Mistakes Committed by SME While Filing for VAT Returns in UAE

The system of Value Added Tax (VAT) is a consumption tax, implemented across over 180 major countries. However, the UAE has been relatively a new entry into this realm as it implemented VAT at the rate of 5% in 2018. Although, there are some supplies that applied with zero-rated VAT or exempted VAT in the UAE.

The VAT is required to be paid by the consumer end. The VAT applies to the companies based on the surge in the value of the commodity after each phase of production or distribution. However, an improper way of filing for VAT returns in the UAE may put a dent in your company.

Errors Made by SMEs in Filings for VAT Returns

Even after two years of implementing the VAT in the UAE, the trend of committing errors while filing for VAT is prevalent among many people or businesses. A number of Small and Medium Enterprises (SMEs) are known to be attracting penalties by committing errors while filing for tax returns.

The following are some of the most reported mistakes made by smaller companies during the VAT filing process:

  • Non-Maintenance of Records:

Maintaining books of accounts is mandatory by the Federal Tax Authority (FTA) in UAE. FTA can ask for documents such as records of payments and receipts, purchase and sales revenues and expenditures, general ledgers, sales invoices, credit notes, debit notes, records of wages and salaries, the record of fixed assets, inventory records and statements, VAT ledgers, records of all supplies and imports, etc. Under the VAT law in UAE, the books of accounts and records are to be maintained for at least five years and fifteen years for real estate companies.

  • Mistakes In Simply Calculating And Paying VAT:

Businesses must put in an efficient system by hiring qualified staff to ensure correct applicability and execution of VAT laws. Or as an alternate appoint VAT consultants in UAE to avoid any mistakes in filing VAT returns.

  • Poor Planning:

Businesses need to develop a structured and comprehensive implementation plan. Companies are advised to develop a dedicated team within the organization to oversee this process and to ensure appropriate compliance and implementation with regards to the law

  • The Hiring Of The Wrong Resources:

To be compliant with the VAT system it is crucial to hire proper resources to effect changes in the organizations. Conduct a proper study before finalizing on hiring the right VAT consultants in UAE

  • Failure To Issue Valid Tax Invoices:

Tax invoices are important as the information given on a VAT invoice is the basis for establishing your VAT liability on the supply of goods or services. It also enables your VAT registered customers to reclaim the VAT charged to them

  • Limited Understanding Of VAT Laws:

Unawareness about VAT laws would not be taken as an excuse to grant a pardon from penalties. The Ministry of Finance had conducted several briefings for entrepreneurs from SMEs to huge multinational organizations to educate about VAT before implementation. The ministry also issued various documents and videos on topics related to the VAT law & its implementation within the organizations.

  • Not Having The Right Accounting Setup On-Filing Or Late Filing Of VAT Returns In UAE:

Enhancing the accounting systems within the organization to be compliant with VAT is necessary. This is because VAT has an impact on the entire business systems that include the point of sale terminals, purchase terminals, expense regimes, invoicing, accounting systems, information technology systems and management reporting systems

How to Avoid Committing Mistakes while Filing for VAT Returns in UAE

In a bid to avoid mistakes while filing VAT returns, companies are advised to perform a detailed review of compliances undertaken and positions adopted since the inception of the law

  • VAT Governance Framework:

It is also recommended to create a VAT governance framework with proper roles and responsibilities defined for employees and department heads

  • Appointing of Tax Agents in UAE:

The companies must appoint tax agents for periodic review of tax positions and VAT returns. It also helps improve the company understanding of the law vis-à-vis the actual law.

  • Invest in a Good Accounting System

The IT infrastructure of the companies must be upgraded to meet the record-keeping requirement. Daring to invest in good resources and good accounting systems will be advised to avoid hefty penalties while filing for VAT

  • VAT/Tax Audit:

Conducting VAT/Tax audit on a periodic basis always help to comply with local VAT laws and regulations. Entrusting finance managers or controllers for maintaining and filing VAT returns may not come as a good idea. This is because though an accountant in your company must be having in-depth operational knowledge but he or she might lack the flair for legal analysis.

A more holistic approach must be taken in the matters of constant follow-up of issues related to VAT filing in the UAE. It is in this backdrop that an experienced accounting firm comes to your aid. Jitendra Chartered Accountants is one of the top vat consultants in UAE offering top-notch services related to VAT. The firm is comprised of highly qualified professionals including legal consultants and UAE tax agents who can represent any case before the Federal Tax Authority.

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