If you are filing your VAT return, make sure not to commit the following mistakes. Incorrect VAT reporting may expose you to hefty fines in UAE.
1. Don’t claim VAT on blocked input items
UAE VAT specifically disallows to claim VAT on following items
– Clients/Suppliers entertainment expenses (e.g. annual client dinner, entertainment events for clients)
– On purchase of vehicles which are partly used for business purpose and also available for private use of employees
– Free goods to employees except where it is a legal obligation/contractual obligation in order that they may perform their role and it can be proven to be normal business practice in the course of employing those people
2. Adjust the Zero-rated Import of Goods in Box No. 6 of VAT Return
If you have imported any goods which are not subject to the standard rate of VAT of 5% (for example goods subject to the 0% VAT rate like Pharmaceutical items), please use Box 7 of the VAT return to adjust the VAT amount accordingly, as by default all of your imports have been assumed to be subject to a 5% VAT rate. You will use minus sign while adjusting any such VAT Box 7.
3. Do Not Claim Input VAT Without a Valid Tax Invoice
Make sure you have a valid tax invoice for any input VAT claim in a tax period. For any tax invoice where the total value is over AED 10,000, the tax invoice must have your company’s full name, address and TRN. Claim VAT on such invoices would be invalid and tantamount to excess VAT claim leading to underpayment to tax payable.
4. Adhere to Place of Supply Rules While Recording VAT
Depending on the nature of the business, some of your sales may be out of the scope of UAE VAT which must not be shown in your VAT return. Examples of such sales would be if you are giving a real estate related service and the location of real estate is outside the UAE, such supply of services would be out of scope. This is due to the fact that the place of supply of real estate services is where the real estate is located and not where the supplier has its office.
5. Claiming Input VAT on Exempt Supplies
If you are such a business which supplying both taxable and exempt supplies (e.g. a building owner having both residential and commercial units in the same building), you should only claim input which is pertinent to taxable supplies. For example, if a building cleaning company charges you VAT on window cleaning of the whole building, you should apportion the input VAT and claim only the VAT on the amount charged for commercial units.
Correct filing of VAT return depends on how you are recording your VAT transaction and how well you Accounts team is well-equipped with VAT knowledge. Lynchpin Consulting assists various organizations in UAE to ensure full VAT compliance. You can always contact us to discuss your VAT compliance needs.