VAT Compliance is the most frequent challenge that a business faces in UAE. You may encounter it every month or quarter depending up on your Tax Period. We have summarized the 10 most common VAT Compliance issues that are faced by any entity and how to address them.
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- Getting Invoice Timely from your Suppliers
To claim input VAT the main documentary evidence that is required is a valid Tax Invoice. Make sure you get it from your supplier within the same month to claim it in your VAT Return. You should also have the intention to pay that invoice within 6 months of the due date.
Tip: You can share with your client that he has a responsibility to issue and send the invoice to you within 14 days of the date of supply (as per the UAE VAT Law).
- Can I Issue Tax Invoices Electronically?
Yes, you can issue the Tax Invoices electronically as long as you can substantiate it authenticity. This means that if you have an Accounting Software (preferably approved by FTA) and you can prove that the Account Records are appropriately maintained in the same, then you are all good to go to issue Tax Invoices electronically.
- Is Audited Financial Statements a Requirement as per UAE VAT Law?
No, getting your Financial Statements Audited is not a default requirement of UAE VAT Law, although it is highly recommended. Unless FTA asks about an Audited Financial Statements, you are not required by VAT Law to get Accounts audited.
- IS Hiring a Tax Agent Mandatory?
No, FTA does not requires you hire a Tax Agent or any Tax Consultant for that matter. You can file your Tax Returns by yourself. However, if you do not have in-house VAT expertise that it is highly recommended to hire a “competent” Tax Consultant to review your Tax Return Filings.
- I am in a Free Zone, am I Exempt from VAT?
No, being in a Free Zone does not guarantee that you are exempt from VAT. In fact, in VAT Law there is no concept of Free Zones. There are certain areas which are regarded as “Designated Zones” by UAE Government e.g. JAFZA, SAIF Zone etc. Such Designated Zones also are not Exempted from VAT, rather they only have a slightly different VAT applicability regarding VAT laws.
Please do consult your Tax Advisor to know more about it.
- Do I have to Pay VAT Every Time I Import the Goods?
Absolutely No. If you have your import code linked with your Tax Registration Number then you need not to pay import VAT. You can simply record it under Reverse Charge Mechanism and record the VAT liability and input VAT claim in the same tax return. This would save you from any cash outflow at the time of importing the goods.
- How Long I have to Maintain the Accounting Records?
You should keep your Accounting Records and other related VAT transactions record for a period of 5 years. Any records related to a real estate required to be kept shall be held for a period of 15 years after the end of the Tax Period to which they relate.
- How to Correct VAT Return Mistakes?
If a mistake resulted in VAT Payable understatement up to AED 10,000, you can correct it in subsequent VAT Return, otherwise you have to file a Voluntary Disclosure (VD). Filing VD may require a penalty depending on the mistake.
You may need to check with a Tax Consultant to know more about it as this may require a careful assessment of the underlying documents.
- I have no Business in the Current Tax Period, Should I File my Tax Return?
Please note that whether you have any business activity or not, as long as you are registered for VAT purpose you have file your periodic VAT Return. If you have no business then you just file the Return with zero values.