Value Added Tax –VAT in UAE

What is VAT

 VAT  stands for Value Added Tax.

It is a form of tax that is charged on the domestic consumption of goods and services except for that   are zero rated such as food, medicines etc and on the goods and services that are classified as “Exempted” broadly on exports. The tax is levied at every stage from procurement of raw material, production and till distribution chain that is up to sales. The amount of VAT the user pays is on the cost of the product, less the tax that has already been paid during the production cycle. This form of taxation (VAT) ensures there is no double taxation of the same product or services.

Comparison between Income Tax and VAT

Comparison between Sales Tax and VAT

Why VAT?

Gulf countries have always been away from all types of taxes; however, import taxes are imposed on companies that import goods into UAE. In the past one year, the fall in the oil price had a great impact on the Gulf economies. It seems the gulf countries have lost more than $300 billion due to the fall in the oil prices. This was one ill effect of being reliant on one source of income. The government has now decided to diversify the economy away from oil and gas.

UAE government also provides services like hospitals, roads, public schools, parks, waste control, and police which are usually covered through Government budget. However, VAT will provide with a new source of income, which will help in continuing these services at high quality. VAT is one such source of income which will provide huge impetus to the governments revenue.

Advantage  Of VAT in UAE:

VAT has been incorporated in all business transactions from January 1^st 2018.It will be a milestone for UAE as it will generate revenues for development of infrastructure and economic growth of the country. It is estimated that with the introduction of the new form of taxation “Value Added Tax” the economy may raise its annual revenues by Dh 12 billion in the first year of implementation of the VAT system. Gulf Cooperation Council (GCC) decided upon the implementation of VAT system as being one of the steps to diversify revenues due to the fall in oil prices. Tax reform was top priority in UAE succumb to the fall in oil prices and revenues. This fall in oil prices also affected real estate industry impacting the economic growth of the country. An indirect consumption tax regime like VAT is a natural progression of GCC government fiscal policy moving towards more effective and efficient tax systems in a competitive and integrated global economy.  VAT could help the government to improve business conditions and maintain its reputation of being business friendly.

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.

As an example consider a taxi service (local passenger transport) that is tax exempt and will not collect any VAT from passengers. Though it will not collect any tax it will not be able to get credit for the tax they have paid for purchase of motor vehicles.

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

Importance of VAT returns:

It is mandatory to file returns as government has to generate revenues for country’s betterment. It also has a check on the black money as returns are filed every quarterly. The possibility of money laundering is handicapped by periodical checks.

No manual returns are accepted on the desk. It is mandatory that all the companies registering under VAT should go through online process of registration. This is basically adopted to avoid any kind of manual manipulations. Delay by any tax payee in filing tax return will be penalized by the tax authority.

With the inception VAT form of taxation returns should be filed every quarter that is at a period of every three months. In some cases monthly. The registered entities can file the returns using online services of the Federal Tax portal. Timely submission of the e-returns keeps the company away from being black listed and also helps for expansion of business. A registered company should file returns even if the tax paid by them is NIL.As the returns should be filed every three months record keeping should be prompt and accurate. The e-services section of the Federal tax portal provides online assistance for filing VAT returns. The website available for registration www.tax.gov.ae

VAT Return Due Dates Announced before VAT implementation.

The last date to file VAT returns will be the 28th of the subsequent month following the end of the tax period. For quarterly VAT returns, due date will be 28th of the subsequent month following the end of the quarter. The last date to file VAT return for the year 2018 is given below:

For the monthly return, the last date to file VAT return will be 28th of the subsequent month. For example, for the return period of January 2018, the last date will be 28th February, 2018.If the due date falls on a weekend or national holiday, the deadline shall be extended to the first following working day . Late submission or payment can result in a penalty levied by FTA.

VAT Return Due Dates Post Implementation Of VAT.

FTA has provided relaxation with respect to the VAT return period. The FTA has provided the first VAT return period from January 1 to May 31 and subsequently on a quarterly basis. This means the first return will need to be filed on or before June 28 and later returns from June 1 to August 31, September 1 to November 30, December 1 to February 28-29.

All businesses must log onto the FTA’s website and check the tax period under their profile. Some businesses have been given one month and others have been given five months. FTA has relaxed the timeline for filing the first VAT return which would enable many businesses to gear up for the time loss. Businesses can strive to be fully compliant in terms of reporting VAT obligations to authorities.

Earlier, the first tax return filing for companies with more than Dh150 million turnover was one month. For others, it was quarterly. Now, firms can file their first tax returns after four or five months in June as per the new timelines appearing on the FTA’s dashboard after log-in by a member company. Such an extension in filing returns shall help firms to better comply.Most of the micro, small and medium enterprises have been granted five months, four months and so on as their filing period for the first return.
This will enable various entities to cope up with VAT implementation requirements and ensure they do not fall on the wrong side of the legal provisions.
Businesses need to acknowledge that VAT is a business change and not just an accounting change and accordingly utilise this time bonus to streamline all business functions as per the provisions of VAT to ensure business runs in line with policies.

Upon registration on the VAT portal, each taxpayer will be given a unique TRN 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.

How to e-file your VAT Returns using a VAT Software?

UAE registered companies are expected to file their first quarterly VAT return for Jan-Mar’18 by 28th April, 2018. The VAT returns in UAE are to be filed online.The registered businesses are required to generate VAT returns in an acceptable format as prescribed by FTA and upload the return file in the portal. Therefore it is important for businesses to have a right software which helps in accounting VAT and has a capability to generate the return file in XML or Excel format

The VAT return filing process in UAE is very simple and easy. The businesses with the right tax accounting software will be able to file the returns effortlessly and save time.

The registered businesses in UAE are required to generate the VAT return File from their accounting software, login to the FTA’s e-tax portal and upload the return file. On the basis of the uploaded return file, the e-tax portal will validate the file and accordingly the details from the file will be auto-populated in the online return form. The steps to file the VAT return are given below:

Generate the VAT return file from the accounting software.

It is very important for businesses to note that the VAT return file, generated only from the certified tax accounting software, will be allowed to be uploaded in the FTA’s e-tax portal. Here, certified tax accounting software refers to that software which meets the guidelines set by the FTA.

Thus, it is crucial for businesses to evaluate the right software as certified by the FTA, so that they are allowed to generate the VAT return file easily.

1. Login to FTA e-tax portal using your login credentials and upload the return file.

After generating the VAT return file, you need to login to the FTA’s e-tax portal using the credentials. Using the e-tax portal upload option, you need to browse and select your return file.

1. Validation and Auto Fill VAT Return Details.

Once the file is uploaded, you need to click ‘Auto Fill VAT Return’ which will auto-populate the details from the VAT return file to the VAT return form in the FTA’s e-tax portal. Once this button is clicked, the FTA portal will validate or authenticate whether the uploaded file has been created by a certified tax accounting software. If the file is authenticated, only then the details will be auto-populated into the VAT return form. If the file is not authenticated, it will be rejected and an appropriate error message will be displayed.

1. Submit VAT Return

Once the VAT return file is authenticated, you are required to fill the other details required by FTA and submit the VAT return .

VAT Tax Payment

Understanding key words in the calculation of VAT:

Input Tax:

In simple terms ,it means tax paid on raw material for the purpose of making the finished goods. You can reduce the tax that  has been already paid on the inputs and pay the balance taxable amount. Thus, entire taxes paid are set off against the output tax liability and there is no cascading impact of taxes.

Example:

Mr.X ‘s company is a manufacturer of mango juice.Raw materials required are mangoes, sugar, acidity regulators and packaging materials.

Once the final product is made let the tax on output be AED500

Tax to be paid by the manufacturer =AED500 – AED275=AED225

                                  Input Credit=AED275

Input Credit in VAT:A company can avail input tax credit only if it is registered  with Federal Law.

Computation Of Value Added Tax:

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 raw materials.

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

Understanding Calculation Of VAT with a scenario:

Mr. Y  a has a textile industry, with annual turnover being more than AED375000.He spends AED 200,000  for procurement of raw materials like yarn, dye etc.

Prevailing VAT rate of 5% is applied on 200,000 which is AED10, 000

Tax on the raw materials is that is Input Tax=AED10, 000

Assuming the finished product is sold for AED 400,000

Output Tax is 5% of AED 400,000 =AED20, 000

Therefore final VAT payable to Government is Output tax – Input Tax

That is AED 20,000 – AED10, 000 = AED 10,000

VAT Payment Online

The VAT payable determined after off-setting the Output VAT with Input VAT needs to be paid through the FTA portal. The Online VAT payment facility will be provided in the FTA portal, wherein the registered businesses can remit the VAT payable.

How can I make my business VAT Compliant?

• Start maintaining your financial records in orderly manner;
• Businesses will now need to develop more efficient processes;
• Cost cutting on all fronts that you feel are unnecessary;
• Restructure your business to incorporate new talent who are able to multi task;
• Incorporate a robust accounting system that has VAT module;
• Get professional help for right ways to implement systems;
• Hire professional CA firms who could do the groundwork or leg work for your business for implementation;
• Assess capability of existing systems;
• Identify VAT implementation strategy;
• Identify contracts that need a VAT action;
• Identify inter-company transactions;
• Undertake training / awareness.

• Using appropriate software meeting all the business requirements post implementation of VAT

What accounting changes would be required for VAT implementation?

Accounting software is a type of application in a software that records and processes accounting transactions such as journal entries, profit and loss a/c accounts payable, accounts receivable, general ledger, payroll, and trial balance. It functions as an accounting information system. It may be developed in-house by the organization or, may be purchased from a third party, or may be a combination of a third-party application software package with local modifications. Accounting software may be on-line based, accessed anywhere at any time with any device which is Internet enabled, or may be desktop based. It varies greatly in its complexity and cost.

ERP systems will need to be enhanced and modified to incorporate all aspects of VAT implementation. From the point of sale terminals, invoice and accounting systems, information technology systems and management reporting systems, VAT will have an impact on the entire business.

VAT mapping of business processes and transactions to identify which systems and how they are impacted.

• Ensuring underlying Enterprise Resource Planning (ERP) changes are made to reflect all relevant VAT processes.
• Determine the need and beneficial use of VAT specific tools (transaction integrity checking, cash flow monitoring, automated VAT filing/reporting).
• Appropriate governance and controls to ensure VAT regulations and commercial drivers change systems are kept up to date.

Guide to purchase the right Accounting Software:

Below are mentioned key features of an  accounting software to satisfy the business needs.

• Accounts receivable.
• Accounts payable.
• Budgeting and forecasting
• Cash management.
• Fixed assets.
• General ledger.
• Inventory.
• Job costing.
• Purchase Management
• Security
• Systems
• Dashboard Management

The top 5 VAT software in UAE:

Reach Accountant

SAP

SAGE

TALLY

PANDORA

Reach Accountant Best VAT Software  in UAE

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.

Being a resident of UAE or business entity it is mandatory to align business operations as per the new taxation reform. There would be many questions and perceptions running in one’s mind. One of the important concerns would be will the business be affected if new prescribed rules and regulation regards to new taxation system are not adhered. Like filing returns on time, maintaining accounts of books ,generating invoices as per VAT mandate. A mentor preferably who can be there at all time to assist and answer all the queries relating to VAT. Reach VAT software is the perfect solution proving to be your best companion in the VAT transition period.

Reach Extended services can be availed by:

The above industries can avail the benefit of using Reach VAT Software to be VAT compliant.

Need to upgrade to Reach VAT Software :

VAT Guide for UAE

Reach Accountant software is well designed to match all the needs for successful running of the business. The software can be used in different industries ,traders ,manufacturers, retailers,  workshop ,business projects etc. It is an accounting software that can automatically manage your book of accounts, taxes, inventory, sales, purchases and more online quickly and securely

Top Features of the VAT Software are:

Accounting Management: All functions relating to accounts are inbuilt with the software. You can manage your Accounting Ledgers, Bank & Cash Operations, Purchase & Sales Estimates, Warehouse Allocations, Expense Recording, Expense Grouping, Payments – Part or Full, Journal Entries, Income and loss a/c, Balance sheets, Receipts – Part or Full, Contra Entries, Financial Reports, Day book.

Tax Management: Our accounting Software automatically calculates the taxes relevant for every bill created. The Software is designed as per the government norms for calculation of VAT. It also has the option to add any number of taxes relevant to the business. In case of change in tax percentages a change it in the software on your own. All you have to do is add your tax percentage and our software will calculate the taxes automatically. This multiple tax scheme can also be applied to multiple products on a single purchase.

Income Management: The Company can create Quotations then the same can be converted as a Sales order or Pro-forma invoice or Invoice. From Invoice you can create Receipts as well. Accountants will be able to know what payments have been received and what are pending in the reports. You can also set reminders for receiving payments.

Expense Management: You can create Purchase Orders then the same can be converted as bill or payments. You can also create Debit notes for purchase returns. Accountants will be able to know which purchase bills have been paid and which are pending in the reports. You can also set reminders for making payments.

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 Invoice In Arabic: Reach software lets you print invoices in Arabic, English or both, as per the mandated guidelines of GAZT and FTA.

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

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  calculate input tax, reverse charge and output tax to avail claim if any

Receipt: Receipts can either be manually entered or imported  it in excel format easily.

Payments: Payments can either be manually entered or imported it in excel format easily.

Multi Company: Manage business through comfort of the smart phone.

Tally Import: Tally files can be easily imported to Reach Software of various periods and manage business easily.

Auditor’s Report: Full Financial Report are available,Read process by Auditor,Tax Reports,VAT Report with e-filing options,PF & ESI Reports,Tax Consulting Modules are some features mentioned.

Mobile Application: Access business information through tabs and android smart phones, pick photos of expense vouchers and attach to expenses, daily profitability and other key reports can be viewed on phone.

Bank Synchronization: Bank Statements can be imported in to Reach software through excel files.

Security: There is complete security of data stored in the hard disk. Data can be accessed and control by creating access restriction. One time password   facilities also ensures a check in the log in to the website.

Run Business from anywhere: The business can be run access data from anywhere at your comfort. Just like checking mails from the laptop or systems.

Free and Automatic Upgrades: At Reach Accountant you will be provided free services of upgrading the software frequently with new features and use it absolutely free.

No investment in expensive hardware: The software is browser based. It just requires internet connection which can be connected to multi computers without using LAN and servers.

Automatic Data Backup: Reach stores all the data in servers offsite with regular backups. Hence business information is safe and secure.

Top Two Features of the Reach Accounting Software

Outsourced Accounting: The software enables to finish the outsourced accounts in less than 30 minutes.

Real Time Accounting: Allows client to record sales and purchases online, while finalizing accounts   that is checking the Audit trail, providing MIS reports, checking Tax reports, printing financial reports and filing taxes.

Technology Used

Reach has implemented the latest technology Cloud Computing to handle  day to day business transactions just  a click away from your browser from any part of the world.

Cloud Computing:

Cloud Computing is a concept through which organizations can manage their data centres, processes and applications online via internet on the scheme of pay for use basis.

List of 10 websites providing information on VAT

https://www.khaleejtimes.com/…/vat-in-uae/uae-launches-website-to-help-businesses-nav

https://government.ae/en/information-and-services/finance-and…/valueaddedtaxvat

https://en.wikipedia.org/wiki/Value-added_tax

https://www.pwc.com/m1/en/tax/documents/what-is-vat-faq-on-vat-in-the-gcc.pdf

www.arabianbusiness.com/content/377322-uae-launches-new-website-to-prepare-for-…

gulfbusiness.com/uae-tax-authority-launches-website-details-vat-excise-taxes/
www.reachaccountant.ae

https://www.mof.gov.ae/En/budget/Pages/VATQuestions.aspx

www.tax.gov.ae

www.cgbc.cz/news/vat-in-the-uae-10-things-to-know-ahead-of-its-implementation

Reach Accountant Online Seminar and Course to understand VAT

Our VAT courses provide a comprehensive and extensive understanding of the VAT system, covering all the aspects in depth such as fundamental principles of VAT, regulation and administration, and guidance on the interpretation and consistent application of the GCC VAT legislation.

Our diverse range of courses has been carefully designed to address business requirements at all levels; executive, managerial and operational. They are suitable for corporate and government sectors and can be customised for in-house training requirements. The highlight of the course is it comes free of cost. It is free online VAT course designed in the interest of the UAE residents. All you have to do is log in to the website  www.reachaccountant.ae for further details. The study material contains 31 videos providing practical demo, the course will very shortly be going live. Keep visiting the site for updates on free online VAT course and avail its benefits.

Beneficiaries of the Course

Takeaway from the E learning Course

The benefits of the training are enormous: more efficient handling of VAT by knowledgeable staff improves compliance and can positively impact on cash flow; the risks of fines and penalties are reduced; staff morale is boosted; and costs are reduced by more efficient procedures.