Value-Added Tax (VAT) was introduced in the UAE on 1st January 2018, since then it has been one of the major concerns for all companies established in the country. Registering for VAT, getting the registration number and a tax certificate is only the first step of VAT compliance. Registration is a one-time activity, therefore, it is not that difficult. The second step poses a greater challenge to the organizations as it revolves around VAT implementation within the business processes.
Interestingly enough, VAT comes in at each stage of the supply chain, unless of course the supplies, finished goods and services are exempt from tax or zero-rated. Nonetheless, since it shows up so often, the implementation of VAT in various functions requires a careful assessment of business activities and tax rules provided by the tax authority (which are subject to change).
VAT is a type of tax that impacts not one but all the functions of a business in one way or the other. Which essentially means that it also determines the day-to-day operations of a business to a great extent. For this reason, a simple guide has been provided below to make it easier for businesses to understand and implement VAT in some of its prime functions, namely:
The Procurement Function
After registering for VAT, when a business procures raw material, services or merchandise from its suppliers, it has to pay VAT on all its purchases. Remember that VAT has to be paid on all types of procurements, local as well as foreign. The point to note here is that since the organization has paid out tax to its suppliers (input tax), it can claim a refund from the government later on. At the time of claiming a refund, a business must reveal the tax invoices or related documents as a proof of making purchases of a certain amount that must be recovered.
The Marketing and Sales Function
Once the product or service is ready to be sold, the marketing and sales function of the business becomes active and the promotion, pricing, discounts, warranties and else are decided. While deciding upon these traits, the team involved also has to consider the VAT that it will have to charge to the consumer. The amount of VAT that has to be charged on a certain product or service is pre-determined by the FTA.
The Accounting and Finance Function
This function has to play its role throughout. From the time of procurement to the time of sales, the accounting and finance team has to ensure that it records and reports the exact amount of input and output tax that the company has incurred. The team is supposed to file the tax returns with the FTA and is supposed to claim a refund on the input tax that the business got exposed to during the tax period in consideration. While filing tax returns the accounting and finance function of the business must reveal to the FTA:
- The value of standard and exempt / zero-rated supplies for the period in consideration.
- The value of VAT charged to consumers for the period in consideration.
- The value of recoverable expenses for the period in consideration.
- The total value of VAT that is due / payable or recoverable / refundable for the period in consideration.
This marks the completion of one cycle and the business is then ready to start over again and make the same calculations and reporting for the next tax period. Owing to the complex nature of this task, businesses often make mistakes and get penalized by the FTA. In order to avoid getting into trouble, companies must shake this burden off their shoulders by outsourcing these activities to a trusted firm like ACCBOOKS, which has many experienced professionals on-board to carry out these tasks for businesses at a reasonable cost.