VAT

KEY VAT POINTS

  • VAT has been set at 5 percent on a host of products, but certain segments have been exempted.
  • The final VAT regulations announced last month have helped clear the air for investors and companies in the UAE. Set to be introduced across the Gulf countries, VAT has been set at 5 per cent on a host of products, but certain segments have been exempted, such as basic consumer goods, healthcare and education, etc.
  • The new law also assigns responsibilities to eligible resident taxable persons including non-residents and investors and their agents as well as nominated representatives who will have to register and ensure specified compliance.

REVISED TAX LAW

  • All taxable persons are required to register under the respective country's law i.e., VAT and excise, and apply for a Tax Registration Number (TRN) within a stipulated time frame once the new laws are published in UAE, which is expected soon.
  • There has to be the registration and appointment of tax agents and/or a legal representative, who will be responsible for all compliances and for tax payable on behalf of their principals.
  • There are strict penalties for non-compliance including prison terms for key management personnel/owners,who is responsible for compliance and also fines up to five times of the tax due and payable by each taxable person and/ or entity, who is in default including any wilful default of any tax provisions.

VAT IN UAE IMPORTANCE OF ACCOUNTING RECORDS

Consultation and Guidelines

  • Value Added Tax (VAT) is a tax on consumption and it applies to almost all goods and services. As most of the management of the companies might be aware of the fact that as part of diversifying the economy and revenue generation,  the GCC governments have decided to adopt Value Added Tax (VAT).
  • UAE is also going to adopt VAT which applies to almost all goods and services except basic food items, healthcare, and education. Though the burden normally lies on the ultimate consumer the business entities need to change the systems, processes, and procedures to comply the new legal requirement which is expected to be implemented by the government effective from 1st Jan 2018.

Normal requirements under VAT system the companies have to comply

  • At the time of purchase of goods or availing of services – Ensure that in the case of taxable items whether tax has been properly charged (input tax)by the supplier and details given in the invoices.
  • At the time of sale or provision of services – Apply the rate on the sale value and reduce the amount of input tax to arrive the amount to be paid.
  • Make the payment of tax computed and due within stipulated date to Govt.
  • Filing the VAT returns to the Govt authorities by providing the relevant information requested by the GOVT, within the stipulated period.
  • Maintain proper stock, invoices, accounts, VAT returns, and other relevant records to justify the tax paid at the time of purchase.
  • The above requirements demand more control and safety on stock, invoices, and records, ensure proper filing system, modification/ upgradations of software, compliance of due dates for collection, payment, and remittance of tax, filing of VAT returns to govt etc. Then the role of the accountant will be very important for the compliance of VAT. Maintenance of accounts and records is also important as per new company law etc.

Requirement of New Commercial Company Law No.2 of 2015

  • As per Article 26 of the Company Law – every company shall keep the accounting records for a period of 5 years from the end of financial year of the company.
  • Article 348 – For failure to keep the accounting record to explain the entity’s transactions ( Fine Aed 50,000 to Aed 500,000).
  • Article 349 – If the company fails to keep the accounting records for the period stipulated (5 years). (Fine will be Aed 20,000/-to 200,000/- will be imposed.