1. Input VAT-

Input VAT is charged when any goods are purchased or services are rendered; and if a buyer is registered with the VAT tax authorities, they can deduct the amount from his/her settlement.

2. Output VAT-

Output VAT is directly calculated and charged on the sale of goods and services delivered.

VAT accounting entails managing the VAT segment of a business entity. Every taxable person must maintain detailed records under UAE Tax Law. These records help identify the consumption tax that they must promptly pay, reducing the tax burden. Furthermore, global mandates now require businesses to maintain such records

The UAE, a member of the GCC countries, has embraced the principle of VAT implementation. This agreement, known as the Unified VAT Agreement (UVAT), was signed by GCC countries. Acceptance of this concept aimed to reduce the country’s reliance on oil and other hydrocarbon products. Consequently, VAT Accounting emerged in the UAE as an additional revenue source. The proposed VAT rate in the UAE is 5%, effective from January 1st, 2018.

Classification of UAE VAT

There are 3 kinds of VAT rates in the UAE:

1. Standard Rate

Most of the goods and services have been taxed at the standard rate of 5%. These include electronic items, automobiles, fuel, jewellery, food & beverage, apparel, entertainment services, cosmetics, restaurants & hotels, commercial leasing, construction, etc.

2. Zero Rate

For certain categories of goods and services, VAT is charged at zero rates, i.e., such items are taxable but with a zero rate. Items under this bracket include export of goods or services, international transportation of goods and passengers, supply of certain means of transport, supply or import of investment precious metals (of 99% purity or more), residential buildings, buildings used by charities, certain education services, and certain healthcare services.

3. Exempt

VAT is not applicable for goods and services falling under this category. It includes financial services, certain residential buildings, bare land, and local passenger transportation.

Any business whose taxable supplies and imports exceed AED 375,000 must register for VAT. Voluntary registration is also applicable if the amount exceeds AED 187,500. Each individual or business entity is provided with a Tax Registration Number (TRN) which consist of 15 digits.

Essential Documents for VAT Accounting

Any business needs to submit a set of documents in order to initiate the process of VAT Accounting. The set of essential documents includes:

• • • Record of all supplies and imports of goods
    • Tax credit notes and alternative documents
    • All tax invoices
    • Reports of goods exported
    • Taxable supplies received or made
    • Due on tax supplies
    • Recoverable tax supplies or imports

Apart from these, the Federal Tax Authority (FTA) can also ask for certain details like Annual Account details, General Ledgers, VAT Ledgers, Purchase daybooks, Invoices issued, Credit and Debit notes, etc.

Penalty for Not Keeping Proper Records

An individual or business who fails to keep a track of proper records needs to pay a penalty of AED 10,000. If the offence is repeated again, a sum of AED 50,000 needs to be paid.

You have got a clear idea of what VAT is all about and its types. Now the question arises that why is VAT accounting important? The answer is as below:

1. Easy Tax Returns

By performing VAT accounting, a company will be able to access all the necessary documents relating to tax filing at a single place which would greatly ease the process of filing the tax return of the company.

2. Provides Flexibility

In case a company decides to expand it, vat accounting would provide the estimated total amount that has to be paid in the form of taxes. The management of the company can go through the VAT accounting report, and according to the framed budget, it can decide to expand the business.

3. Tracks of VAT records

VAT accounting allows the company and the concerned authorities to check whether all the tax-related documents are submitted or not. It serves as a checklist which consists of the names of the materials to be correctly filled and submitted.

4. Lowers the Risk of Tax Audit

By utilizing VAT accounting, the company will have the data relating to all the transactions conducted by the company. The chances of a tax audit being conducted by the concerned authorities will be drastically reduced.

5. Acts as an Evidence

In case the concerned authority decides to conduct a tax audit of your company, VAT accounting will help the management to provide all the accurate details of the transactions related to tax done by the company.

6. Reduces the Risk of Penalties

VAT accounting would see to it that the company is compliant to all the rules and regulations as set by the concerned authority which would reduce the risk of getting penalised by the government. It would also keep updating the VAT accounting procedures with time.

7. Creates Awareness for VAT Related Schemes

From time to time, the government keeps on bringing new schemes relating to Value Added Tax. VAT accounting would generate alertness among the companies about how the various companies can avail the benefits

GSPU is a business consultancy firm that specializes in providing taxation and accounting services. When it comes to the VAT accounting front, we provide the following VAT compliance services:

• • • VAT Registration process
    • Invoicing and VAT treatment
    • Maintaining the book of records
    • Looking into the matter of inspection of records

GSPU has been actively handling the critical processes of accounting and taxation for numerous clients across various industries on a global scale. Continuously recognized as a leading VAT consultant in the UAE, our experts possess an in-depth understanding of your business’s nature. We effectively manage your VAT concerns, simplifying the process for you. To learn more about our approach, please don’t hesitate to reach out. We’re here to help