18 Feb Top 10 VAT Fails of 2018
It’s has been over a year since the implementation of the UAE VAT legislation, and without a doubt, many businesses have made many mistakes in this period as they adjust to the new VAT laws, regardless of the size of the business.
These mistakes can be costly when it comes to fines and interest on VAT amount outstanding. These common mistakes may lead your company to pay the wrong VAT amounts which can impact the cash flow of your company in the current and future periods.
One of the most frequent questions asked from our clients relate to the time it would take for the FTA (Federal Tax Authority) to respond to their VAT business inquiries. They want the FTA to provide timely accurate information pertaining to their business.
Nonetheless, time and history are a great teacher, as we all know. And there’s an advantage to the passing of a year for this law, and it’s getting to learn from the mistakes of others back in 2018, which is why we brought you our list of Top Ten VAT fails in 2018:
- Lack of Proper Application of Import & Export (FTA + Customs):
We understand that businesses may still be getting accustomed to the new law, but unfortunately, some businesses in the past year have suffered from improper application of their imports and exports, and due to these mistakes, there obviously were incorrect numbers that have led to lots of trouble for these businesses. To avoid this mistake, you need to contact a trustworthy VAT tax agent and check with them to be absolutely sure that nothing’s wrong with your papers.
- Input VAT claim on reimbursement expenses from the client:
Due to their failure of understanding VAT properly, there have been VAT claims imposed on reimbursement expenses from the clients directly, which was a grave mistake that would have been easily avoided if a VAT tax agency was contacted beforehand.
- Non-compliant VAT software:
Some businesses have been using VAT software that do not really utilize the current UAE VAT system properly, which caused a number of mistakes in the calculations and provided results as they were not exactly the ones that are applied in the UAE, which caused a great confusion between both the business and the FTA.
- Invalid or non-compliant documents:
Unfortunately, some of the documents provided for the FTA were not VAT compliant, and this isn’t because the business was trying to get away with something at all, but because of the ignorance about the new VAT taxation law that caused this issue. A large number of businesses have done this mistake in particular, and, once again, it can be avoided if a certified VAT tax agent was contacted to review the documentation and evaluate the business.
- VAT treatment of supplies related to designated zones:
VAT has been applied to supplies that were supposed to be headed to a location other than the UAE, thus these goods were supposed to have different VAT taxations imposed on them depending on where they’re headed, however, they were treated as UAE products nonetheless and the UAE VAT tax was applied to them regardless.
- VAT claims on private and business activities:
Most of the registered businesses have failed to properly distinguish the personal employee activities from the actual business activities, which resulted in VAT being applied to even the personal usage and activities happening within the business. This leads to paying more taxes than necessary and losing quite a lot of money in the long-term.
- VAT implication on inter-GCC transactions:
VAT treatment for sales of goods in GCC implementing states is exempted from VAT whereas most of the businesses are treating these as zero-rated thus wrongly declaring these in VAT return as Zero rated sales. There are also some special rules for sales to registered business and non-registered businesses for GCC implementing states.
- Ignoring special place of supply rules for goods and services:
Businesses that deal with products and services where there’s a special rule for the location of the supply are required to be certain that they’re abiding the law, which many businesses in the UAE have failed to do. For instance, the treatment of VAT for electronically supplied services will be applied regardless of the location of the supply if what’s being provided is a service.
- Using wrong foreign rates currency for VAT purposes:
A number of businesses have unfortunately used the wrong currency for calculating the VAT amount, which is a grave mistake if you’re trying to check the VAT rate in the UAE. You need to be using AED currencies to calculate your VAT tax if you are based in the UAE. And it’s a general rule that you should use the same currency as the country whose VAT you’re calculating.
- Failure to recognize the accurate date of supply:
Some businesses have failed to specify the proper date of the supply, which also resulted in the wrong VAT calculations and caused unnecessary complications.
We know it’s tempting and somewhat worrisome, but don’t worry! VAT agencies and consultants exist for a reason. If you’re not sure about your VAT taxations or fear you might be handling VAT incorrectly, you can feel free to contact Averyx Group, and we will gladly help! We also offer VAT seminars to educate and lecture business owners and entrepreneurs on how to handle their businesses tax-wise.
What was your biggest VAT fail in 2018? Let us know below!