the VAT rate is fairly low in comparison with other jurisdiction Supermarkets do not expect VAT to greatly affect consumer behaviour. Therefore, Supermarkets can expect the market to stabilise again shortly after the introduction of VAT,by planning business strategies accordingly for having less impact from 1 January 2018.

VAT Payment

VAT is charged at 5% on total value of the final goods. As vat is collected at every channel of production and distribution Government will not collect the tax upfront on the final good only. The difference amount resulting from VAT recovered on sale of final good and VAT paid at the procurement of raw material is the Taxable amount that is paid to the government.

Understanding with the formula:

VAT=Output Tax – Input Tax

Output tax: VAT collected on sales of goods and services.

Input Tax: Tax paid on purchase of goods

Calculation with an example

A soap manufacturer sells his product at AED 30.00 to a supermarket. The VAT at 5% would be AED 1.5 The supermarket pays the manufacturer AED 31.50 and the manufacturer pays AED 1.50 in VAT to the government. The supermarket then sells the soap to a consumer for AED 60. The VAT would be AED 3.00 and the consumer pays the supermarket AED 63.00 The supermarket pays AED 3.00 to the government – but receives a credit of AED 1.5 from the government -on the purchase of the soap from the manufacturer. The total value consumed is AED 60 and thus total VAT the government should collect is AED 3..00 The government has collected AED 3.00 in total – AED 1.5 from the manufacturer and AED 1.50 from the supermarket.

Exceptions on Input Credit

• It is possible to have unclaimed input credit. Being tax on purchases higher than tax on sale. In such a case, you are allowed to carry forward or claim a refund.

If tax on inputs is greater than  tax on output –> carry forward input tax or claim refund

If tax on output is greater than tax on inputs –> pay balance

  No interest is paid on input tax balance by the government

• Input tax can be claimed on taxable and zero rated supplies.
• You must be registered as a taxable person under VAT

• If the entity of registered taxable person changes due to sale, merger or transfer of business, then unused ITC shall be transferred to the sold, merged or transferred business
• Since VAT is charged on both goods and services, input credit can be availed on both goods and services (except those which are on the exempted/negative list).
• Input tax credit is allowed on capital goods.

Non Availability of Input Tax Credit for the following cases

• Input tax is not allowed for goods and services for personal use.
• No input tax credit shall be allowed after VAT return has been filed following the end of the financial year to which such invoice pertains or filing of relevant annual return, whichever is earlier.
• Input tax credit cannot be taken on purchase invoices which are more than one year old. Period is calculated from the date of the tax invoice.
• If depreciation has been claimed on the cost of capital goods, then they are not eligible for Input Tax credit.

Matching Mechanism for ITC Monitoring

• A matching mechanism has been developed to make sure there is no duplication in claiming ITC.
• It ensures that inward supplies returns filed by receiver matches outward supplies returns filed by supplier.
• Matching mechanism also helps in matching ITC claims with customs paid where goods are imported by registered taxable person.
• Any discrepancy which arises post verification is intimated to both parties so that they can make necessary corrections within the prescribed time frame.

An important feature of VAT is the exemption of certain goods and services. If all services or goods that a business sells are exempt then the entire business is exempt from VAT. In most VAT regimes internationally an exempt business cannot claim VAT on its purchases. From the announcement it is known education, health and some basic foods will be exempt from VAT in the UAE.

VAT Registration

The Federal Tax Authority will be responsible to collect, administer and enforce tax laws and perform tax audit and levy penalties for non-compliance with the tax laws.

All business entities licensed by the various economic agencies such as the Department of Economic Development (DED), the Free Zone Authorities will be required to register and obtain a VAT Registration Number.

Excludes the value of Exempt invoices.

VAT Groups

A group of companies may register under a single VAT registration entity if they meet the eligibility requirements. Such a group is considered as a single taxable entity and allowed to balance the tax credit of member companies. Trade within group companies also does not attract tax.

Eligibility to form a VAT Group are yet to be announced but will most probably include common share-holders with majority stakes in each company.

Businesses are expected to register themselves in the last quarter of 2017. The General Authority for Zakat and Income Tax (GAZT) has announced this along with the penalties for non-compliance

The information for registration will include:

Personal Information

• Name
• Mobile Number
• Email Address
• Tax Identification Number
• KSA Residency Number

Taxpayer Information

Tax Payer Type

• Individual
  • Taxpayer ID Type
  • Taxpayer ID Number
  • Date of Birth
  • Commercial ID Type
  • Commercial ID Number (CR)

• Company
  • Company ID
  • Shareholder Information (Capital and profit percentages)
  • Commercial ID Type
  • Commercial ID Number (CR)

• Estimated VAT Sales over next 12 months
• Estimated VAT Expenses over next 12 months
• Actual Sales Value over last 12 months
• Actual Expenses Value over last 12 months

What is a VAT Return and Why is it important?

A VAT return is the formal document/statement of the VAT liability of a taxpayer for a particular tax period. It contains the details of VAT liability of the person, tax paid by him, etc. for a tax month or quarter.

VAT returns are important because they contain the records of the tax paid by the users in a given period. It is a formal document that works as a proof that the certain party has paid their tax. The government needs these records to maintain a proper taxation system where each individual pays his/her tax liability on time. These are used by the tax authorities for performing auditing and other activities as per the tax laws. Your VAT return contains the summary of your total earning and the value-added tax paid by your on that earning for that particular period.

Schedule (Due Dates) for VAT Return Filing in UAE

Although the actual dates for filing VAT returns are not yet been announced by the authorities, it is being estimated that the returns will be filed monthly or quarterly based on certain conditions like type and size of the business. Each eligible individual and business in UAE will be required to register on the portal and file their tax returns as per the schedule. It is important to file VAT returns on time in order to keep good accounts with the authorities and to run a business properly.

As a VAT registered firm, you should file regular quarterly/monthly tax returns, even if you have not done any business or paid tax in a given period.

Procedure for Filing VAT Returns in UAE

The VAT tax returns will most probably be filed online, and there will be no facility for filing tax returns offline or manually. So, the businesses need to get themselves familiar with the online VAT filing process. Upon registration on the VAT portal, each taxpayer will be given a unique Tax Registration Number and password for their online account on the website. These details are to be used to file returns online. Follow the steps below.

1. Visit the online portal of the Federal Tax Authority at tax.gov.ae
   Click the return filing option under the e-services section of the portal
   3. Log in using your TRN and password
   4. Fill in the VAT return form with the details of your business, transactions, tax liability, penalties (if any), etc.
   5. Upload the required documents, bills, etc.
   6. Verify the details filled by you and submit the form

Challenges Faced by Supermarkets owing to VAT in UAE

Though the implementation of value added tax (VAT) in the UAE will result in brisk sales for groceries and smaller supermarkets, meeting the deadline in terms of organisational, operational and financial standpoints is an uphill task for its owners.Despite numerous announcements made by the Federal Tax Authority (FTA) to register before VAT comes into effect, it appears that many groceries are unlikely to meet the deadline as many of them have yet to start preparations. According to tax experts, items sold at groceries and small supermarkets will be subject to VAT. Advertised prices are required to be inclusive of VAT, per the law.If they have to reflect pricing inclusive of VAT, this would involve significant changes at the point of sale and also on the display counters. The current low level of documentation and record keeping in the sector also compounds the challenges in VAT preparedness,      maintaining proper books and records is key in VAT compliance, failure of which could attract heavy fines and penalties, in addition to losses because of incorrect VAT calculations and returns. Starting to maintain proper books of accounts is going to be the biggest challenge. Going forward, groceries have to issue a VAT invoice for every sale that they make. They also have to keep every invoice that they receive from their supplier since those invoices will carry VAT which they can claim back against the VAT on their sales. And they have to regularly file returns and pay the VAT on their sales on a quarterly basis. All of this needs discipline and proper book-keeping.

Reach Accountant Onetime Solution to your Business queries:

Reach is`the ultimate destination to use software which suits 21 different business with end to end process. You can use Reach instead of using multiple software for different functions or trying to create a customized software. Reach software are VAT complaint which simplifies business

Business Intelligence Dashboard:The software has a feature of  providing you key statistics of the business at any given point of time.The dashboard displays work status, profit and loss, expenses graphically.It also features  best Selling Executive, Highest Selling product, Largest value customer for the month. Every night the client gets a SMS summing up the entire sales , expenses ,case production ,and stock value for the day.

Abide by to Regulatory Compliance: The whole industrial operations   are governed by existing country rules .Non compliance and violation of law may lead to cancellation of the license to operate the business.ERP software are embedded with laws and regulations of the country, ensuring and guiding business is carried out according to the  prevailing laws.

Accounting: It covers the broad head under the computation, from Trading a/c,Journal entries  to ledgers ,Income and expense a/c  and Balance  Sheet, Cash flow Management, Budgeting and forecasting,accounts payable and account receivables .It also helps maintain the Bank Transactions-Contra entries ,Taxation  and Audit.

Minimal manual intervention on spreadsheets: ERP uses one back office process including finance, inventory and sales.

Cost Effective:Saves IT cost associated with maintaining,integrating,upgrading separate applications

Point Of Sale: Touch and Keyboard billing system.One of the features is the software works even when net is also down.

Barcode and Batches Management: Generates batch codes and barcodes  and reads automatically on a bar code scanner.

Invoicing: Generates VAT compliant invoice of the company in the specified design as requested by the client or can choose from the available templates in the software. It also converts quotes to invoice .One of the features is the software can convert the Foreign currency invoices to base currency and further calculating the VAT at UAE standard rate.

Print tax invoices in Arabic: Reach Software lets you print invoices in Arabic, English or both, as per the mandated guidelines of GAZT and FTA

Check Post for VAT returns: As the software has been designed exclusively to aid individuals and entities to be VAT compliant in UAE, the set of rules and regulation laid by FTA (Federal Tax Authority) of UAE are embedded in the software. Hence any process error will be popped up by the application can be viewed .For instance wrong Tax Registration Number, incorrect taxable figure, wrong taxation period.

Automatic Update on Tax legal Sections: As the Reach software are cloud computed software gets upgraded to update any revised tax laws and section if any in future.

Computation Of VAT Returns: The software is inbuilt with all the detailed crucial information  on tax computation ,Tax Assesee can  fetch all the details of all the taxable transactions. It lists down transactions which are included and excluded in the VAT return  to calculate input tax, reverse charge and output tax to avail claim if any.

Sales:  Provides with quotation, operational product, Sales invoice and sales returns ,Recurring invoices in one order and customer balance.

Access: Multi-User operation with restriction menus, Auto Back up ,Accounting Period Auto change ,Any Location operation, Easy to handle ,No hard accounting process and buttons, Auto conversion to accounting formats

Auditor View: Full-fledged Financial reports,Tax reports,VAT reports,read process by auditor, with e-filing options,PF & ESI Reports,Tax Consulting Modules

Mobile Application:Business is just a touch away from you. Easy access through tabs,ipads,iphones,android phones.Click pictures of expense vouchers and attach to expenses.Raise invoices, check cash and bank balances,day to day income and expense and other reports through mobile applicatons.

Business Automation: Business expansion by  searching leads suitable for your business profile ,Leads  from mail server,Changing leads to appointments,converting quotations to invoices, Email-SMS update,Delivery status update,Work pending strategy.

Operations and Process: Segregation of Product oriented and Service oriented jobs. Invoices that are custom made for business operations.

Loyalty Operations :Assign points on  sales and redeem points on raising request .

Addons: E-stores, Google docs, Google calender , Project management tools, SMS gateways, Payment Gateways are few to name.

Tally Import: Import excel files   from  tally to Reach software and manage accounts with smooth transitions.

User Friendly: Softwares are designed is such a way that the user will find it easy to operate.

API: The client can integrate the existing software with Reach accounting app,seamlessly.

Pricing of the software: No upfront investment, Low monthly rentals ,free servers,free routers,LAN ,Network cabling not required,Anti Virus not required, free data back up.

Technology Used: Our products are hosted on the Cloud and delivered to customers on a subscription model. It allows business applications integrate seamlessly. It can have all your employees working on business data at the same time and allows you to check how your business is doing at the comfort of your home, or on the go during a holiday!