VAT Update - Things to note now

We all know VAT is started. The transition to a VAT likely requires significant resources and it is recommended that businesses start planning now for the VAT, as the expected changes required to comply with the tax will require a significant lead time to design and implement.

For businesses, unfamiliar with VAT implementation can require a significant change to business operations, and will include following but not limited to it:

Registration

Understanding VAT registration obligations and going through the process of applying for the VAT registration number. Registration does not mean that you will lose, however, non-registration can attract loss, both in the shape of Govt penalties and loss of input VAT paid. Businesses not registered for VAT cannot charge VAT on their sales and cannot claim any VAT incurred on their inputs.

Accounting, Recordkeeping, and ERP

Ensuring that the relevant books and records are maintained in an appropriate manner. It will help you to claim input VAT to the last dollar/Dirham you paid, not only this, but businesses will comply with Govt regulations on VAT.

Ensuring that the accounts payable function evidence that VAT paid and is recovered as quickly as possible. Further, make sure the account receivable function understands when VAT should and should not be charged, and it is accurately accounted for revising enterprise resource planning (ERP) systems to ensure that they can cope with the charging and recovery of VAT. Implementing manual VAT accounting processes if no central ERP system is used.

Charging invoice templates to ensure that new fields relevant for VAT accounting are included. The last but not least, ensuring that business is structured in such a manner as to avoid unnecessary cash flow or absolute VAT costs arising, particularly on intercompany transactions.

Impact on Demand

Understanding the likely impact of VAT on demand for goods and services and competitors' responses. Special focus and upfront planning of the whole cycle of demand, consumption, and supply will be paramount.

Customers Contracts

Revising terms of business with customers to ensure that VAT becomes a cost to customers not to suppliers. Educating your partner up & downstream protects the business from passive losses.

Threshold

Companies in the UAE that report annual revenues of over Dh375,000 will be obliged to be registered under the GCC VAT system. The companies whose revenues fall between Dh187,000 and Dh375,000 will have the option to register for VAT during the first phase of VAT implementation.

VAT Reporting

Most revenue collection services have set dates for submitting VAT returns and for payment of Value Added Tax owed. Standardized reporting is normally provided to businesses and they are expected to complete these reports in an accurate and timely manner. Failure to adhere to reporting deadlines normally results in penalties, and sometimes fines, so compliance is of paramount importance.

Most accounting software systems will have VAT reporting capability to show all input and output activity for the period under review. These reports should indicate the net amount payable to the revenue service and should also agree to the Value-Added Tax control account maintained in the balance sheet.

What to do:

If you feel any of the above points will affect your business feel free to contact us at Bens Chartered Accountants & Consultancy to discuss their potential impact.