Since the introduction of VAT in the UAE on January 1, 2018, businesses have been obligated to adhere to various requirements outlined in the VAT Law. Submitting VAT returns to the Federal Tax Authority (FTA) is a critical task for all registered businesses, ensuring compliance with tax regulations and contributing to the nation’s economic growth.
Understanding the complexities of VAT can be challenging, resulting in frequent errors when submitting VAT returns. Today, we will point out common mistakes that may lead to fines and provide useful tips to help businesses avoid them. For effective help, considering Now Consultants in the UAE is a beneficial solution.
Common Mistakes in Filing VAT Returns
Incomplete record keeping
Ensuring a comprehensive record of the business’s transactions is crucial for accurately filing VAT returns. The UAE government requires taxable companies to maintain detailed records of sales, purchases, imports, exports, payment receipts, bank statements, transactions, and salaries over the last five years. This obligation is necessary to avoid complications and substantial penalties.
Errors in VAT Calculation
The accuracy of VAT returns hinges on correctly applying the relevant VAT rates. Yet, businesses often need to improve in identifying the appropriate VAT rate for goods and services, overlooking relevant transactions, or encountering human errors during calculations.
Assigning Sales to the Incorrect Emirate
A common error during the filing of VAT returns in the UAE is attributing sales to the incorrect emirate. This mistake often occurs when business owners categorize standard-rated sales according to the customer’s location. However, the accurate approach involves classifying standard-rated sales based on the fixed establishment, defined as any fixed place of business where regular business activities are conducted.
Omission of Zero-rated and Exempt Sales
A common oversight in VAT return filings is the failure to include zero-rated and exempt sales. While many companies diligently report output and input VAT, they often overlook the mention of transactions falling under zero-rated and exempt categories. It’s crucial to recognize that, contrary to misconception, VAT returns in the UAE require the proper disclosure of both zero-rated and exempt sales.
Claiming VAT Return on Disallowed Expenses
Every business encounters typical expenses daily . However, the UAE VAT Law restricts taxable persons from reclaiming VAT incurred on specific expenses. Unfortunately, due to a lack of awareness, numerous businesses make the serious error of attempting to claim expenses that are not permissible. The following are expenses for which input VAT recovery is not allowed under VAT regulations in the UAE:
- Expenditures on Entertainment
- Personal Use of Motor Vehicles
- Costs Related to Employees
Ignoring Transactions of Reverse Charge Mechanism
The Reverse Charge Mechanism (RCM) comes into play when a company imports goods or services. Suppliers typically collect tax on each sale, remitting it to the government during return filing. However, under the Reverse Charge Mechanism (RCM) for imported goods or services, customers are required to remit the VAT directly to the government. This relieves the supplier from the obligation to settle the VAT on imported items. Failure to properly file RCM transactions often leads to complications during the VAT return filing for many businesses.
Lack of Planning and Delayed Submission
Implementing a well-organized strategy for recording transactions and staying updated on the latest VAT regulations can shield your business from unnecessary fines. Given the recent introduction of the VAT system, businesses often grapple with the challenge of establishing systematic processes and planning for return filings. Consequently, many fail to meet deadlines, incurring penalties from the government.
Solution to Avoid Mistakes in Filing VAT Returns
To prevent common errors in filing VAT returns, UAE businesses can benefit from the expertise of Now Consultants, a team of specialists in VAT compliance. Many mistakes occur due to a lack of understanding of UAE VAT rules, and Now Consultants offer the necessary knowledge to ensure a smooth and accurate handling of the process.