The UAE government introduced VAT or Value Added Tax for businesses that exceed an annual turnover of AED 350,000. The VAT system was first introduced in January 2018, after which companies in the UAE Mainland and Freezones have levied taxes on every sale they made. Before the tax period ends, the taxable businesses must file their return through the online FTA portal. While doing so, many companies make errors and end up paying heavy penalties unnecessarily.
Businesses must take proper support from VAT registration consultancies and file the returns with zero errors. The purpose of this article is to highlight the most common mistakes you may fall into while filing your VAT return. Here are the prevalent VAT filing errors to avoid in the UAE.
1. Falling in Calculation Errors
One of the very first pitfalls could be miscalculations. Companies should realize that errors in computing the liable taxes appropriately can put them under massive loss. A well-integrated and systemized procedure must be adopted so that the right amount of taxes is levied on different goods and services. Moreover, it is mandatory for businesses to stay at par with the latest VAT rules to avoid errors and miscalculations.
2. Lack of Proper Documentary/Records
Maintaining an up-to-date record of the business’s ins and outs is key to filing VAT returns effectively. The UAE government mandated that taxable companies must have a full-fledged record of sales, purchases, imports, exports, payment receipts, bank statements, transactions, and salaries for the past five years. Failure of which could lead to unnecessary trouble and heavy penalties.
3. Missing to record Exempted and Zero-rated Sales
You may successfully file your VAT returns including every detail on the inputs, outputs, and payables or receivables at the end of the day. However, missing to record the entities that are tax exempted or zero-rated can impact your filing tremendously. Companies must file their exempted sales to the FTA appropriately in addition to their regular tax information.
4. Failing to File the Reverse Charge Mechanism (RCM) Transaction
The Reverse Charge Mechanism comes into the picture when a company imports goods or services. In normal circumstances, the supplier collects tax on every sale they make and later pays it to the government as a return filing. In the case of RCM, where imported goods/services are concerned, the customers are responsible to pay the VAT directly to the government and the supplier need not pay VAT on import items. Many businesses fail to file the RCM transactions and issues arise during filing their input VAT.
5. Lack of Planning and Delayed Submission
Having a pre-planned strategy to record the transactions and stay updated with the latest VAT rules will prevent your business from unwanted fines. Since the VAT system started very recently, businesses still struggle to ensure systemization and planning while filing returns. Due to this, many cross the deadline and are levied penalties by the government. So, make sure to get regular VAT health checks done and refine your business policies for smooth VAT filing.
VAT came into existence with the purpose of generating additional revenue sources apart from oil and hydrocarbons. The amount is then again utilized by the UAE government for advancements and improvements across the Emirate. Since all of this procedure is still new to many businesses, make sure you keep yourself away from the errors while filing your VAT return. Keep an eye on the tax deadline, be aware of the new changes, include zero-rated sales and RCM for effective VAT filing in the UAE.