Fine and penal consequences for not paying VAT in UAE

Fine and penal consequences for not paying VAT in UAE

Fine and penal consequences for not paying VAT in UAE

VAT IN UAE

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.

Significance Of VAT in UAE: Fine and penal consequences for not paying 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.

• The first benefit of VAT is the diversification of economy. It helped the government to reduce its reliance on just a single sector of oil and gas. 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 .According to IMF, different taxes can help UAE (and other GCC countries) to boost over 1.5% of their GDP.

• The introduction of VAT and other taxes especially the sin tax on harmful items will prevent public  to spend heavily on unnecessary and dangerous items. On the long run, is beneficial for the whole society and create spending sense among masses.
• The government of UAE has already announced that the major chunk of the revenue generated by VAT will be given to local governments. This revenue will ultimately be utilized for welfare of people in projects like construction of roads, providing health facilities etc. This is a clear indication that residents of UAE will be the real beneficiaries of VAT in the long term.

• As compared to other taxes, there is a less chance of tax evasion. VAT minimizes tax evasion due to its catch-up effect.
• 10 large Abu Dhabi projects that will be completed soon – among them a Dh5.5bn sewage tunnel, new motorways, hospitals and, the mammoth Dh84.4bn Barakah nuclear power plant. A sustainable tax that allows the standard of living to remain high and even improve is worth paying.

VAT Tax Payment: Fine and penal consequences for not paying VAT in UAE

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.

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 is provided in the FTA portal, wherein the registered businesses can remit the VAT payable.

• Fine and penal consequences for not paying VAT in UAE
• Tax Evasion Penalties –

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. Penalties are an integral part of any legislation for non-compliance with tax 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.

The revealed penalties range between   Dh3,000 and Dh50,000 dependingupon intensity of the violation made by the organizations or individuals.

The regulations covers individuals, companies, tax agents and their legal representatives who come under the purview of this new VAT regulations. The penalties range from as low as Dh3,000 and go up to Dh50,000 depending on the offences committed by the entities or individuals.

As per the FTA regulations,

• If the person fails to keep required records and other information specified in the laws will be fined Dh10,000 in the first instance and Dh50,000 in case of repetition.
• If the person fails to submit data, records and documents related to tax in Arabic to authority when requested, he would be penalized Dh20,000.

How should businesses prepare for VAT implementation?

• 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.

Need to upgrade to Reach online VAT Accounting 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 Accounting 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.

• Filing Of VAT Returns: 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. Reach VAT software is designed to ease the process of filing returns and comes under the purview of FTA prescribed set of rules and regulations.

• * VAT Reports etc.
• Calculate VAT automatically.
• VAT support in Sales, Purchase, Sales and Purchase returns, Journal entries.
• Generate Federal Tax Authority compatible tax reports.
• VAT Paid (charged by suppliers) and Vat Collection (Charged to customers) Analysis.
• Transaction wise details of VAT paid and VAT collected.
• Attach every Vendors/Customers VAT number and other details.
• VAT supported for Goods (stocked) and Service (non-stocked) items.
• Online application accounting.
• VAT Account Reconciliation, VAT Collection & VAT Paid analysis report.
• Report export to excel and other standard formats.
• VAT returns statement compatible with Federal Tax Authority standards.

• Online accounting VAT software enables you to file vat returns, manage accounts and other business operations from any geographical area be it at the comfort of the house.

• 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.

• Scalability:It is an VAT accounting software which can scale with your business needs. . Some software companies offer only one version of the product and some have progressive versions depending the business type or size. Reach Accounting software offers both integrated an entry level version as well as a feature rich version which you might not need for the current business processing but will definitely need in future for business development.

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 accounting software that is easily accessed online and an attractive option for large or small business owners. Companies that use cloud accounting require less initial server infrastructure to store data and don’t require IT staff to maintain or update the cloud accounting system. Get the spectacular benefits of cloud accounting as you seamlessly integrate with the powerhouse

Benefits of cloud accounting:

• Streamline billing and ordering processes
• Capture and store financial data to most accurately model and report on your finances
• Use Chatter to enable more effective collaboration across your organization
• Greater return on investment and real-time, multi-dimensional financial analysis