January’s introduction of value-added tax in the UAE has already caused a large number of organisations to fall foul of government regulations. Too many companies don’t pay enough attention to evolving laws, as well as a few of the basic do’s and don’ts of filling out VAT returns.
We’ve already worked with a lot of clients that have faced various issues with VAT. Some of the most pressing ones that frequently crop up are those around return filings, form presentation and the ways that software captures and interprets data. Quite often, all of these things are not compliant with UAE regulations and law. The FTA has issued guidelines for software requirements, and these need to be considered by a duly registered VAT-taxable person. Without reviewing data properly, companies often submit documents that are full of mistakes and could lead to further costs and penalties.
The FTA has issued a lot of penalty lists for companies that do not comply with the new regulations, and it’s essential that companies pay attention to them. A late VAT return filing carries an AED 1,000 penalty, while organisations that don’t pay VAT must pay charges of 2% for seven days of outstanding VAT, 4% for 30 days and 1% per day after 30 days of default. I would encourage companies to come forward and disclose these penalties as soon as they possibly can, so as to avoid any further charges from the FTA. The government has also issued a lot of guides that are specific to certain industries, such as real estate, and these are very useful for complying with VAT laws.
A lot of companies across the UAE are already making very basic mistakes in filing their returns. People are often unaware that there is one fixed form for filing returns. Another key thing that has escaped the notice of many companies, is that when reporting their sales figures, these have to be reported by emirate. There’s often confusion around a customer’s or supplier’s location, the VAT is based on the location from where the service was provided, not from the customer’s location. Many people have confused this concept, and I’ve already seen a few different incorrect interpretations on this.
The main channel for clarifying confusion around VAT is the FTA’s clarification form, which the government uses to respond to interpretation issues. This has been open for the last two months, and the government takes 40-50 business days to respond to queries. Ultimately, best practice around VAT centres around regularly following updates from the FTA, which can be found on their portal.
Another such issue that needs to be kept in mind is that of voluntary disclosure. If organisations have already submitted VAT returns, and realise they have made a mistake within them, it is important that this is rectified as soon as possible to avoid incurring penalties.
Since its introduction, the laws set in place around VAT have continued to evolve, and these often affect companies – and people – who are the least familiar with UAE law. Tourists, for instance, can now get refunds from the government on certain goods they have purchased when they exit the country. In a similar vein, it is important that companies keep a close eye on exchange rates. There are many companies that have offices in the UAE, yet they compile financial reports in Euros or US dollars. When these companies create invoices, they are obliged to mention values in AED, and this is often overlooked. This also means that they have to keep a close eye on the UAE Central Bank’s exchange rate, which is reissued on daily basis.
A lot of foreign companies have a license to operate in the UAE, but don’t actually conduct any sales here. They often file reports on a quarterly basis. A number of these companies are in free zones, and they apply for registration but not do not have to deliver financial reports to the government. This is another mistake that can result in penalties. If a company has no sales in the UAE, and conducts all its sales abroad, deregistration can be applied for.
HLB Hamt has already advised a lot of clients on returning filings, and we also help to verify documents and data to ensure they comply with VAT law. We also provide assistance with clarification forms and speak with the FTA to ensure issues are clarified. We also conduct GAP analyses for our clients. Many companies that we speak to are not fully compliant with VAT regulations. We’re in a position to help them to identify gaps and comply with VAT laws as quickly as possible. We help companies to register with the FTA, as well as providing ad hoc services.