VAT Guide for Small Businesses
The time frame for recovering Input Tax in the UAE
The Federal Tax Authority of the UAE (FTA) published a new VAT Public Clarification (VATP017) which provide an interpretation of the time-period within which the VAT on expenses (input tax) must be recovered, and what are the alternative solution if it is not recovered in time.
VAT Deregistration in the UAE
What is VAT deregistration
Deregistration enables VAT-registered businesses and individuals in the UAE to cancel their tax registration under certain conditions. Deregistration could be mandatory or voluntary.
How to pay VAT returns?
You can pay your VAT returns via a bank transfer, an exchange house transfer, a credit card, or E-dirham.
Paying FAT dues using the GIBAN
GIBAN is a special international bank account number (IBAN) that is issued by the federal tax authority (FTA) for each tax registrant. Your GIBAN is unique and it contains your Tax Registration Number (TRN).
Domestic transfers within the UAE
(Transaction processed in 24 hours)
1- Direct payment through your bank or an exchange company:
Provide the relevant employee with the GIBAN number and the amount due to the FTA.
2- Electronic transfer from your bank account
Note your GIBAN from your account with FTA (e-services portal). The GIBAN will be in on the dashboard beneath company’s name.
Do a typical online bank transfer adding the FTA as a beneficiary and the GIBAN as the beneficiary’s account number.
In general, the VAT in the UAE should not be a cost to tax registered businesses. VAT incurred on business expenses and purchases could be recovered, subject to certain conditions being met.
However, in some situations, the business may end being the final consumer and hence cannot recover the VAT on certain expenses such as entertainment or employee-related expenses.
Who is entitled to recover VAT?
Only VAT registered businesses and individuals are entitled to recover VAT on their business expenses.
It is permissible to recover input VAT incurred on buying goods and services used or intended to be used in selling taxable goods and services in the UAE (or outside the UAE in case a UAE based company make transactions out of the scope of UAE VAT)
Filing VAT returns
Once you have registered for VAT in the UAE, you are required to file your VAT return and make related VAT payments.
Calculating tax liability
A registered person’s tax liability is simply the difference between the output tax payable for a given tax period and the input tax which is recoverable for the same tax period.
Where the output tax exceeds the input tax amount, a payment of the difference must be made to the FTA.
Where the amount of input tax exceeds the amount of output tax, a taxable person is entitled to a refund of VAT from the FTA.
Record keeping tips for small businesses
How startups and small businesses can keep record efficiently?
Use online accounting software that is accessible from any device with an internet connection at any time. All your team can have access to enter transaction on the go and upload supporting documents in a centralized cloud database that is automatically backed up.
Cloud software can integrate with a whole ecosystem of business apps, so you can capture VAT records from emails, scanning apps, and many other third-party apps.
How to keep records for VAT purposes?
How businesses should keep, archive, and retrieve records?
Businesses are not required to keep their records in any specific way or format. But they must be kept in a suitable way that enables the FTA to easily check the validity of the data which has been used to complete a tax return.
Records must be readily available
Records can be kept on or off-premises, or even on the cloud. Each business can choose their own way to store their records, however, they are responsible to make those records available in a legible format and in a timely and efficient manner when requested by the FTA
Record keeping requirements for VAT
All tax registered, individuals and businesses, are required to maintain certain business records for a specified period of time. This article summarizes the type of records and the time periods for which they must be retained.
Record keeping is essential and will help businesses to pay the correct amount of tax. It also enables businesses to provide FTA’s requirements for a tax compliance check or a tax audit in proper and timely manner.
Overall, the record keeping purpose is to demonstrate a sufficient audit trail so a VAT amount can be traced from a source document, for example an invoice, through to the final tax return.
Types and format of tax invoices in the UAE
There are two types of Tax Invoices, full tax invoice and simple tax invoice. Simple tax invoice has less requirements in terms of the format and is used in the following situations:
Where the buyer is not registered for VAT in the UAE
Where the buyer is registered for VAT in the UAE, but the total value of the invoice does not exceed AED 10,000.
In all situations other than the above a full tax invoice must be issued.
It worth mentioning that issuing a full tax invoice instead of simple tax invoice is optional. The seller may choose to issue a full tax invoice to all customers including non-VAT registrants.
Who must issue a tax invoice?
Seller-created tax invoice
Normally, the supplier of goods or services is liable to issue a tax invoice, however, it can be issued by the buyer or the agent of the supplier in certain situations.
What is a Tax Invoice?
As per the UAE VAT legislations, a tax invoice is a written paper or electronic document which records the details of a taxable supply (goods or services) which has been made. Tax invoice is important for both sellers and buyers.
Issuing a valid tax invoice is important for suppliers as it will determine the tax period in which the VAT charged should be accounted for and paid to the FTA.
Receiving a valid tax invoice is important for buyers as it will serve as the primary evidence for recovering the VAT incurred as input tax.
Useful tips for VAT registration
Seek a professional consultation
We strongly recommend that you seek a professional consultation from a Tax Agent to help you with the tax registration. I have seen many cases of adverse implications due to wrong applications like miscalculation of the registration threshold (quite common), missing the deadline of registration, and failing to understand the different of choices, which results in delayed approval.
If you need to do it yourself, please read FTA’s detailed guide (REGISTRATION, AMENDMENTS & DEREGISTRATION).