Compliance with the UAE VAT Law may require significant changes to a business’ technology, operations, financial management and bookkeeping practices.
The law, which comes into effect across the six Gulf Cooperation Council (GCC) nations on 1 January 2018, sets administrative penalties for businesses that fail to submit required information in Arabic when requested by the Federal Tax Authority (FTA), that deliberately provide false information, and that deliberately destroy documents they were meant to send to the FTA.
Administrative penalties are set at no less than AED 500 and no more than three times the amount of tax for which the penalty was levied. Tax evasion penalties are set at up to five times the relevant tax and a prison sentence.
The stringent reporting and record-keeping requirements suggest that proper accounting systems and processes will form the foundation of compliance. However, the reality is that, because businesses have never had to deal with tax before, it’s unlikely that their current systems and processes are VAT ready.
Here are just some of the implications of the new VAT law on business accounting and record-keeping processes:
Businesses will be required to keep records of any information that can verify their tax payments and receipts, including general ledgers, invoices issued and received, credit notes, debit notes and annual accounts;
Businesses will need to keep records of the following information for at least five years:
- All tax invoices and credit notes
- Imported and exported goods and services
- Goods or services that have been disposed of
- VAT account, which includes VAT due on taxable supplies, VAT due after an error or adjustment, and recoverable tax
- Businesses are required to issue a VAT invoice, and in some cases a simplified invoice.
- The VAT law stipulates that invoices must:
- Be in Arabic
- Have the words ‘Tax Invoice’ displayed in a prominent place
- Be in UAE Dirham. If the amount is in another currency, it must be converted to UAE Dirham
- Be issued within 14 days of the date of supply of goods or services
- Include the name, address and tax registration number of the supplier
- Include the date of issue
- Include a description of goods or services
- Include the total amount payable and the total VAT chargeable
This might seem daunting to businesses that have never had to issue tax invoices and credit notes or keep accurate records of their transactional data. Businesses also need to start getting into the habit of submitting their tax returns on a quarterly basis, which can be done online through the government’s eServices platform.
Solutions like Sage Business Management and Accounting software are VAT ready and automate a lot of these processes, so businesses are assured that their data is accurate and up to date. Simple and easy-to-use dashboards give businesses insight into their VAT collections and payments. The software is fully auditable and makes compliance considerations like record-keeping and issuance of VAT invoices hassle-free. Businesses also have access to consultants who can guide them through their system setup and optimisation, tailoring the solution to their specific needs.
From a central location, businesses can easily manage their VAT returns and reporting, adjustments, payments and refunds, and can open and close their VAT periods or view the VAT payable and refundable for a certain period. It also lets businesses generate VAT audit reports that list original tax invoices and credit notes, payments and refunds, as well as a VAT summary.
The new VAT law will have its biggest implications on a business’ accounting and reporting processes. But it’s nothing new and nothing to be concerned about. By automating as much as you can, and opting for a system that streamlines and simplifies record-keeping and reporting, you’ve won the biggest part of the battle.