What are the common errors made by the firms while filing VAT returns in UAE?

Value Added Tax commonly known as VAT was introduced in UAE on January 1st 2018, which instructed all the business entities to comply with the requirements of the new VAT LAW. Filing of tax returns to the FTA (Federal Tax Authority) is one of such requirements which is to be followed by the firms registered under the VAT LAW. Hence, the firms must be vigilant while filing the return because a minor error may result to huge penalties and fines.

VAT return filing 

VAT system is based on the consumption of goods and services in UAE. It was introduced to compensate the decreasing revenue from the Oil Industries and which was reinvested to develop the infrastructure. The entities or sellers registered under the VAT law collects the VAT on behalf of the authority at the point of sale and then makes the payment to the authority within the specified period of time. When the entity makes the payments, it has to file VAT return with the Federal Tax Authority in order to confirm the tax payments. Below are some of the common errors made by the registered entities while filing the VAT returns:

1. Not recording Zero Rated and Exempted sales

All the entities may correctly file the output and input VAT along with the VAT payables and receivables but they may miss out to record and file the zero rated and tax-exempt sales. The firms must try to identify the zero rated and exempted sale and it must be accurately stated and filed with the authority.

2. Lack of proper maintenance of records

The FTA makes it mandatory for all the registered entities to maintain proper records of every transaction of at least past five years for most firms. The records may include, purchase and sales records, payments and receipts, import and export records, bank statement of credit and debit transactions, salary and benefit records of the employees, VAT and company ledgers etc. must be maintained and must be updated as per the requirement.

3. Delay and missed VAT return filing 

During the VAT registration process in UAE by the firm, the authority clearly specifies the deadlines for filing the VAT returns. The firms must ensure that it files its VAT returns on or before the deadlines. It must not make any delay or miss out the VAT return filing process. Approaching an accounting firm for their assistance in VAT return filing will help the firms to correctly follow the filing process and it will save the firm from hefty fines and penalties which may be charged on making delays in VAT return filing.

4. Errors in VAT calculation

Firms must ensure that they apply the correct VAT rates while calculating them. The firm must accurately do the calculations otherwise it will result in huge costs such as fines and penalties. The firm must always stay updated regarding the applicable VAT rates while performing the calculations.

5. Mistakes regarding reverse charge mechanism transactions

Reverse charge is applicable where the firm imports goods and services to UAE. If the Tax number is linked with the customs code and it is reflected in the account of the taxable person then it becomes easy to account for the VAT, but usually, the firms do not link their VAT number with the portal which results in various issues while claiming for input VAT. The firms may forget to include the transactions on which the reverse charge mechanism may be applicable and they may consider that those goods or services have no VAT charges. However, the import transactions are reflected on the portal of customs so the firms must be vigilant while recording the transactions and must approach experts if required.

6. Lack of proper planning and strategy regarding VAT compliance

VAT law is a new tax system for UAE-based business firms and it may be difficult for the firms to understand and strictly comply with the new VAT law, but to tackle this issue the firms must formulate a proper strategy so that it complies with the law. Given the complexities, the firms may find It hard to stay updated regarding the different alterations and laws related to VAT compliance, under such circumstances, it is always the best course of action to approach an accounting firm who are experts and have a professionalized and experienced team so that the firms can avoid huge penalties and stay complied to the VAT.

How can CDA help you to avoid these mistakes?

CDA is always ready to render its services to the clients for assisting them in accounting, bookkeeping, VAT compliance, and other fields. CDA has a specialized team that always ensures that its clients are not exposed to any kind of business threats or losses. Talking about the mistakes caused by the firms during return filing, CDA can help them by ensuring that they maintain all the required records, don’t miss out or make any delay in filing the returns, that the firm has proper planning regarding the VAT compliance and helps to calculate accurate VAT returns. Being one of the leading accounting firms in Dubai, CDA always puts its efforts to provide custom-tailored services to the clients. To know more feel free to contact CDA.