What is VAT?

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.How to prepare VAT invoices in UAE is discussed below.

Impact Of VAT in UAE:

VAT has come  in effect to all business transactions from January 1^st 2018.It will be a positive reaction 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. How to prepare VAT invoices in UAE should be a priority to UAE companies.

Standard VAT rate of 5% will apply to goods and services unless specifically declared as zero rated or exempted. Sectors specified below will be decided by each member state to be declared as either zero rated or exempt from VAT in their local laws;

• Education;
• Healthcare;
• Real Estate;
• Local Transport.

VAT treatment for following special sectors will be decided individually by each member state and in case not specified otherwise, standard rate will apply;

-Food products falling under the unified list (e.g. basic foods: bread, milk etc.) can be declared zero rated by the member states.
-Medical supplies (equipment and medicines) will attract zero rate at the discretion of each member state.
-Oil and gas sector including oil derivatives can be declared zero rated by individual member states under conditions laid thereon.
-Transport of goods and passengers (intra-GCC and internationally) will be subject to zero rate of VAT.
-Export of goods to jurisdictions outside GCC will be zero rated.
-Financial services’ VAT treatment is left at the discretion of each member state. Revenue from financial services (margin based income e.g. interest and premium etc.) will be declared exempt from VAT as a general rule, however this exemption may not apply to fee based services offered by the financial institutions as defined in the local laws of the member states.
-Free zones’ VAT treatment will be subject to respective laws of member states as they have right to choose their own VAT treatment.

Free Zones Exempt from VAT

The FTA on January 10, 2018 announced that 20 free zones in the UAE would be exempt from VAT. These are being referred to as ‘designated zones’. The areas included are largely fenced free zones with special controls on goods, rather than areas such as Dubai Media City or those dealing in financial services.

In addition, goods may be transferred between designated zones without being subject to tax if the goods are not used or altered during the transfer process, and the transfer is undertaken in accordance with the rules for customs suspension per Gulf Cooperation Council (GCC) Common Customs Law.

There is, however, an exception to this VAT exemption in the designated zones: fee charged for services would be VAT-taxed. So, for instance, a business incorporation service availed in a designated zoned would still be levied with VAT.

Here is the list of the designated zones:

Dubai

• Jebel Ali Free Zone (JAFZA)
• Dubai Airport Free Zone (DAFZA)
• Dubai Cars and Automotive Zone (DUCAMZ)
• Dubai Textile City
• Free Zone Area in Al Quoz
• Free Zone Area in Al Qusais
• Dubai Aviation City

Abu Dhabi

• Abu Dhabi Airport Free Zone
• Khalifa Industrial Zone (Kizad)
• Free Trade Zone of Khalifa Port

Sharjah

• Sharjah Airport International Free Zone (SAIF Zone)
• Hamriyah Free Zone

Ajman

• Ajman Free Zone

Umm Al Quwain

• Umm Al Quwain Free Trade Zone in Ahmed Bin Rashid Port
• Umm Al Quwain Free Trade Zone on Sheikh Mohammed bin Zayed Road

Ras Al Khaimah

• RAK Free Trade Zone
• Rak airport free zone
• RAK Maritime City Free Zone

Fujairah

• Fujairah Free Zone
• Fujairah Oil Industry Zone (FOIZ)

How should businesses prepare for VAT implementation and How to prepare VAT invoices in UAE .

With the introduction the UAE, there are considerations that businesses would have to take care of with regard to tax consulting of VAT and amending business policies.

• 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

Tax Invoice

Tax Invoice is a written or electronic document in which the transaction of a Taxable Supply is recorded with all the details pertaining to it. The VAT system is invoice-based. Each seller in the product chain includes a VAT charge on the buyer’s invoice. Under a VAT taxation system, all sellers collect the tax and then pay it to the government. The VAT gives sellers along the supply chain a direct economic motivation to collect the tax, thereby reducing the incidence of tax evasion.

Procedure-How to prepare VAT Invoices in UAE:

VAT Invoices should be maintained for every businesses in the UAE as per the latest information by the Federal Tax Authority (FTA).

Tax Invoice is the essential document to be issued by a registrant when a taxable supply of goods or services is made.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.Under VAT in UAE, a Tax Invoice is to be issued by all registrants for taxable supplies to other registrants, where the consideration for the supplies exceeds AED 10,000. Hence, 2 conditions to be met for issuing a Tax Invoice are:

1.The recipient should be registered and

2.The consideration for the supplies should exceed AED 10,000.

How to prepare VAT Invoices in UAE for Simplified VAT invoice for supply less than AED 10,000 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

How to prepare VAT Invoices in UAE for The VAT invoice for supplies above AED 10,000 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

Issuance of Tax Invoice

The Taxable Person may issue a Tax Invoice by electronic means provided that;

1. The Taxable Person must be capable of securely storing a copy of the electronic Tax Invoice in compliance with the record keeping requirements
2. The authenticity of origin and integrity of content of the electronic Tax Invoice should be guaranteed.

Is issuance of Tax Invoice under UAE VAT a must?

It should be noted that in certain circumstance where the Federal Tax Authority of UAE  considers that there are or will be sufficient records available to establish the particulars of any supply or class of supplies, and that it would be impractical to require that a Tax Invoice be issued by a taxable person
FTA may determine that, subject to any conditions that the FTA may consider necessary

1. Any of the particulars specified in in relation to Tax Invoice and Simplified Tax Invoice shall not be contained on a Tax Invoice.
2. A Tax Invoice is not required to be issued in certain cases.

Recipient of Goods and Services issuing Tax Invoice under UAE VAT

It should be noted under certain conditions and circumstances the recipient of good and service could issue tax invoice and Where a Recipient agrees to raise a Tax Invoice on behalf of a Registrant Supplier in respect of a supply of Goods or Services, that document shall be treated as if it had been issued by the supplier if the following conditions are to be met with;

1. The Recipient of the Goods or Services is a Registrant
2. The supplier and the Recipient agree in writing that the supplier shall not issue a Tax Invoice in respect of any supply to which this Clause applies
3. The Tax Invoice shall contain the particulars required under law for Tax Invoice.
4. The words “Tax Invoice raised by buyer” are clearly displayed on the Tax Invoice

When a  Tax Invoice is issued as above the any invoice issued by the Supplier in respect of that supply shall be deemed not to be a Tax Invoice.

Issue of Tax Invoice by an Agent: Where an agent who is a Registrant makes a supply of Goods and Services for and on behalf of the principal of that agent, that agent may issue a Tax Invoice in relation to that supply as if that agent had made the supply, and provided that the principal shall not issue a Tax Invoice.

When the Tax Invoice relates to a supply for which the recipient should pay tax, a statement that the recipient is required to account for tax, under Article 48 of the VAT Law should be given in the Tax Invoice.

Transitional Rules – Early invoicing or payment

Where an invoice is issued or payment is received prior to the date the VAT Law comes in to effect, the value of the payment/invoice will be subject to VAT where the following takes place after the date the VAT Law comes in to effect:

Transfer of goods under the supplier’s supervision

Goods are placed in the possession of the recipient of the goods

• Completion of assembly of the goods
• A customs statement is issued
• The customer accepts the supply of goods

The rules above are intended to avoid invoices being issued or payments being made prior to the effective date of the VAT law for supplies of goods which effectively take place after the effective date of the VAT law, for the purpose of avoiding tax.

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

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 .

Penalties

Administrative Penalties –

Administrative penalties are intended to address non-compliance, and encourage compliance.  The FTA has the power to waive or reduce penalties at its discretion (e.g. taxable person has a reasonable excuse for the error). Few examples of administrative violation:

• If the person conducting a business fails to keep the required records and other information;
• If the person conducting a business fails to submit the data, records and documents related to tax in Arabic language when requested by FTA;
• If the taxable person fails to submit a registration application within the period require

Tax Evasion Penalties –

The FTA can issue penalties for tax evasion. Tax evasion is where a person uses illegal means to either lower the tax or not pay the tax due, or to obtain a refund to which he is not entitled under law.  The imposition of a penalty under tax law does not prevent other penalties being issued under other laws. •

Few examples of instances of tax evasion:

• Where a person deliberately provides false information and data and incorrect documents to the FTA;
• Where a person deliberately conceals or destroys documents or other material that he is required to maintain and provide to the FTA.

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.

Reach online VAT Software for businesses to file VAT Return easily

In the VAT regime from 2018 onwards, software will play a key role and it will define the success of your business in the field of compliance adherence. For businesses, having the right tax accounting software is a must. The software will help the businesses in accounting VAT with ease and generate accurate VAT return files in XML or Excel format.

Appropriate tax accounting software is one which helps in accounting the VAT records with in-built capabilities to prevent, deduct and allow seamless corrections of errors or discrepancies so that all the records and the returns are authentic Thus, the businesses need to carefully evaluate the software which will help you in hassle free transition of your businesses to new VAT regime, ease of accounting VAT and filing returns.

Need to upgrade to Reach VAT Software :

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.

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.