VAT Implementation

VAT IMPLEMENTATION

In today’s world, an individual or business entity is concerned a lot about tax payment. Often, we hear the term ‘VAT’, which is levied on our daily essentials. In simple terms, we can say that VAT is an indirect tax levied on the final consumer for the consumption of goods and services being opted by them. More than half of the countries have understood and implemented it at a very fast pace. The United Arab Emirates (UAE) is one of them that has recently initiated the VAT implementation process in its national arena.

Introduction of VAT

The concept of Value Added Tax (VAT) evolved in the 20th century was enacted by many European countries by 1960s and 1970s. Moving ahead, the developing nations started adopting the procedure by the 1980s. It is a multi-purpose sales tax that gets paid at the point of purchase. We can illustrate the entire ‘value added’ concept in a simple equation:

Value Added = Value of Output – Value of Input

Today, more than 160 countries are registered under the tax, and the global average tax rate is 12%. VAT also serves as another means of revenue for an economy, and the global average revenue generation from VAT as a part of GDP constitutes 7.5%.

Introduction of VAT in UAE

The UAE is a part of the GCC countries. The GCC finance ministers confirmed a provision for the GCC VAT Framework Agreement by Dec 2015. In Jan 2016, the UAE financial minister confirmed that the VAT framework will be get implemented by 2018. The countries entered into an agreement to implement the VAT in their states with an aim to diversify the sources of revenue. GCC VAT implementation is based on a multi-jurisdictional single market regime and finally, the UAE VAT implementation took place on 1st Jan 2018, with a rate of 5%. Most consumer goods and services like automobiles, fuel, jewellery, food & beverage, restaurants, entertainment, etc. are charged at this rate. Other categories like health, education, transport by sea or air, etc. are zero-rated; and still others like local passenger transport and bare land are exempt from VAT.

UAE Federal Tax Authority

The UAE Federal Tax Authority is a government entity that was established in the year 2016. The main aim behind establishing this entity was to collect and manage federal taxes, increase the UAE non-oil revenues, smoothen the accounting services in UAE, increase auditing companies in Dubai, and enhance its economic sustainability.

Chief Objectives

Delivering quality service in improvising the management at a global level
Maximizing the tax revenue within the scope of tax legislation
Operating efficiently by handling the taxpayer collection and maintaining an interaction
Enhancing the UAE’s growth

Impact of VAT on UAE

New revenue stream to the UAE government
The improved infrastructure of the nation
Non-financial benefits like reducing the rate of civil fraud, corruption, waste, etc.
Business efficiency gets multiplied
Costs occurred by business entities gets distributed via sales channels
Opens market for advisory firms specialized in VAT terms

Phases of VAT implementation

Dealing with VAT is a complex task. Organizing the VAT work-streams is extremely important that involves assessment, service design and implementation, technical analysis, change management, etc. VAT implementation includes a few phases that need to be met by an organization to carry out VAT services. These are:

Phase 1: VAT Impact Assessment

The revenue part is to be drafted and taken care of excluding any new operational cost to the business.

Phase 2: Planning and Implementation

VAT process design is initiated along with new supply chain structures, VAT training materials for the internal management, building IT projects to deliver tax-technical results.

Phase 3: Transition and Output Testing

Sample testing is done on the projects built. Review it from a VAT perspective and develop a trial run-generated VAT report, highlight on the issues found.

Phase 4: Post-Implementation Assistance

Review and cross-check on the effectiveness of supply-chain management and sample transactions, highlight the potential areas in terms of VAT compliance.

VAT Filing Period for Business Firms

Every business needs to undergo a tax period in which the tax payable needs to be calculated and collected. The standard tax period is:

For businesses with an annual turnover below AED 150 million – quarterly basis
For businesses with an annual turnover above AED 150 million – monthly basis

*[For companies dealing in oil and gas products, the standard tax period is monthly, irrespective of the annual turnover.]

VAT 201 and Filing Procedure

The name for VAT Return Form is ‘VAT 201’ with different sections as:

- - Taxable Person Details
  - VAT Return Period
  - VAT on sales and all other outputs
  - VAT on expenses and all other outputs
  - Net VAT Due
  - Additional reporting requirements
  - Declaration and Authorized Signatory

In order to access VAT 201, one needs to log in to FTA E-services using their username and password. The non-filing or incorrect filing could be in paying penalties ranging from AED 1,000-3,000.

If you are an entrepreneur and planning to start your business in any of the Emirates, it will be mandated for your business to opt for VAT Services. Wondering how to initiate? Well, here’s your solution…

GSPU VAT Consultants

GSPU has been a business consultant helping business entities in dealing with their accounting and taxation services at a global level. We have helped business entities to frame and meet their VAT requirements. Our business experts will help you in understanding the international vat structure, deal with the changes that occur due to VAT implementation and make them easier. A few of our VAT services are:

- - VAT registration and VAT Group registration
  - VAT compliance and control
  - Filing and payment
  - Data recording and management
  - Accounting
  - Supplier management
  - Customer management

Thus, you have seen how important role a VAT plays when it comes in dealing with business firms. Avoidance or negligence in the implementation of VAT services could result in payment of a penalty of AED 20,000. So, don’t let your business fall into the penalty pit and avail the best benefits. To implement the VAT services in your business, do contact us today. We’d be happy to assist.

Related Services

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