Table of Contents
VAT REGISTRATION IS COMPULSORY
Incorrect! It becomes correct only if the organizations or businesses reaches an annual turnover of AED 375,000/- and above which makes an organization legally obligated to register for VAT. Below this stated threshold amount, it is not mandatory to register for VAT, however there’s a choice preference (absolutely optional) for the organizations that they may voluntarily register for VAT if their annual turnover is half of the stated amount, that is, AED 187,500/-. It should be noted though that business will not be able to recover VAT paid to their suppliers without being registered for VAT.
EVERY BUSINESS SHOULD CHARGE VAT TO THEIR CUSTOMERS ON GOODS AND SERVICES PROVIDED
If the first point on VAT registration is further elaborated, it could be made more clear, emphasizing on the fact that VAT can only be charged if the business and organizations are not only registered for VAT but are also filing VAT returns (paying to the FTA) on a regular basis. Any company not registered for VAT cannot charge VAT to its customers at any point, doing so could lead to penalties if caught during audit sessions.
Moreover, a taxpayer bears every right to ask the company to present VAT certificate before paying tax or can check on the FTA’s website the VAT registration for any supplier charging VAT.
ERRORS/MISTAKES IN VAT RECORDING CAN BE AVOIDED AND TAKEN CARE NEXT TIME
Well, taking it that easy could lead a business end up in paying heavy penalties. However keeping into consideration that human errors, calculation mistakes are possible and therefore for this very reason FTA had provided a platform known as ‘voluntarily disclosure form 211’which is subject to certain conditions too. For instance, the voluntarily disclosure form is applicable in case when an error pertaining to input and output recoverable tax is AED 10,000/- and above, a business may use the platform stated to inform the FTA about the errors in order to avoid fines/penalties. This form by FTA has been issued to business owners to facilitate the ease of transactions in error (if happened any) and doesn’t at all mean that frequently errors are welcomed. A point to remember, frequently errors could give a meaning of deliberately making it a practice and could lead to even heavier penalties.
This was only one aspect that a business may face fines from FTA, whilst, there are many other practices yet to be taken into consideration to evade penalties, which also includes but not limited to:
- Fail to register for VAT (threshold > AED 375K)
- Failure to maintain VAT documentation for a period of 5 years
- Failure to maintain corresponding documents pertaining to VAT
- Failure to submit tax returns within the given timeframe
- Failure to comply with the FTA laws with regards to the issuance of electronic tax invoices
- The list is pretty long, hence it is highly advisable to refer to the FTA’s official website and circulars in order to settle the discrepancies that might arise prior to make any move that may result in a mishap.
BUSINESSES CAN CLAIM VAT ON ENTERTAINMENT EXPENSES
First and foremost, that a firm cannot claim VAT on entertainment expenses incurred on non- employees. The key point to further clarify this doubt is that the VAT can only be claimed if the entertainment expenses are incurred on business employees that plays an essential role of business daily operation which results in generating revenues and profits. However certain limitations are still applicable for such expenses, for instance:
- Basic hospitality that occurs in the normal course of a business
- Initial hotel accommodation for new employees
- Sundry office expenses such as coffee, tea, snacks, flowers or office displays
- Costs incurred on employees during domestic business trips/stays*
Whereas an irrecoverable VAT includes employee lunches, Ramadan iftar party, Gala dinners as these are not a part of business daily operations’ requirement or any source of generating income into the organization. Besides, VAT charged on the purchase of gifts for special occasions and awards distributed so staff members is also falls under the category of irrecoverable VAT, eventually couldn’t be claimed at all.
VAT IS SIMPLE- ANYONE CAN DO IT!
Though many businesses attempt to do it themselves or preferably assign an existing unqualified staff member to perform VAT filing activity on their behalf. However, it is considerably more complex than it seems and penalties are extensively higher if caught but the official authorities. Unfortunately, there are many self-claimed tax consultants in the region who don’t have the know-how to compile the data and effectively file the VAT returns. It is extremely risky to retain or assign such people for this sophisticated task and the first sign of disappointment that could possibly appear would be that these people might disappear and ultimately let you down!
TOURISTS CAN CLAIM FOR THE TAX REFUND
Yes. But this is subject to certain conditions:
- Tourists are aged 18 and above can get their money back (only VAT) at Abu Dhabi, Dubai, Sharjah & Ras Al-Khaimah
- The visitors are intended to exit the country with the purchased goods within a period of 90
- The VAT money can only be refunded if the total bills are VAT-inclusive equivalent to or above AED 250/-*
- Tourists can get the refund by providing the tax invoices of their purchases through a special device placed in the departure area of airports along with their passport and credit card
*However, tourists are required to pay a 15% administrative fee as well as a 4.8 AED “Tax Free Tag Fee” for every individual claim.
VAT RECORDS DO NOT REQUIRE TRANSLATION
In accordance with the directives of the Federal Tax Authority (FTA), all the data, records and documents pertaining to VAT must be drafted and translated in proper Arabic language. Failure to submit the records to the authority in appropriate Arabic language will result in the incurrence of penalty of AED 20,000/-. Many tax agents are available in the region who are well versed in Arabic and can be hired for the Arabic drafting and translation purposes to confine heavy penalties.