Introduction of VAT is becoming a bigger focus for companies in UAE as they try to adapt for it. Preparing for VAT is advisable due to many reasons like operational effectiveness, adhering to compliance’s, financial penalties associated due to non-compliance, managing of cash-flow, risk to goodwill etc. VAT will be applicable to almost all goods and services except for a few exempted one. A proper bookkeeping system is now inevitable for the companies in UAE as one of the feature of VAT is its self-assessment nature which means, every VAT registered business must record, assess and report its VAT obligations, in accordance with the law, to the tax authorities.
The basic requirements of VAT include;
- VAT Registration whether mandatory or voluntary
- Filing of periodic VAT returns with the tax authorities (either monthly or quarterly)
- Remitting any VAT payable by a specific date
- Record Keeping of all business transactions
There is little or very less awareness regarding maintaining proper accounting records but now it’s recommended to do so because;
VAT is a transaction level TAX – Although the standard rate is 5% but some transactions will be either zero rated or exempted. As a transaction based tax, VAT must be verified and accounted for each individual transaction. A proper accounting system helps to identify the impact of VAT on each transaction.
Calculating and Reporting of VAT – A VAT registered business is required to charge, and remit VAT collected to the Tax authorities on periodic basis. Proper maintaining of VAT charged on supplies and paid while purchases help to analyse the net VAT payable to the authority.
Claiming of input TAX credit – If a business sells or supplies zero rated goods or services it can claim input TAX credit that it has paid while its purchases. For claiming the input tax credit proper documentation and record maintenance is highly important to prove before the tax authorities in any time in future.
Problem of managing the cashflow – If you aren’t managing your books of accounts it will be difficult for you to understand how much refund must be claimed which might lead to problem of cash flow.
Supportive for VAT Audit – There would be periodic audits conducted by the tax authorities and businesses often struggle to address questions raised by the authorities during the audit in case of insufficient documents for supporting their claims. This may lead to penalties pertaining to non-compliance of the VAT laws.
A proper bookkeeping and accounting system therefore is now inevitable for all the business houses whether small or large.
Let us assist you for all your VAT and Accounting requirements drop your queries on firstname.lastname@example.org