8 Common VAT-Related Mistakes Made By Businesses In Abu Dhabi

8 Common VAT-Related Mistakes Made By Businesses In Abu Dhabi

VAT was first introduced in the United Arab Emirates on 1st January 2018. The general VAT rate is 5% and applies to most goods and services, with some goods and services subject to a 0% rate or an exemption from VAT (subject to specific conditions being met).

When filing your VAT, you must watch out for these 8 Common VAT-related Mistakes Made by Businesses in Abu Dhabi.

Common VAT Mistakes And How To Avoid Them

1. Late Filing Of VAT Returns

A VAT Return in Abu Dhabi must be filed within a stipulated period. As an accounting and bookkeeping services provider in Abu Dhabi, we have seen this VAT-related mistake several times due to mismanagement of paperwork or lack of information. It is suggested that you outsource your accounting and bookkeeping services to ensure that all your VAT Returns are filed correctly and on time.

2. Incorrect “Tax Point”

For tax purposes, a tax point (or “time of supply”) can be defined as the date on which the transaction occurs. As a consequence, you should ensure that the transactions that fall within the specific tax points are included on the appropriate return during the tax period. The most common mistake occurs when supplies take place at the end of a tax quarter. They are then included in the incorrect return. To avoid this, you must make sure that you have a written copy of all your business’s income and expenditures.

3. Failure To Maintain Records

In Abu Dhabi, the laws require businesses to maintain their transaction records for up to 5 years (15 years in the case of real estate) to facilitate VAT filing and bookkeeping. All payments, receipts, expenditures, etc., are included in this. Unfortunately, many companies fail to maintain all these accounts, or even if they do, they fail to update and maintain them regularly.

4. Mistakes In Calculating VAT

The application of correct VAT rates is the most important component of preparing accurate VAT returns. Making errors in identifying the correct rate of VAT can lead to miscalculations and result in fines for your business. An Accounting Firm in Abu Dhabi, much like ours can ensure that the calculations are correctly made through an algorithm instead of manual calculations.

5. Incorrect Use Of Adjustment Columns

It is important to understand the actual use of adjustment columns. They are designed for the adjustment of bad debts and sales of commercial property. In practice, businesses correct errors in previous VAT returns using the adjustment columns.

As a result, the authorities may ask more questions and run an investigation that may also lead to penalties. Hence, it is very important to pay close attention to these columns and understand their true usage. 

6. Issues With Reverse Charge Mechanism

There are usually inaccuracies in transactions that involve a reverse charge mechanism. that is because goods and services are imported from abroad. Often, businesses forget to include transactions covered by the reverse charge mechanism in the VAT returns they submit for filing. Nevertheless, these transactions are included in the business’s VAT returns since they have to pass through customs as part of the existing procedure. Thus, businesses should be very careful in reporting transactions of this type and outsource accounting and bookkeeping services in Abu Dhabi, Dubai for professional advice.

7. Bad Debt Relief

FTA offers relief for bad debt as per article 64. Before claiming bad debt, you have to wait six months from the date of supply. Alternatively, if you are paying creditors late, you need to adjust your input VAT accordingly as the tax authority expects you to do so. VAT cannot be claimed on invoices that you have not paid and this is a mistake you should avoid as a business.

8. Absence Of Tax Expert

To leverage the VAT laws, businesses should have tax professionals handle VAT-related transactions. A competent team of staff is essential for compliance with VAT regulations. It has sometimes happened that the company has hired the wrong group of people who lack the knowledge necessary to understand VAT implications. 

Filing VAT Returns can be time-consuming and difficult for businesses to handle. But, we’ve got you covered with our Accounting and Bookkeeping Services in Abu Dhabi, Dubai that you can avail of! Click here to get started.

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