MIA Consulting Private Limited

UAE VAT Health Checks & Their Importance to Businesses

The UAE’s ability to meet FTA requirements will be checked by its VAT health check. VAT is a complicated subject in the UAE, and it affects every part of a business.

VAT causes a wide range of problems for businesses of different sizes and types. The Federal Tax Authority can fine and punish businesses that don’t follow the rules about VAT, so it’s important for businesses to make sure they do.

What is the UAE VAT Health Check?

The taxpayer is responsible for making sure that everything is in line with FTA laws and rules. A VAT health check is a type of VAT audit that looks at returns and refunds that have already been sent in to find problems and risks with the Value-Added Tax.

Authorities from the FTA do regular VAT audits of different UAE businesses. If the FTA auditors find a mistake in your VAT, your company will have to pay a fine.

Why Is It Necessary to Perform a UAE VAT Health Check?

A person who has registered must do a Tax Health Check to find out where compliance and controls need to be tightened and where mistakes could happen in the future. This is done to make sure that the tax records, procedures, and reporting are all in line with the UAE VAT laws.

A good health check will show you the most important problems. Corrective steps need to be planned so that the noncompliance stops and doesn’t happen again.

By doing a full health check, a registrant can make sure that they are more likely to follow VAT laws and rules. The health check looks at the sales and purchase invoices, the procedures for reporting and documenting imports and exports, and how sales are reported in the right boxes.

After sending a notification to the registrant, FTA may start an audit. The registrant won’t be able to figure out the scope of FTA’s review or how closely it will be looked at based on the company’s industry and how business is done in the area.

How Can I Get Ready for a UAE VAT Check/ Audit?

Based on the work they have done in the past, tax auditors may focus on the important areas listed below to make sure compliance.

Reconciliation of the Trial Balance and VAT Return

The FTA can find out the value of all taxable goods and services by looking at the VAT returns that are filed for each tax period. The officer can look over these details to see if any taxable income is missing from the return or if any input recovery amounts are too high compared to the actual costs incurred.

It’s also possible that some extra money was made but wasn’t reported on the VAT return or tax filing. When businesses don’t follow the rules about closing their books on a regular schedule, limiting back-dated entries, and keeping their books in sync with their tax returns, tax auditors can find problems in the books very quickly.

If these differences aren’t reported correctly or aren’t brought to the officer’s attention right away, they could be considered taxable supplies.

Documentation Supporting the Export of Goods for the VAT Check-UAE

The VAT law says that items must be treated as zero-rated if they are exported with official and commercial documents. Many businesses in the UAE no longer get the necessary export papers, especially departure certificates, for the goods they ship.

This documentation might not be available for a number of reasons, such as exporting in small packages or in groups, not being required by customs, not being provided by the logistics provider, or bad document collection. The VAT law says that official documents must have an export document from the customs office. This means that the tax authorities might not accept these defenses.

In a similar situation, the officer may ask the taxpayer to think of each shipment of goods as a local supply and figure out how it affects taxes. Businesses must have the right paperwork in order to export goods without paying taxes on them.

Examining the Tax Laws for a UAE VAT Check

Auditors also look for problems with how the company handles taxes, such as standard rates that are reported as zero-rated or exempt, deemed supplies, transactions between related companies that are not considered taxable supplies, taxable supplies that are thought to be out of the scope of the audit, etc.

Businesses in industries with different VAT rates, such as real estate, healthcare, education, transportation, and electronic services, may need to review the tax laws to make sure they are following the rules.

Recovering Input Costs for Personal, Amusement, and Transportation Fees

As long as they have the tax invoice and the payment is made or agreed to be made within six months, taxable individuals who make taxable supplies are allowed to deduct the input costs related to those supplies. Some things that make it hard to recover inputs are the use of a car, a phone, the cost of entertainment, and personal expenses.

These rules are in place because some input could be claimed as personal expenses or because of laws. The tax officer will look at the trial balance and the working file for the VAT return filing to find the expense heads and decide whether input recovery should be disallowed. During the VAT Check-UAE, proof of payment for expenses must be shown.

To qualify for input recovery, the taxable person must have paid the taxable expenses within six months or have said they plan to do so. During the audit, the tax officer may ask for proof of payment to the supplier, like a receipt voucher from the supplier or an entry on a bank statement.

Businesses sometimes claim input on expenses without paying the supplier. There are many reasons for this, such as disagreements, long credit terms, discounts, cash flow problems, and so on. If the tax auditor finds a situation where input VAT is recovered without making the payment or intending to make the payment, he may insist on reversing the VAT input.

Contact Us to Find Out More About the Audit/VAT Check-UAE

The UAE VAT audit is more of a thorough job done by the authority to protect the federal government’s revenue streams and make sure that registrants are paying their taxes. If you don’t follow the Ministry’s rules and laws, you will have to pay big fines.

The only way to be prepared for the audit is to do a UAE VAT check to make sure that rules are being followed and that there are enough checks in place to catch any non-compliance if it happens. Contact us for any VAT Service in UAE, and we’ll be happy to help.