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VAT SERVICES FOR CONSTRUCTION/CONTRACTING COMPANIES

In a mixed free-market economy of U.A. E, contracting companies have been considered as one among the big growing industries and more guidance is required for the tax accounting aspects for this industry. As the term contracting company denotes general contracting in nature, the contractor directly takes the projects from the owner of the property and subcontracts the works to small companies who are efficient in their fields. The subcontracting offers services that include design, development, construction, operation, maintenance and transport-related projects. VAT for contracting companies can help with cash flow and administration time. The U.A.E has recorded the highest construction project value in both commercial and residential areas. So, the market for contracting companies is highly competitive and functioning. In UAE Value Added Tax was implemented 1st January 2018. 

VAT Implications in Contracting Companies

1. Construction service provided will be a zero-rated service if it is exported outside the UAE.

2. Sub-contractors may not be registered for tax due to turnover not reaching the threshold limit for mandatory registration. 

3. Payment made to compensate for the suspension for work is not charged under VAT

4. VAT is applicable on contractual advance received at the start of the project under the retention concept.

5. Time of supply is calculated based on the earlier happening of:

  • Date of an invoice issued
  • Due date of payment shown on the invoice
  • Date of payment made

6. Zero Rated real estate construction services include:

  • First supply of buildings converted from non-residential to residential. 
  • First sale or lease of residential buildings within 3 years of its completion
  • First supply of Charity related buildings

7. Small contractors voluntarily register on reaching the threshold limit

8. Revenue has to be calculated based on the percentage of completion of the project/contract considering:

  • Contract
  • Performance obligations
  • Transaction price and its allocation
  • Time of completion

9. VAT charged on the payments associated with:

  • Construction services
  • Retention sum

You might also read, How does VAT work in UAE?

Tax Planning

Tax planning is an effective and efficient means to find out how much cash you pay as tax and how to reduce the tax liability to the FTA through allowances, deductions, exclusions and exemptions.

Tax planning helps:

  • To achieve your business goals and growth
  • To control when taxes are paid and reduce the amount of taxable income
  • To manage tax bills and double taxation can be avoided if there is a global business
  • To budget on tax payments and to keep an eye on cash flow shortages

Application of Reverse Charge Mechanism

It is advisable to book the cost of Import along with their Output Tax, these Tax can be claimed back under Reverse Mechanism scheme. Creation on RCM Input and RCM output will have easiness in Tax filing. Reverse Charge Mechanism is incorporated in UAE VAT Law with a view to avoiding tax evasion on any taxable supplies. If the supplier does not possess a business in UAE, tracking transactions and ensuring VAT compliance is not a practical option for FTA. Hence, recipients of taxable supplies who are residents of the UAE are made to pay VAT on the reverse charge basis. Without the help of a tax consultant, VAT for contracting companies is complicated which leads to tax errors and fines for the construction sector. It mainly applies to cross-border transactions and eliminates the obligation for the overseas seller to register for VAT in the UAE.

Steps to be taken to reduce tax liability and avoid the fines

  • Accurate booking of Payment certificate according to the Tax invoice issued.
  • Proper follow-up and booking for supplier invoices.
  • Ensure the collection of Tax invoices from SubContractors.
  • Categorise the contract related expenses from petty cash expenses.
  • Closing of books of accounts as per the Tax filings periods.

Effects of Noncompliance with FTA Law

  • Issued invoices different from FTA Prescribed format results in a penalty of 5,000 AED 
  • Wrong VAT treatment for Retention
  • Wrong treatment for Transport services for staff/labours
  • Provide wrong figures in previously filed returns (If the difference is more than AED 10,000 VAT than it needs to be adjusted in the same quarter), if those errors find by FTA Assessor then the minimum fine will be AED 30,000

How CDA helps you?

CDA offers quality accounting and VAT services for contracting companies in Dubai and UAE. As Tax consultants, CDA plays an important role in tracking and controlling the Tax liability in contracting companies. Our services primarily focus on Tax on Advance received, Purchase of Goods from outside UAE, Tax on Retention of Receivable, Tax treatment on Sub Contractor Invoices etc.

VAT Registration

Our tax experts will help you to obtain TRN for the company by submitting essential documents which include: Trade license, Authorized signatory documents (Emirates ID, Passports), Power of Attorney, Bank details, Financial statements of the previous year.

VAT Record Keeping

Our tax consultants help you to maintain the documents in a systematic manner which includes: Sales invoices, purchases invoices, Debit and credit notes provided, Import and export documents.

VAT Calculations and Return Filing

Before calculating VAT, your business must comply with rules to avoid any penalty. VAT return depicts the tax amount due for a particular tax period. CDA experts prepare VAT return filing on 201 forms and submit it to FTA authority.

VAT Implementation and Compliance

Promising business compliance with UAE VAT law is a complex task. Following each law concept and filing the is necessary to avoid the penalty. We assure your tax filings on time.

VAT De-registration

It is the process of cancellation of TRN. Deregistration occurs when the taxable supplies fall less than the threshold limit as prescribed by FTA. Our VAT deregistration services are at a reasonable rate.

Filing Reconsideration Form for VAT Penalties

Before submitting reconsideration forms you must pay the previous penalties and wrong filing fines. VAT penalties must be paid on time with FTA for smooth tax life.

CDA Services

CDA provides accounting services and VAT services for contracting companies across the UAE. We provide cost-effective value-added solutions to improve VAT filings of contracting companies. Our team is well experienced in providing VAT services in UAE to contracting companies. Our services include Bookkeeping & Accounting, VAT Consultancy, CFO Services, Management Accounting and Internal Audit.

Frequently Asked Questions [FAQ]

1. What is the deadline for VAT return filing?

The deadlines are clearly mentioned in the TRN certificate and it is monthly or quarterly based. The payment of due tax is on the 28th day of the tax period.

2. When can I claim my input tax?

If you have missed out any bill in the previous filling or the vendor submitted the invoice late, FTA allows you to claim the input tax in the next subsequent period.

3. Is it compulsory to pay the Tax for the invoice which I have not been paid till now?

Yes, if you have raised a Tax Invoice we are liable to pay the VAT to the government, if the customers do not make the payment in future we can issue a Tax Credit Note and reclaim the amount we have paid in excess.

4. What are the exempted supplies under the construction sector?

Exempted:

  • Supply of residential buildings after three years
  • Bare land

5. Which is the best software for contracting companies?

ERP software supported with HCM and CRM is most preferable for contracting companies

6. How to minimize the risk of reverse charge mechanism?

The risk of Reverse Charge mechanism can be minimized through:

  • Proper and timely recording and filling
  • Accurate claiming of VAT 
  • Systemized records of Import Records

7. How quickly VAT refunds are released?

Once the claim for refund is submitted, FTA will review the application within 20 business days and notify the applicant (taxable person) via email, the acceptance or rejection of the submitted claim. Once your claim is approved, the refund will be made within 5 business days.

8. If we received an invoice which does not have our TRN but is less than 10,000 can we claim it?

Yes, we can claim it with the help of following particulars in simplified Tax Invoice which includes:

  • The words “Tax Invoice” must be clearly specified in the invoice.
  • The name, address, and TRN of the registrant must be there.
  • The date of issue must be mentioned.
  • A description of the Goods or Services must be mentioned.
  • The total price and tax amount charged.

9. What is Profit Margin Scheme?

The profit margin scheme enables a taxable person to calculate VAT on eligible supplies on the basis of the profit margin earned, instead of the original selling price. It can be claimed on:

  • Second-hand Goods
  • Antiques (more than 50 years old)
  • Collectors such as stamps, coins etc

A taxable person may apply the profit margin scheme on the following conditions: Purchase of goods from either an unregistered person; Purchase of goods from a taxable person who already applied on the same goods profit margin scheme.


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