Value Added Tax (VAT) was introduced in the United Arab Emirates (UAE) in 2018 as a way of diversifying the country’s revenue streams. VAT compliance is crucial for businesses operating in the UAE, as non-compliance can result in hefty penalties and legal action. Here are five tips for effective VAT compliance in the UAE:

1. Register for VAT on time

The first step towards VAT compliance is registering for VAT on time. Businesses with an annual turnover of AED 375,000 or more are required to register for VAT. If a business fails to register for VAT within the stipulated time, they may face penalties and legal action.

To register for VAT, businesses need to complete an online registration form on the Federal Tax Authority (FTA) website. Once registered, businesses must charge VAT on their goods and services, maintain proper records, and file VAT returns on time.

2. Keep accurate records

VAT compliance in the UAE requires businesses to maintain accurate records of all their transactions, including sales, purchases, expenses, and VAT paid and received. Proper record-keeping ensures that businesses can file accurate VAT returns and claim input tax credits (ITCs) for VAT paid on their purchases.

To maintain accurate records, businesses should implement an effective bookkeeping system and regularly reconcile their accounts. This involves comparing the VAT collected from customers with the VAT paid on purchases to ensure that the figures match. Any discrepancies should be investigated and corrected immediately.

3. Systematic categorisation of supplies to zero-rated and exempted categories

One of the most important aspects of VAT compliance in the UAE is the correct categorisation of supplies to either zero-rated or exempted categories. Zero-rated supplies are those on which VAT is charged at 0%, while exempted supplies are not subject to VAT at all.

Businesses must ensure that they correctly categorise their supplies to avoid any penalties or legal action. The FTA provides guidance on the VAT treatment of different supplies, but it can be a complex area that requires specialist knowledge.

To ensure systematic categorisation, businesses can implement an effective accounting system that categorises their supplies and enables them to identify which supplies are zero-rated or exempted. They should also keep up-to-date with any changes in VAT regulations and seek professional advice if necessary.

By systematically categorising their supplies, businesses can ensure that they comply with all the VAT regulations and avoid any penalties. They can also maximise their input tax credits by claiming VAT paid on their purchases correctly.

4. Submit VAT returns on time

Businesses in the UAE are required to file VAT returns on a quarterly basis. VAT returns must be filed and the VAT amount due paid within 28 days of the end of the tax period.

Late filing or non-filing of VAT returns can result in penalties and legal action. To avoid these consequences, businesses should ensure that they file their VAT returns on time and accurately report their VAT liability.

5. Seek professional advice

VAT compliance in the UAE can be complex and time-consuming, especially for businesses that are new to VAT. Seeking professional advice from a tax expert can help businesses ensure that they comply with all the VAT regulations and avoid any penalties.

A tax expert can assist businesses with VAT registration, record-keeping, VAT return filing, and other compliance issues. They can also provide guidance on the VAT treatment of specific goods and services, and advise businesses on how to minimize their VAT liability.

At Lemon Consultech, we understand that VAT compliance can be a complex and time-consuming task for businesses operating in the UAE. That’s why we offer a comprehensive range of VAT compliance services to help businesses comply with all the VAT regulations and avoid any penalties.

Our team of VAT experts has years of experience in VAT compliance and can assist businesses with all aspects of VAT compliance, including VAT registration, record-keeping, VAT return filing, and categorisation of supplies. We also provide guidance on the VAT treatment of specific goods and services and advise businesses on how to minimise their VAT liability.