Types of VAT
There are two types of VAT in the UAE:
- 1. Input VAT
The Input VAT is applicable on products on purchase or services when offered. The VAT amount will be deducted from your settlement if you are a registered buyer with the FTA.
VAT Rate in the UAE
VAT in UAE is chargeable based on the following rates on specific categories:
- Standard Categories
The Standard Rate of 5% VAT is applicable on Automobiles, electronic items, fuel, jewelry, entertainment services, food & beverage, apparel, cosmetics, commercial leasing, restaurants & hotels, construction, etc.
- Zero Categories
A Zero VAT rate is applicable on the export of goods or services, certain education services, international transportation of goods and passengers, supply or import of investment precious metals with 99% purity and more, supply of certain means of transport, residential buildings, buildings used by charities, and certain healthcare services.
- Exempted Categories
Financial services, bare land, certain residential buildings, and local passenger transportation are exempted from VAT charges.
Documents for VAT Accounting
Businesses need to submit the following documents for VAT Accounting in UAE:
- Accounts of all products, imports of goods, and services
- Invoices
- Purchase Records
- Expense Receipts
- Bank Statements
- Import and Export Documents
Advantages of VAT Accounting in the UAE
- Enhances Financial Clarity
- Improves Business Insights
- Prevents Penalties
- Ensures Regulatory Compliance
- Facilitates Informed Decisions
Necessities of VAT Accounting
VAT Accounting needs the right accounting technique to make the process correct and error-free. Systematic and competent Accounting services are necessary to fulfill the VAT requirements in compliance with the UAE law.
- Mandatory requirement - For every taxable business registered with the FTA, proper VAT Accounting is mandatory.
- Ensures Easy Tax Returns - VAT Accounting makes Tax Return Filing easy as it ensures the access of all the essential documents relating to tax filing in one place.
- Helps the Expansion to be Flexible – VAT Accounting helps the management to set the budget if it wants to expand the business, as it provides the estimate for payable taxes.
- Serves as a Checklist - VAT Accounting serves as a checklist for the business and the FTA authorities to check whether all the tax-related documents are submitted or not, as it includes the names of the supplies.
- Reduces the Tax Audit Burden – Correct accounting and financial statements help maintain all the data of the business transactions and also help businesses from future tax audits or inspections without burden.
- Creates Awareness with New VAT-Related Schemes - VAT Accounting often creates awareness among businesses about how to get benefits from the authorities ever so often.
- Enhances the National Revenue Growth – The VAT Accounting procedure calculates and registers the total amount of payable Taxes of business. The proper tax filing will surely increase the national growth.
- Decreases the Risk of Penalties - VAT Accounting ensures that the business is complying with all the rules and regulations set by the FTA authority in the UAE. Correct tracking and payment reduce the risks of administrative penalties by the authorities.
Penalties for Not Complying with ESR
- Inaccurate Records
First-time Offense: AED 10,000
Repetitive Offenses: AED 50,000 or more
- Failure to provide Arabic Records
A fine of AED 20,000 (if fail to provide Arabic records upon FTA request)
- Missing Tax Invoice
AED 5,000 penalty for not submitting a Tax invoice
Inaccurate accounting can lead to potential financial harm, hence; avoid severe financial consequences for seamless VAT Accounting in the UAE.
