The United Arab Emirates (UAE) has been a significant player in the global economy for years. To bolster the economy and support infrastructure development, the UAE introduced the Value Added Tax (VAT) system, governed by the Federal Tax Authority (FTA). In this article, we will explore the intricate details of VAT returns and tax payments under UAE tax law.

Types of Returns under UAE VAT

1. Periodic Returns: VAT-registered individuals and entities in the UAE are mandated to file periodic returns. This type of return is a regular occurrence and has a specific due date. The deadline for periodic returns is typically the 28th of the subsequent month. For instance, if you are filing a VAT return for April 2023, the due date would be May 28, 2023.

2. Final Returns: In cases where a taxable person’s VAT registration is canceled, they are required to file a final VAT return. This is to account for their VAT transactions during the last quarter of their registered tax period.

The FTA has established standard tax periods, which typically consist of quarters, each spanning three months. However, there are exceptions. For example, the FTA can exercise discretion to prevent tax evasion and address complex transactions. Additionally, taxable individuals running small businesses or seeking refunds can apply for a different tax period if their taxable supplies amount to less than AED 9 million for a 12-month period, excluding government funding.

Standard Quarters Relevant for Filing UAE VAT Returns

The standard quarters relevant for filing VAT returns in the UAE include the following:

  • Ending on January 31: With quarterly returns thereafter.
  • Ending on February 28: With quarterly returns thereafter.
  • Ending on March 31: With quarterly returns thereafter.
  • Ending on December 31: With quarterly returns commencing on January 31.

The process of submitting VAT returns to the FTA is electronic. Taxable individuals are required to e-file their returns on the FTA portal, making it a convenient and efficient way to comply with the regulations.

Reporting Corrections under UAE VAT

Reporting corrections is a critical aspect of VAT compliance in the UAE. Taxable individuals are required to report corrections in their VAT returns in the following scenarios:

1. When a VAT return has been filed, and the tax liability due to an error exceeds AED 10,000.

2. When no VAT return has been filed, and the tax liability due to an error exceeds AED 10,000.

3. When a refund application has been filed, and an excess refund has been claimed, amounting to AED 10,000.

These correction reporting mechanisms ensure that the VAT system remains robust and accurate, reducing errors and potential misuse of the system.

It’s important to note that the VAT return form may be updated to include transactions within the Gulf Cooperation Council (GCC) under intra-GCC supplies. This reflects the UAE’s commitment to regional economic integration.

Payment of Tax Liability under UAE VAT

The payment of VAT liability is a fundamental part of the UAE’s VAT system. Taxable individuals are required to settle their tax liability by the 28th of the subsequent month following the return period. Payment can be made through electronic modes, including Visa/MasterCard, bank transfers, or online bank transfers, providing flexibility and convenience for taxpayers.

The Profit Margin Scheme under UAE VAT law

The UAE VAT law includes a unique provision known as the profit margin scheme. This scheme is specifically designed for the payment of tax on the difference between the selling price and the purchase price. It applies to specified supplies purchased by specified persons. Under this scheme, the person issuing the invoice must clearly mention that the transaction is subject to the profit margin scheme, and there is no need to separately specify the VAT amount. This simplifies invoicing for these types of transactions.

Specified Goods Under the Profit Margin Scheme

The profit margin scheme in the UAE VAT law applies to the following specified goods:

  • Second-hand goods.
  • Antiques, which are defined as items over 50 years old.
  • Items such as stamps, coins, currency, and other objects of historical or archaeological importance.

Specified Persons Under the Profit Margin Scheme

The profit margin scheme is applicable to specific persons in the UAE, including:

  • Individuals who are not registered under VAT.
  • Taxable persons who have opted to calculate their VAT under the profit margin scheme.

To ensure transparency and compliance, individuals supplying under the profit margin scheme must maintain a stock book with records of purchase invoices. These records should include essential details such as seller information, purchaser information, date of purchase, type of goods, consideration, signatures, and other relevant information. This record-keeping requirement is critical in maintaining the integrity of the profit margin scheme.

No Annual Return or Supplementary Reporting

One notable feature of UAE VAT law is the absence of an annual return, supplementary return, or transactional reporting requirement. This streamlined approach simplifies the compliance process and is designed to make VAT management more accessible for businesses in the UAE. However, businesses should maintain their records and ensure that they meet their VAT obligations in a timely and accurate manner.

Conclusion

The introduction of VAT in the UAE marked a significant shift in its fiscal landscape. Understanding the intricacies of VAT returns and tax payments is essential for businesses operating in the UAE. With clear guidelines on periodic returns, final returns, correction reporting, payment of tax liability, and the unique profit margin scheme, businesses can navigate the UAE VAT system with confidence.

As the UAE continues to evolve its tax regime, businesses and individuals must stay informed about any changes or updates to VAT regulations. The absence of annual returns and supplementary reporting simplifies compliance, but it also places responsibility on taxpayers to maintain accurate records and meet their obligations on time.

Overall, VAT in the UAE is a tool for economic development and infrastructure enhancement. By complying with VAT regulations, businesses can contribute to the growth and stability of the UAE’s economy while benefiting from a simplified and transparent tax system.

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