VAT began to be implemented on 1 January 2018 and business are more concerned on how to comply their operation and bookkeeping with the authority requirements. The main reporting that will be issued to the Tax federal authorization is the Tax return.
What is VAT Return?
It is a statement that shows the taxpayer’s VAT liability for a certain period. This formal document has the details of the tax liability: tax payer’s name, tax paid, tax reclaimed, etc.
Why is VAT Return Important?
The official document to be completed by the Taxable Person and submitted to the Federal Tax Authority (“FTA”) at regular intervals detailing any output tax due and input tax recoverable and including any other information that is required to be provided. In this guide, we will refer to it as the “VAT return”. All VAT Returns should be submitted online using the FTA portal. The return can be submitted by the Taxable Person, or another person who has the right to do so on the Taxable Person’s behalf (for example, a Tax Agent or a Legal Representative).
Important notes about the VAT Return
A Tax Period is a specific period of time for which the Payable Tax shall be calculated and paid. The standard Tax Period applicable to a Taxable Person shall be a period of three calendar months ending on the date that the FTA determines. The FTA may, at its discretion, assign a different Tax Period, other than the standard one, to a certain group of Taxable Persons (e.g. in some cases businesses may be required to file VAT returns on a monthly basis).
Where a Taxable Person is assigned the standard Tax Period, he may request that the Tax Period ends with the month as requested by him, and the FTA may accept such a request at its discretion. The VAT Return must be received by the FTA no later than the 28th day following the end of the Tax Period concerned or by such other date as directed by the FTA. Where a payment is due to the FTA, it must be received by the FTA by the same deadline.
“Output tax” is the VAT a Taxable Person calculates and charges on its supplies of goods and services once it is registered for VAT. Output tax must generally be calculated on supplies made to other persons; however, in certain situations VAT might be required to be charged on supplies which were deemed to occur for VAT purposes or on supplies which are subject to the reverse charge provisions. The obligation to account for output tax arises at the tax point of the supply, i.e. at the date of supply. Once the date of the supply has taken place, the Taxable Person must account for the output tax in the VAT Return covering that Tax Period.
From the recipient’s point of view, “input tax” is the VAT added to the price by the supplier when the recipient purchases goods or services which are subject to VAT. If the recipient is registered for VAT then they may be able to recover this input tax from the FTA, subject to the conditions below: the Taxable Person has received and retained a tax invoice or other documentation evidencing the amount of VAT on the supply or import; and the amount of VAT has been paid, or is intended to be paid, in whole or in part (in which case the amount of input tax recoverable shall be limited to the equivalent amount). Once the ability to recover input tax has been confirmed, the person is able to include the amount in the relevant VAT Return as an input tax deduction.
Filing VAT Returns
For each Tax Period, a Taxable Person will be required to submit a VAT Return which contains details regarding the supplies made or received by the Taxable Person. With respect to sales and other outputs, the Taxable Person will need to report:
supplies of goods and services made which are subject to the standard rate of VAT per Emirate;
tax refunds you have provided to tourists under the Tax Refunds for Tourists Scheme, if you are a retailer and provide tax refunds to tourists in the UAE under the official tourists refund scheme;
supplies of goods and services received by the Taxable Person which are subject to the reverse charge provisions;
supplies of goods and services made which are subject to the zero rate of VAT;
supplies made which are exempt from VAT;
goods imported into the UAE and have been declared through UAE customs; and
where applicable, adjustments to goods imported into the UAE and which have been declared through UAE Customs.
With respect to purchases and other inputs, the Taxable Person should report:
purchases and expenses that were subject to the standard rate of VAT and for which you would like to recover VAT; and
any supplies which were subject to the reverse charge for which you would like to recover input tax.
The amounts of VAT charged and input tax recoverable by the Taxable Person would then need to be netted off in the Tax Return. The resulting amount is the net VAT payable to, or to be refunded by, the FTA (i.e. the net VAT position).
When to File VAT Returns?
The deadline for submitting a tax return to the authority is no later than the 28th days of the month following the last day of the relevant tax period.
VAT Return Penalties
VAT Returns must be submitted within the specified deadline, otherwise a penalty of AED 1,000 will be imposed for the first time of occurrence of a delay. In case of repetitive non-compliance within 24 months, the penalty will be increased to AED 2,000 for each offence. If you do not submit a VAT Return by the specified due date, the FTA may issue a tax assessment to you with an estimate of the payable tax. In such a case, you may be required to pay any payable tax assessed, penalty on non-submission of tax return and/or late payment penalty upon the issuance of the tax assessment (as applicable).
Following the submission of a VAT Return, the reported Payable Tax must be settled within the deadline. Failure in the payment before the due date would result in a late payment penalty consisting of:
(2%) of the unpaid tax immediately levied once the payment of Payable Tax is late
(4%) is due on the seventh day following the deadline for payment, on the amount of tax which is still unpaid
(1%) daily penalty charged on any amount that is still unpaid one calendar month following the deadline for payment with upper ceiling of (300%)