It is a great saying that choice is always yours; same will be applicable to VAT as well. You may take introduction of VAT in a positive manner or negative manner, off course choice is yours!!!!!!
Following are the proven ways to save and optimize VAT credit in UAE, it might help you to understand and implement changes in your current business structure from VAT perspective.
1. Effective Management of your inventory: As VAT will be due on issuance of Tax Invoice, receiving of payment or goods received whichever is earlier, you have to control your inventory effectively and have to maintain reorder levels by closely monitoring fast moving goods, slow moving goods and previous trends.
By maintaining inventory levels you can take leverage of credit periods allowed by the suppliers and claim VAT payable on stock items, even if not paid in actual to the suppliers.
You have to list down all the suppliers:
- With their credit periods - preference will be given to suppliers with more credit period to manage cash flows.
- With their vat registration status-whether they are registered or not. If they are not falling under registration criteria they will not charge you vat.
- Having discount policy or bulk order offers etc.
2. Overhead expenses management: it is quite common in UAE that businesses are not keeping track of their business expenses; they majorly focus on how to increase the sales. As VAT is now came in to the picture and keeping books of accounts is also mandate under VAT regulations, it is a good time to record and track all the business expenses and cut down all unnecessary or avoidable expenses to manage cash flows and to boost profit as well.
3. Group VAT Registration: if you are a group of companies having same management or ownership you can opt for group VAT registration and transact between group companies without VAT. Also you have to file only one VAT return for the group instead of several VAT returns.
4. Input VAT Credit management: Under Vat law taxable persons are allowed to take credit of VAT paid on eligible business supplies and expenses, not all VAT paid by the taxable person is eligible for input vat credit. Businesses should be careful while claiming input VAT credit as wrong filing of vat return would attract penalties. Following are the conditions for input vat recovery:
• The supplies should be used to make taxable supplies i.e. supplies taxed @ 5% or 0%.
• Tax Invoice showing details of VAT paid should be kept in the record.
• Tax invoice should be paid or intended to be paid with six months after the agreed date of payment.
On the other hand following supplies are not eligible for input VAT credit:
• Supplies used to make exempt supplies, such as local passenger transport, bare land etc.
• Entertainment services provided to non-employees, customers, potential customers, officials, shareholder or investors.
• Purchases, lease or rent of motor vehicles and related expenses used for personal use.
• Goods or services purchased for use of the employees and it is of their personal benefits except it is a contractual obligation under any applicable law in UAE or in the normal course of employment.
5. Start Accounting & Bookkeeping: Most of the business in UAE are not maintaining their proper books of accounts but now it is mandatory for every taxable person to maintain complete books of accounts and related records as prescribed in VAT law, also all books of account and relevant records need to be kept for next 5 years for reference and audit purpose. Initially business might think that accounting and bookkeeping is an additional cost to them but it is the requirement of law as well as an opportunity to track and control business transactions.
6. Understanding different rates and Scope of VAT: From layman’s perspective VAT is implemented all over the UAE at the standard rate of 5% but technically there are following rate or scope of VAT in UAE as per the law:
• Standard Rated Supplies: Applies on local supplies of goods and services by the taxable person.
• Zero Rated Supplies: Export of goods and services to outside UAE, specified educational services, specified healthcare services, international transportation of goods and passengers, specified local passenger transportation, first sale/rent of residential building, investment in specified precious metals.
• Exempt Supplies: Certain financial services such as life insurance, eligible banking services, residential buildings other then covered under zero rated supplies, Local passenger transport and sale of bare land are exempt from VAT.
• Out of Scope Supplies: Certain supplies such as supply of goods(not services) between designated zones and supplies of goods from one country outside UAE to another country outside UAE from UAE based company will remain outside purview of VAT.
7. Link your Custom registration number / Import-Export Code with FTA: All taxable persons need to account for VAT under reverse charge mechanism on all imported goods and services and the same time they are also eligible to claim back VAT booked under reverse charge mechanism subject to certain conditions. The concept of reverse charge mechanism is to keep local and international supplies at same level. As international suppliers are not registered under VAT, so it is the responsibility of the recipient for account for and report VAT on all imports. But the non-registered person under VAT need to pay 5% VAT on CIF value at the time of import and will also not eligible to claim VAT.
It is a saying that, if you want to start a journey first you have to take a single step forward as long as you keep moving you will eventually being to change your outcomes.
Let Flyingcolour Tax Consultants competent team assist you in:
1. VAT Compliance and Registration.
2. End to end Accounting & Bookkeeping.
3. VAT Implementation & Changes in current accounting system as per VAT Law.
4. Timely and Correct Submission of VAT Tax Return (Form VAT201).
5. Timely and Correct Submission of VAT Tax Refunds (Form VAT311).
6. Preparation of FTA compliant Books of Accounts.
7. Assistance in FTA compliant Record Keeping & Documentation.
Good Luck!
This blog post is written by Mr. Dilip. Feel free to call our Tax Advisor today for a quality consultation relating your VAT related queries. Please send inquiry to taxadvisor@flyingcolour.comor call +971 4 4542366.
