VAT in UAE
Preparation for VAT implementation is crucial for all businesses and the time to act is now.The consequences of not implementing VAT on time can cause major disruption which include fines, penalties and investigations from tax authorities if not carried out properly.
The main areas of change for VAT implementation would be the IT and/or Accounting systems. If current systems are not supported or unable to transition to VAT then new systems may be required to be implemented.
Understanding the full scope of changes required for businesses early is essential. This can be done by engaging with a VAT expert or an Accounting firm if the existing Accountant does not have the technical ability to do so.
Once a plan has been established, there should be a person responsible for the implementation who can ensure that all steps are taken and all challenges are addressed for a successful implementation.
Prepare now for VAT in UAE and get ready for invoices with tax, filing of returns and maintaining records.
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Preparing for VAT involves
- Returns filing
- The total value of its taxable supplies made within the UAE exceeds the mandatory registration threshold of AEED 375,000 over the previous 12 months, or
- It anticipates making taxable supplies with value exceeding the mandatory registration threshold of AEED 375,000 in the next 30 days
- If a business does not meet the threshold mentioned above then it is required to keep records which will enable the FTA to identify the details of the business activities and review transactions. The specifics regarding the documents which will be required and the time period required for keeping them can be found in Federal Law No (7) of 2017 on Tax Procedures and its executive regulation.
The business preparedness for VAT hovers around the four key pillars:
This is applicable for organizations having multiple legal structures. The organization needs to review its various legal structure and shareholdings and make the decision whether it wishes to register as a Group. The extent of intercompany dealings and the seamless process and systems available for Group reporting is also critical in making this decision
VAT implementation is from an effective date. However, there might be contractual implications prior or subsequent to the implementation date. The organization needs to review contracts to ensure that these implications are addressed well in advance.
Process and Systems
VAT impacts the daily transactions of sales, purchase, and expenses, as a result it is important to review the process to incorporate VAT capturing and reporting. Also, the IT systems play a critical role in enabling the organization to be VAT compliant. The extent and plan for system changes should be implemented so that the organization is ready prior to VAT scheduled date.
It is critical that all staff who are involved with VAT transactions are trained. This is to provide staff the knowledge to constantly evaluate the VAT impact on transactions within their domain.
The implication of VAT on inventories needs to be analyzed and corrective measures are taken to minimize the initial impact of slow-moving and obsolete stock. Regulations may permit to off-set VAT credit losses on stock however business must prepare to soften the impact of VAT on the sale price.
How do you know if you have to register for VAT?
The UAE opened its VAT Registration Portal on Oct 1, 2017.
Businesses can register through the e-services portal on the FTA website, www.tax.gov.ae. You can contact the FTA Call center at 600-599-994 for any further assistance.