VALUE ADDED TAX - VAT

1. VALUE ADDED TAX - VAT By Venkat

2. Training Disclaimer • These materials are intended to assist employers, employees, and others as they strive to understand the concept of UAE VAT law and regulations. While we attempt to thoroughly address specific topics, it is not possible to include discussion of everything necessary to ensure compliance with the local laws. Thus, this information must be understood as a tool for addressing UAE VAT related issues, rather than an exhaustive statement of an employer’s legal obligations, which are defined by statute, regulations, and standards. • Likewise, to the extent that this information references practices or procedures that may enhance compliance, but which are not required by a statute, regulation, or standard, it cannot, and does not, create additional legal obligations. • Finally, over time, regulators may modify rules and interpretations in light of new technology, information, or circumstances; to keep apprised of such developments, or to review information on a wide range of VAT topics, you can visit regulatory web sites or contact your auditor or legal consultant

3. Session 2 - Agenda • UAE VAT Website • Accounting System for VAT • VAT Registration • VAT Returns • VAT Accounting • VAT Auditing • Consumer business • Real Estate • Capital Assets

4. VAT UAE Website UAE Government has created new website for VAT https://www.mof.gov.ae/En/budget/Pages/VATQuestions.aspx To create Awareness as well to satisfy queries the Government of UAE has the following areas discussed in the website • General Questions • VAT for Businesses • VAT for Tourists and Visitors • UAE VAT Frequently Asked Questions (FAQs) • Other Questions

5. VAT Certificates ISSUING VALUE ADDED TAX CERTIFICATES https://www.mof.gov.ae/En/mservices/VTAX/Pages/ServiceCardVat.aspx This is a certificate issued for Gove​rnment authorities, pri​vate sector companies and individuals to exempt them from Value Added Tax (VAT) in various countries ar​ound the world.

6. Accounting System for VAT • Value added tax is charged on purchase and sale. • On purchase, it will be VAT input. • On sale, it will be VAT Output. • Excess of VAT output over VAT input will be a liability and deposited in UAE Govt. account. • Excess of VAT input over VAT output will be a claim from UAE Government account • If you are buying or selling Goods which are under VAT, you have to keep its record.  • For recording, you have to pass following journal entries of VAT.

7. Purchases When Goods are purchased, you have to pay or accrue for both purchase value and VAT input , below entry will be passed: Inventory Account Dr.  (Value of Purchase) VAT Input Account Dr. ( VAT on Purchase) Cash / Bank/ Creditor Account Cr. (Value of Purchase + VAT input ) 

8. Sales When Goods are Sold you have to receive or accrue for both Sale Value and VAT Output, below entry will be passed: Cash/Bank/Customer Account Dr.  (Value of Sale + VAT output) Sale Account Cr. (Value of Sale) VAT Output Account Cr. (VAT on Sale)

9. Tax Liability/ Refund

10. Summary Accounting Situations • Purchases • Sales • Liability • Refund

11. VAT Registration • The VAT registration form will be available via the FTA’s online portal • Supporting documents will include such items as: • Documents identifying the authorized signatory e.g. passport copy, Emirates ID • Trade license • Other official documents authorizing the entity to conduct activities within the UAE

12. VAT Registration • Following approval of the application a Tax Registration Number will be issued • Simple process –approximately 15 minutes to complete the form The form should be completed by a person who is an authorized signatory of the business e.g. a Director, owner, someone holding Power of Attorney to sign on behalf of the business etc. • Prior to completing the form ensure you have considered the following: • Are you required to register for VAT or are you registering voluntarily? • Are you applying for a single VAT registration or for registration as a VAT Group? • Have supporting documentation & information on hand to upload e.g. trade license, certificate of incorporation, Emirates ID, Articles of Association, bank account details etc

13. Your VAT Responsibilities From the effective date of registration you must: • Charge the right amount of VAT • Pay any VAT due to Ministry of Finance • Submit VAT Returns • Keep VAT records and a VAT account

14. How to keep VAT records VAT-registered businesses must: • Keep records of sales and purchases • Keep a separate summary of vat called a VAT account • Issue correct VAT invoices

15. How to keep VAT records • You must keep VAT records for at least 5 years • You can keep VAT records on paper, electronically or as part of a software program (eg book-keeping software). Records must be accurate, complete and readable. • If you’ve lost a VAT invoice or it is damaged and no longer readable, ask the supplier for a duplicate (marked ‘duplicate’).

16. Record keeping Books of account and any information necessary to verify entries, including, but not limited to: • Annual accounts: • General ledger; • Purchase day book; • Invoices issued or received; • Credit notes and debit notes.

17. VAT Invoices • Written document which records the taxable supply made • Only a VAT registered business can issue a Tax invoice • Invoices issued and received should be kept for a minimum period of 5 years • Invoice must be issued within 14 calendar days from date of supply

18. VAT Returns Submit your VAT return online You need a VAT number and a VAT online account. You can then submit your VAT Return using Ministry of Finance free online service or commercial accounting software.

19. VAT obligation -Tax Return filing & Payment • Submission online • Deadlines for submission and payment: −the due date will be 28 days following the end of the return period −where the due date falls on a weekend or national holiday, the deadline shall be extended to the first following working day • •Late submission or payment can result in a penalty levied by the FTA

20. Using Accountants or Agents Your company CEO or Director need to authorize them before they can submit your VAT Return. You can do this through your VAT online account.

21. VAT Returns Submission The VAT Return records things for the accounting period like: Your total sales and purchases The amount of VAT you owe The amount of VAT you can reclaim What your VAT refund from Ministry of Finance is You must submit a VAT Return even if you have no VAT to pay or reclaim.

22. VAT Returns Submission You usually submit a VAT Return to Ministry of Finance every 3 months. Though A company can file yearly, monthly, half yearly returns. This period of time is known as your ‘accounting period.’ Get email reminders by creating online Account Sign up to get a reminder when your VAT Return is due.

23. Surcharges and Penalties Ministry of Finance will record a ‘default’ if: They don’t receive your VAT return by the deadline Full payment for the VAT due on your return hasn’t reached their account by the deadline

24. Final VAT Returns You have to submit a final VAT Return when you cancel your VAT registration. The company can cancel if they have registered voluntarily or the return does not fall in the category of provisional registration. You can usually do this online using your VAT online account.

25. VAT Accounting Scheme Some possibilities in UAE based on International VAT Accounting Scheme. VAT Annual Accounting Scheme VAT Cash Accounting Scheme

26. VAT Annual Accounting Scheme Overview Usually, VAT-registered businesses submit their VAT Returns and payments to Ministry of Finance 4 times a year. With the Annual Accounting Scheme you: Make advance VAT payments towards your VAT bill - based on your last return (or estimated if you’re new to VAT) Submit 1 VAT Return a year

27. VAT Annual Accounting Scheme Overview When you submit your VAT Return you either: Make a final payment - the difference between your advance payments and actual VAT bill Apply for a refund - if you’ve overpaid your VAT bill The scheme wouldn’t suit your business if you regularly reclaim VAT because you’ll only be able to get 1 refund a year (when you submit the VAT Return)

28. Eligibility You can join the Annual Accounting Scheme if: You’re a VAT-registered business Your estimated VAT taxable turnover will be reaching the limit fixed by UAE Government

29. VAT Cash Accounting Scheme Eligibility You can use cash accounting if: Your business is registered for VAT Your estimated VAT taxable turnover has reached certain limit

30. Overview Usually, the amount of VAT you pay to Ministry of Finance is the difference between your sales invoices and purchase invoices. You have to report these figures and pay any money to Ministry of Finance even if the invoices haven’t been paid.

31. Payment With the Cash Accounting Scheme you: Pay VAT on your sales when your customers pay you Reclaim VAT on your purchases when you have paid your supplier To join the scheme your VAT taxable turnover must be of certain Limit fixed by the UAE Government

32. Auditing VAT Vat is the value added tax. We pay only the difference in our total VAT output and VAT input. Audit of VAT is supportive for checking the correctness of VAT and following all the latest provisions and amendments of law. From few years, it will become compulsory for many organizations.

33. VAT Number basis Sales and Purchase Matching It is the duty of auditor to match Sale and purchase on VAT No. basis. Now, when dealer provided his whole sale, purchase, invoices and his paid VAT information to auditor. On this information auditor can get the information whether his turnover shown as per TIN is equal to the other party’s purchases under VAT No. If there is any difference it may be the chance of discrepancy on either side. If there is any error it should be rectified

34. Check the Accounting System Almost all the computer accounting system calculates the VAT input and VAT output and balance payable automatically. Auditor should check the arithmetical accuracy of accounting system by taking small sample and try to calculate the VAT manually and verify whether it is equal to the calculation by accounting system. On this basis, system error can be found.

35. Check Whether Accounting System Following Law changes Time to time, UAE govt. may give the notification for new amendments in VAT. Auditor should check that dealer has followed all these new rules and regulations for paying the VAT. For example, Govt. may increase the rate, Change the Revenue limits and system should adjust the VAT on this basis.

36. Consumer Business • Composite Supplies • “Single composite supply” means a supply of goods and/or services, where there is more than one component to the supply and taking into account the contract and the wider circumstance of the supply, the supply either: • 1) includes a principal component, and component or components which either: • are necessary or essential to the making of the supply, including incidental elements which normally accompany the supply but are not a significant part of it; or • do not constitute an aim in itself, but is instead a means of better enjoying the principal supply; • 2) the supply is of two or more elements so closely linked as to form a single supply which it would be impossible or artificial to split. • A composite supply is taxable at the VAT rate applicable to the principal component

37. Consumer Business • Call off stock & consignment stock • Call off stock is where goods are already stored at the premises or warehouse of a potential customer, however the ownership remains with the seller until customer takes stock • Consignment Stock occurs when goods are sold to a customer but remain at the warehouse of the seller • In both scenarios care must be taken to ensure VAT is accounted for at the correct time. • This can become increasingly complex where the supply involves the cross border transport of the goods.

38. Consumer Business • Warranties • Warranties are effectively a guarantee, issued to the purchaser of a good by its manufacturer or retailer, promising to repair or replace it if necessary within a specified period of time. • Two types of warranties are generally provided when goods are purchased –manufacturer/retailer warranties provided free of charge with the original purchase of the goods, and extended warranties purchased for an additional charge.

39. Consumer Business • Gifts and Samples • Gifts and samples involve the disposal of business assets free of charge. They are considered to be a deemed supply for VAT purposes and the supplier will need to account for the output VAT on the value of the total cost incurred to make this deemed supply.

40. Consumer Business • Return of goods Returns involve the supplier allowing a customer to return their purchases as a result of fault, inadequacy or in some cases where a purchaser has changed their mind • Telecom and electronic services • Services which are delivered over the internet, or an electronic network, or an electronic marketplace. • The place of supply is where service is used and enjoyed irrespective of contractual arrangements

41. Consumer Business • Profit Margin Scheme • The Profit Margin Scheme allows that, in some cases, VAT is only charged on the profit margin achieved on the supply rather than the full value • Condition:thegoodswerepurchasedfromasupplierwhoisnotregisteredforVATorthegoodswerepurchasedfromasupplierwhoisaTaxablePersonwhoaccountedforTaxonthesupplybyreferencetotheprofitmargin

42. Consumer Business • Business Promotion Schemes Business promotion schemes take many forms e.g. vouchers, discounts, loyalty programs etc. Where a business promotion scheme is operated, careful attention should be given to ensure the VAT treatment applied to the transaction is correct • Hospitality –Hotels vs. Residential accommodation :The provision of hotel accommodation will be subject to VAT at the standard rate, whereas the provision of residential accommodation will be exempt from VAT.

43. Real Estate

44. Capital assets • Adjustment of VAT recovery on costs incurred relating to large value capital assets with a long useful life • WHAT? • Qualifying assets > 5,000,000 AED on which VAT was payable: • Building or a part thereof: useful life > 120 months • Other than building or parts thereof (e.g. computer): useful life > 60 months • ON WHAT PERIOD? • Building or a part of a building –10 years • Assets other than a building –5 years

45. Q & A

46. Conclusion • ‘Our new Constitution is now established, and has an appearance that promises permanency; but in this world nothing can be said to be certain, except death and taxes.’ -Benjamin Franklin