VAT for Textile Store in UAE

What is Value Added Tax?

VAT is a tax charged on the ‘Value Added’ at each point from the  goods being turned from raw material to finished goods. In other words, at each stage when a product’s value is added in the next stage, the amount of change in value is taxed.

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.

Rate Of Taxation

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.

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.

Textile industries will pay tax to the government at standard rate of 5%.

The UAE textile industry is the country’s largest trading sector after oil. The textile industry is vital to the growth of UAE’s economy due to its contribution to the industrial output, employment generation and foreign exchange earnings

 New metric rules for textile dealers in UAE:

The UAE has implemented the International System of Units (SI) which replaces Imperial measurements such as foot, inch and yard with the metric system in the textile trade under the national system of measurement and calibration, the Emirates Authority for Standardisation and Metrology (ESMA) said.

Metre replaces yard from January 1 as part of regulator’s efforts to protect consumers’ rights. Textile dealers are being asked to measure up to new rules imposed by authorities on January 1.

Registration Of textile Industries for VAT returns

VAT Registration Applicability

Any business that is required to be VAT registered and charge VAT from 1 January 2018 must register for VAT purposes, in the manner specified by the Federal Tax authority, prior to that date. In order to determine which businesses must be VAT registered, a VAT registration threshold shall apply for all UAE-resident businesses:

• A business must register for VAT if they make taxable supplies or imports that exceeds the mandatory registration threshold of AED 375,000.
• A business may choose to register for VAT voluntarily if their taxable supplies and imports are less than the mandatory registration threshold, but exceed the voluntary registration threshold of AED 187,500.
• A person may register voluntarily if their expenses exceed the voluntary registration threshold (e.g. start-up businesses with no turnover). Exempt supplies and supplies outside the scope of VAT are not used in calculating the VAT registration thresholds.

However, for the ease of the business, supplier may not be registered if the business does not make any supplies which are eligible for 5% tax. %. If exception from registration is granted, then you will not submit regular tax returns and you will not be able to recover input tax incurred.

Details required for registration:

• Description of business activity
• Last 12 months turnover figure
• Projected future turnover figures
• Expected Import and export values
• Whether company is interested in dealing with GCC suppliers or customers.
• Details of custom authority registration.
• Trade License
• Emirates ID Authorized signatory can be a person who has the power of Attorney to sign on behalf of the business.
• Certificate of Incorporation
• Articles of Association
• Bank Details.

Upon Successful registration TRN Tax Registration Number will be issued within 20 days .

VAT calculation

What is 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.

What is an Output Tax?

Term used in connection with VAT to denote the tax payable on the sales of goods or services by those who are subject to the tax and in contrast to the input tax for which a credit will be available.

Scenario to understand Input credit

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.

This applies to manufacturer, supplier, agent, e-commerce operator, aggregator or any of the persons mentioned who are registered. You are eligible to claim INPUT CREDIT for tax paid by you on your PURCHASES.

Claim of Input Tax Credit

A entity can claim input tax credit on furnishing the below mentioned

A tax invoice or debit note issued by the registered dealer.

If the goods have been received in the lots or installment, credit will be available for the lst installment on producing the appropriate tax invoice

Possession of Goods and Services

The tax charged on your purchases has been deposited/paid to the government by the supplier in cash or via claiming input credit

Supplier has filed VAT returns

Therefore every input tax credit claimed is matched and validated before the reimbursement.

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.

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

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

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.

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

 Procedure to file VAT Returns in UAE:

The registered entities can file the returns using online services of the Federal Tax portal. Periodical 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

The textile showroom requires several functions to be taken care of as the VAT will also be demanding a lot of attention so in order to have all of it running smoothly only the best textile store software with VAT in UAE will be suitable to handle tasks as such.

Reach Accountant understands your needs better than anybody would do,.The software is specially designed to suit textile industries keeping in mind complete work flow of the operations and management level as well. It tracks all your departments activities and reduces time consumption as it ensures employees efficiency rate by tracking their work progress leading to better cash and work flow. It not only manages your VAT and account to but is a complete software that evaluates all your business requirements and improves your and business yield proving itself as an efficacious software which makes it one of the best textile store software with VAT in UAE.

How is it different?

• Understands each business type in a way it is required
  • Tracks all your departments and employees
  • Allows you to a cess your business from any where and any device
  • It comes with anti virus
  • Has bank level of security and also comes with accessibility control menu
  • It has easy data backup, therefore, there is no worry in case of system crash
  • Improves your business performance
  • Helps you in maintaining better customer relationship
  • Has a huge number of features
  • Easily integrates with any existing software
  • Can be customised easily and is easy to implement
  • Is a very powerful software yet very easy to use

Features

• Accounting
  • Purchase Management
  • Customer management
  • Vendor management
  • Automatic reminders
  • Barcoding
  • Receivable management
  • VAT management
  • Branch management
  • User management
  • Mobile app
  • Invoicing
  • Approvals Management
  • Sales team management
  • Asset management
  • Job cards
  • For example management
  • Point of sale
  • Gift and discounts vouchers
  • Project management
  • Production planning
  • Quality control
  • Batch tracking
  • Order management
  • Bank reconciliation
  • Inventory management
  • Sub contractor management
  • Consignment sales
  • Quotation
  • Ecommerce management
  • Purchase order
  • Multilingual

Pricing

Pricing of Reach software for textile store with VAT in UAE depends on the version of the software, they are, basic and customised. The difference in the pricing is determined on the number of users you are planning to purchase it for as under each version therefore are three categories; single user, five users and unlimited users.
BASIC VERSION
For single user- AED 1800
For five users- AED 3600
For unlimited users- AED 5000
CUSTOMISED VERSION (per year)
TEXTILE STORES
One- AED 6300
Five- AED 12600
Unlimited-AED 18900

How to buy?

Buying Reach accounting software is a simple process. You can log on to the Reachaccountant.ae website and click on the menu button provided on the right hand side top corner of the home page and select pricing. Selecting pricing will take you to the price list page where you can select your choice of version and your choice of business software along with number of users you are looking to purchase it for. In case of any doubts and difficulties you can call us in the number provided on our website or use the chat window given below in the website.