Tag: VAT

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VAT Penalties Explained: How Non-Compliance Can Cost Your Business in the UAE?

VAT Penalties in uae

VAT compliance in the UAE doesn’t have to be a headache if you know where the pitfalls are and take proactive steps. Small mistakes like missing deadlines or submitting incorrect returns can quickly lead to hefty VAT penalties. These penalties can add up quickly, making it challenging for businesses to stay on top of their finances. However, there’s some good news: the UAE’s Federal Tax Authority (FTA) has introduced a grace period where businesses can benefit from a waiver of VAT penalties for updating the records, offering them a valuable opportunity to reset and get back on track without incurring hefty fines.

As per Cabinet Decision No. (74) of 2023, registered taxpayers must notify the FTA of any changes to their information within 20 working days using the FTA’s approved form and process. By taking advantage of this waiver, businesses can correct mistakes, file missing returns, or deregister from VAT without facing financial penalties. It’s an excellent chance to avoid further penalties and ensure that your business stays compliant with the law.

Most common VAT penalties you can avoid

VAT Registration Penalties

If a business fails to complete VAT registration within 30 days after exceeding the threshold, a fixed fine of AED 10,000 (~USD 2,750) will be imposed.

Deregistration for VAT

Businesses must apply for VAT deregistration within 20 business days if their taxable supplies fall below AED 187,500 annually or if they cease operations. The penalties for non-compliance are:

  • AED 1,000 for the first offence.
  • AED 1,000 for each additional month of delay, capped at AED 10,000.

Late VAT Filing

VAT returns must be filed within 28 days of the end of each tax period. Missing the deadline results in:

  • AED 1,000 for the first late filing.
  • AED 2,000 for repeated delays within 24 months.

Late VAT Payments

VAT payments are due within 28 days after the end of each tax period. Delayed payments are penalized as follows:

  • 2% of the unpaid VAT immediately after the due date.
  • An additional 4% fine if the VAT remains unpaid after 7 days.
  • A daily 1% penalty thereafter, up to 300% of the unpaid VAT amount.

Incorrect VAT Returns

Submitting inaccurate returns can lead to VAT penalties:

  • AED 3,000 for the first error.
  • AED 5,000 for subsequent errors within 24 months.

Failure to Maintain Proper Records

Businesses are required to maintain detailed records, such as invoices and tax calculations, for at least five years. Failure to comply results in:

  • AED 5000 for the first instance of improper recordkeeping.
  • AED 10.000 for repeated violations.

Failure to Issue VAT Invoices

VAT-registered businesses must issue valid invoices for taxable transactions. Penalties for non-compliance are AED 5,000 for each missing or incorrect invoice.

Non-Compliance in Designated Zones

Goods transferred within UAE Designated Zones must adhere to specific VAT rules. Penalties for non-compliance include AED 50,000 or 50% of the unpaid VAT, whichever is higher.

Submission of Incorrect Information

Providing false or incorrect details during VAT registration, filing, or updates can result in:

  • AED 3,000 for the first instance.
  • AED 5,000 for repeated inaccuracies within 24 months.

Voluntary Disclosures

If a business discovers errors in its VAT returns, it must submit a voluntary disclosure to correct the mistake:

  • Errors under AED 10,000 can be adjusted in the next VAT return.
  • Errors above AED 10,000 require notification to the FTA within 20 working days using a disclosure form.

VAT Penalties for non-compliance:

  • AED 1,000 for the first voluntary disclosure.
  • AED 2,000 for subsequent disclosures.

Additional fines may apply for underpaid taxes or during FTA audits.

Late Penalty Payments

Penalties issued by the FTA must be paid within 20 days. If unpaid, further fines are imposed:

  • A 4% monthly fine on the unpaid amount.
  • Total fines may reach up to 300% of the original penalty.

VAT Penalties Waiver: FTA’s New Initiative to Support Businesses in the UAE

The FTA has introduced a new initiative to help VAT-registered businesses in the UAE update their records without facing penalties, effective from January 1, 2024, to March 31, 2025. Any VAT-related penalties imposed between January 1, 2024, and the start of the grace period will be automatically reversed. Businesses that have already paid these penalties will receive refunds credited back to their tax accounts, without needing to take further action. This initiative supports VAT compliance by easing the burden of past penalties and encouraging accurate record-keeping.

Avoid VAT Penalties Effectively with MS

Managing VAT compliance doesn’t have to be overwhelming if MS is there to handle it for you. Our team of tax experts is equipped to assist with VAT registration, accurate filings, voluntary disclosures, and recordkeeping, ensuring your business stays compliant with FTA regulations without incurring any VAT penalties. With the recent penalty waiver initiative, now is the ideal time to resolve any past compliance issues and optimize your VAT processes.  Let us simplify VAT compliance for you.

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Big Change for UAE Fund Managers: New VAT Exemptions for Fund Management Explained 

As the UAE gears up for pivotal amendments to its VAT Executive Regulations on November 15, 2024, fund managers are presented with a unique opportunity to rethink their operations. The extension of VAT exemptions to fund management services promises to reduce compliance burdens and create a more favourable business environment. 

Discover how these regulatory updates VAT exemptions for fund management can empower fund managers to thrive in an evolving financial landscape. 

Breaking Down the New VAT Exemptions for Fund Management 

The latest overhaul of the UAE VAT regulations extends the exemption for financial services under Article 42 to include fund management activities. This change covers a wide spectrum of services that are crucial for managing investment funds, bringing significant implications for fund managers in the region. 

Here’s what the new exemptions include: 

  • Management of Fund Operations: Activities related to the daily management and administration of the fund. This involves ensuring the fund complies with relevant laws, handling administrative tasks, and coordinating with regulators. The exemption here means that VAT will no longer apply to this routine but essential functions. 
  • Strategic Investment Management: Taking the reins of the fund’s investment strategy by making key decisions regarding asset allocation, buying and selling of assets, and ongoing portfolio management. This strategic approach is intended to maximize returns for the investors while managing risk effectively. With VAT removed from these services, fund managers can now offer more attractive terms to investors. 
  • Performance Monitoring and Enhancement: Ongoing evaluation and improvement of the fund’s financial performance is essential for maintaining competitiveness. Activities such as tracking the fund’s benchmarks, identifying areas for improvement, and implementing strategies to enhance returns now fall under the VAT exemptions for fund management. 

VAT Exemptions for Fund Management: What it Means for Fund Managers 

While these VAT exemptions introduce a more business-friendly environment, they also bring unique challenges, particularly concerning VAT recovery. Here’s a closer look at some of the implications: 

  • Simplified Invoicing and Compliance: One of the immediate benefits is the elimination of the need for issuing VAT invoices on qualifying fund management services. This change will make the process of tax reporting less cumbersome and allow fund managers to focus more on value-added activities. 
  • Complexity in Mixed Services: For those providing a mix of exempt and non-exempt services, determining the appropriate VAT treatment for each component will require careful assessment. The changes may prompt fund managers to review their service portfolios and potentially restructure them to optimize tax efficiency. 

How Fund Managers Should Prepare and Act on New VAT Exemptions for Fund Management 

With the VAT amendments set to go live soon, taking a proactive approach can ensure a smooth transition. Here’s what fund managers should do to prepare: 

  1. Review and Update Service Agreements 

Fund managers must ensure that all service agreements meet the qualification criteria for the VAT exemption. The regulations specify that services must be rendered independently and to funds licensed by a competent authority in the UAE. It’s essential to clarify the scope of services covered in agreements to ensure they align with the updated VAT rules. 

  1. Reassess Input VAT Recovery Strategies 

The new exemptions may significantly impact input VAT recovery, especially if fund managers incur substantial expenses related to VAT-exempt services. It’s advisable to reassess current VAT positions and adopt strategies that minimize any potential financial impact. Fund managers should also consider conducting a thorough review of their VAT accounting processes to ensure compliance under the new rules. 

  1. Prepare for Retrospective Adjustments 

With virtual assets now covered under the updated VAT exemptions for fund management retroactively from January 1, 2018, fund managers involved in the transfer, conversion, or management of virtual assets should review past VAT filings. Identifying transactions that could qualify for the exemption may present opportunities for voluntary disclosures or adjustments to past VAT returns. This could result in potential refunds or reduced liabilities. 

  1. Monitor Further Guidance from the Federal Tax Authority 

Like the current VAT exemptions for fund management, the Federal Tax Authority (FTA) may release additional guidelines or clarifications concerning the application of the new VAT rules. Staying informed about any further updates will help fund managers implement the changes more effectively and take advantage of the benefits while avoiding non-compliance risks. 

Understanding the Broader Impacts: The Bigger Picture for the UAE’s Financial Sector 

The current VAT exemptions for fund management extend beyond a simple tax update, aiming to solidify the UAE’s status as a global financial hub by making fund management services more accessible and tax efficient. By lowering the tax burden, the amendments are set to attract capital inflows, encouraging investors to establish or expand funds in the region, which will benefit both the financial sector and the wider economy. The exemption for digital assets, including cryptocurrencies, strengthens the UAE’s position as a crypto-friendly jurisdiction, fostering an environment that supports innovation and investment. Additionally, the simplified VAT compliance process reduces administrative burdens, aligning with the UAE’s ongoing efforts to improve business friendliness and attract foreign investment. 

The new VAT exemptions for fund management provide much-needed relief from tax complexities yet require careful planning to adapt to the changing landscape. Fund managers should proactively review service agreements, reassess VAT recovery strategies, and account for the retrospective application of the exemptions. These reforms reflect the UAE’s forward-thinking approach, balancing revenue collection with the goal of fostering a robust investment climate. Success in navigating the new VAT environment will depend on staying informed, prepared, and adaptable. 

How MS Can Support You Through the Latest UAE VAT Updates 

At MS, we are dedicated to helping businesses to adhere with the latest UAE VAT updates. Our team of experts offers tailored guidance on the new regulations focusing on the VAT exemptions for fund management, ensuring you fully understand their impact on your operations. We provide comprehensive support in critical areas, including VAT exemptions, input VAT recovery, and tax invoicing, helping you maximize your benefits while minimizing risks. With our ongoing compliance services, we ensure your business remains aligned with the evolving VAT framework and excel to further heights. 

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What’s New in the UAE VAT Update: Implications for Digital Assets, Tax invoices and More!

This new UAE VAT update is under Cabinet Decision No. 52 of 2017

For the first time since the introduction of VAT in 2018, the Federal Tax Authority (FTA) of the UAE has made extensive revisions to Executive Regulations of the Law through Cabinet Decision 100 of 2024. This new UAE VAT update is under Cabinet Decision No. 52 of 2017 and introduces important changes that will take effect on November 15, 2024. These amendments reflect the FTA’s commitment to adapt to the evolving business landscape in the UAE.

UAE VAT Update:  Key Amendments and Their Implications

Financial Services

One of the most notable revisions to the UAE VAT update is the introduction of a Digital Asset definition under Article 1. Digital assets are now recognized as “digital representations of value that can be traded or transferred digitally and used for investment purposes, excluding fiat currencies or securities.”

Additionally, Article 42 (2) has been amended to include several services under the definition of financial services:

  • Providing investment fund management services independently for a fee for funds licensed by a competent authority in the state.
  • Transferring ownership of digital assets, including cryptocurrencies.
  • Converting digital assets.
  • Safeguarding and managing digital assets.

Furthermore, Article 42 (3) now specifies that the following services are exempt from VAT:

  • Investment fund management services.
  • Transferring ownership of digital assets.
  • Converting digital assets.

Notably, the last two exemptions will be applicable retrospectively from January 1, 2018. This is a significant development that clarifies the taxation of digital assets, an area of growing interest and investment in the UAE according to the new UAE VAT update.

Exception to Supply and Deemed Supply

The Exception to Supply definition in the UAE VAT update now includes the transfer of ownership or disposal rights of government buildings and real estate assets between government entities. This amendment simplifies the asset transfer process for government entities, ensuring that such transactions are not subject to VAT, effective from January 1, 2023.

Moreover, the Deemed Supply Exception provision has been extended in the UAE VAT update, allowing up to AED 250,000 for suppliers who are government entities or charitable organizations, provided the recipient is also a government entity or charitable organization within a twelve-month period. This extension offers relief to charitable organizations and government entities, enabling them to operate without the additional burden of VAT.

Profit Margin Scheme

According to the new UAE VAT update, Article 29 has clarified that the purchase price under the Profit Margin Scheme includes all costs and fees incurred to purchase the goods. This removes ambiguity and provides businesses with clear guidance on calculating the purchase price under this scheme.

Proof for Export of Goods

In the current UAE VAT update, for the Export of Goods, Article 30 now specifies the necessary documents to prove that an export has occurred, thus making it eligible for treatment as a zero-rated supply. Acceptable documents include:

  • Customs declaration and commercial evidence proving the export.
  • Shipping certificate and official evidence proving the export.
  • Customs declaration proving customs suspension if the goods are under customs suspension.

The clarifications surrounding “official evidence” and “commercial evidence” will facilitate smoother export processes for UAE exporters who have faced challenges in obtaining Exit Certificates.

Zero-rated Services

Article 31 for the Export of Services according to the new UAE VAT update specifies that services will not be zero-rated if their place of supply is within the UAE, according to certain scenarios outlined in Articles 30 and 31 of the UAE VAT Law. This change requires businesses to conduct detailed analyses to understand the implications on their operations and ensure compliance with the new regulations.

Composite Supply

The amendment to Article 46 (1) now states that tax treatment should be based on the overall nature of the supply if no main component is included in a composite supply. This change provides clarity on treating composite supplies for VAT purposes.

Input VAT

Article 53 in the current UAE VAT update now allows for the recovery of input VAT for health insurance, including enhanced health insurance for employees and their dependents within the limits of one spouse and three children under the age of eighteen. This amendment is a significant relief for businesses, enabling them to recover VAT on essential employee benefits.

Additionally, Article 55 in the UAE VAT update clarifies the end of the tax year in various scenarios, including tax registration cancellation and changes in tax group membership. For input VAT apportionment calculations, if the tax year is less than twelve months, the AED 250,000 limit for actual use should be proportionately adjusted. Taxable persons can request FTA approval to use a fixed apportionment percentage based on the previous tax year, benefiting businesses with consistent annual profiles.

Tax Invoices

The timeline for issuing Tax Invoices has been adjusted in the UAE VAT update, particularly for simplified and summary tax invoices. A simplified tax invoice must be issued on the date of supply, while a summary tax invoice must be issued within 14 days from the end of the calendar month that includes the date of supply. These changes require businesses to comply with invoicing requirements promptly, thereby reducing the risk of non-compliance.

The amendments to the UAE VAT framework represent a significant evolution in the taxation landscape. Taxpayers must carefully review these changes and assess their impact on their operations and compliance obligations. Navigating these amendments will require thorough analysis and informed decision-making to ensure adherence to the new regulations. Understanding these updates is crucial for businesses operating in the UAE as they adapt to the evolving VAT landscape.

How MS Can Assist You with the Latest UAE VAT Update

At MS, we help businesses stay compliant with the latest UAE VAT updates. Our team provides expert guidance on the new regulations, ensuring you understand how they affect your operations. We offer support in key areas like VAT exemptions, input VAT recovery, and tax invoicing. With our ongoing compliance services, we make sure your business remains up to date with the evolving VAT framework.

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UAE Input VAT: The Hidden Benefit Businesses Missing Out in the VAT Landscape

UAE VAT Registration
UAE VAT Registration: 5 Pitfalls to Avoid for Your Successful Compliance

The recent introduction of corporate tax in the United Arab Emirates (UAE) has sharpened the focus on the existing Value Added Tax (VAT) system. It’s crucial to understand the distinction between these two taxes. VAT, implemented in 2018, applies to most goods and services in the UAE at a standard rate of 5%. There’s a twist, businesses registered for VAT can claim input tax credits, significantly reducing their overall VAT burden.

As many are already familiar with this aspect, let’s brush up on the key insights of the Input VAT.

What is Input VAT?

Input VAT refers to the VAT a business pays on its purchases of goods and services used for taxable supplies. This mechanism ensures that businesses only pay VAT on the value they add at each stage of the supply chain.

How Input VAT Recovery Works

In the UAE, input tax recovery allows VAT-registered businesses to reclaim credit for the VAT paid on eligible business-related purchases and expenses.

  • Registration Thresholds: Businesses are required to register for VAT within 30 days if their annual taxable income exceeds AED 375,000. Voluntary registration is an option for businesses with turnovers between AED 187,500 and AED 375,000 to take advantage of input tax recovery.
  • Claiming the Credit: Registered businesses can claim credit for the VAT paid on all taxable purchases, reducing their overall VAT burden and ensuring a transparent system where the final consumer pays the VAT.

Steps to Recover Input VAT in the UAE

Recovering input VAT in the UAE involves a few key steps:

  1. Eligibility Check:
  • Only businesses registered as taxable persons under UAE VAT regulations can claim input tax recovery (mandatory registration for exceeding AED 375,000 annual taxable sales or voluntary for turnovers between AED 187,500 and AED 375,000).
  • The purchased goods and services must be exclusively used for making taxable supplies (not personal use or exempt supplies).

2. Maintain Proper Records:

  • Retain valid tax invoices for every business purchase, clearly showing
  1. Supplier’s VAT registration details
  2. Description of purchased goods or services
  3. Taxable value of the purchase
  4. Applicable VAT
  • A system to organize these documents (digital or physical) is crucial for a smoother claim process and reduces audit stress.

3. Calculate Input Tax:

  • Businesses managing accounts manually need to carefully review each invoice to identify the VAT amount and calculate the total input tax claimable for that tax period.
  • Consider using a spend management solution to streamline this process by tracking expenses, storing invoices securely, and automating VAT calculations.

4. Submit VAT Return and Claim Recovery:

  • The UAE FTA mandates that registered businesses file a VAT Return within 28 days after the tax period’s end.
  • This return should detail your taxable supplies, output VAT collected from customers, and input tax paid on purchases. Ensure accurate mention of the total input VAT to avoid discrepancies.
  • The claimed input tax is typically refunded directly to your registered bank account by the FTA within a few weeks of filing the return.

Timeframe for Recovery

You can claim input tax in your first VAT return as soon as you have:

  • A valid tax invoice.
  • The intention is to make payment against the invoice within six months of the agreed payment date.

Correcting Past Returns

The FTA’s ‘Voluntary Disclosure’ provision allows businesses to correct errors or omissions in submitted VAT returns without penalties. This can be done by completing an online form on the FTA website, detailing the errors, and providing the correct information.

Maximizing Input VAT Recovery

For a smooth input tax recovery process, follow this checklist:

  • Ensure purchased goods and services are used for taxable sales as per the UAE VAT Law.
  • Always request a Tax Invoice for purchases where you plan to claim input tax.
  • The tax invoice should have all the details for input tax recovery consideration.
  • You must pay or intend to pay the full amount due for the supplies, aiming to settle the invoice within 6 months.

Be VAT Compliant in the UAE with MS

MS takes the complexity out of VAT regulations and ensures your business is fully compliant in the UAE, so you can focus on what matters most – growing your business. Our team will streamline your processes, making everything smooth and collaborative. With MS, you get more than just a service. You get a partner who understands your specific business in the ever-changing UAE market. We’ll support your growth and success every step of the way.

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Staying compliant with Value Added Tax in the UAE: Key aspects for UAE businesses

Staying compliant with Value Added Tax in the UAE: Key aspects for UAE businesses
Staying compliant with Value Added Tax in the UAE: Key aspects for UAE businesses

Understanding the Value Added Tax (VAT) landscape in the UAE is essential for business success in this dynamic economic environment. VAT has become a significant factor for businesses operating in the UAE since its introduction in 2018. As the UAE continues to attract global enterprises, effectively managing VAT compliance is crucial for maintaining financial integrity and competitive advantage.

What is Value Added Tax in the UAE?

VAT is an indirect tax levied on the value added to goods and services at each stage of the supply chain. Consumers ultimately bear the burden as sellers collect VAT on their sales and remit it to the government. However, businesses can reclaim the VAT they pay on their purchases, reducing their overall tax burden.

VAT Rates in the UAE

The UAE applies a standard VAT rate of 5% to most goods and services. However, there are exceptions:

  • Zero-rated Supplies (0% VAT): These include exports outside the GCC, international transportation, crude oil/natural gas, the first supply of residential real estate, and specific healthcare and education services.
  • Exempt Supplies: Certain financial services, subsequent supplies of residential real estate, bare land transactions, and domestic passenger transport are exempt from VAT.

Value Added Tax in the UAE: Registration procedures

Mandatory Registration

Businesses exceeding AED 375,000 in taxable supplies and imports within the last 12 months or anticipating exceeding this threshold amount in the next 30 days must register for VAT (mandatory registration). Businesses below this threshold can voluntarily register to recover VAT credits.

Voluntary Registration

Businesses that do not meet the mandatory registration criteria can still opt for voluntary registration. This option is available if the total value of taxable supplies and imports, or taxable expenses, exceeded AED 187,500 in the previous 12 months. Likewise, if a business anticipates surpassing this threshold in the next 30 days, voluntary registration is an option.

VAT Compliance

VAT compliance involves several key aspects:

  • VAT Return Filing: Businesses must file VAT returns quarterly or monthly, depending on their turnover. These returns summarize all their taxable transactions for the period, including the total value of sales and purchases, the amount of VAT charged and paid, and the amount of VAT recoverable. Filing accurate and timely VAT returns is crucial to avoid penalties from the Federal Tax Authority (FTA).
  • Record Keeping: Businesses must maintain detailed records for at least five years. This includes source documents (like purchase invoices), sales invoices, receipts, and any other documents that support the VAT calculations in their returns. Proper record keeping is essential for audits and to ensure they have the documentation to support any VAT claims they make.

Value Added Tax in the UAE: Impact on different business sectors

VAT implementation has affected various sectors differently:

  • Retail: Businesses have adjusted pricing strategies, cash flow management, and VAT calculations.
  • Manufacturing: Manufacturers manage input VAT on raw materials and output VAT on finished goods.
  • Real Estate: VAT implications differ based on the property type (residential or commercial).
  • Hospitality: Businesses must incorporate VAT into room rates, food sales, and other services.
  • Healthcare: While most services are exempt, some related products and services are taxable, creating compliance challenges.

VAT in the UAE: What’s there for Free Zones?

While UAE free zones offer tax benefits, VAT can be complex. The key lies in designated zones, treated as outside the UAE for VAT. Goods and services within these zones are generally VAT-free. However, supplying to the mainland or non-designated zones incurs 5% VAT. Businesses in free zones need to understand their zone’s designation and how it affects their VAT obligations.

Value Added Tax in the UAE: Turn your confusion to confidence with MS

Complying with VAT in the UAE doesn’t have to be a solitary struggle. At MS, we stand by your side as your dedicated financial partner for VAT services. We simplify the complexities of VAT, ensuring full compliance with regulations, so your business can thrive. Our team of experts is committed to streamlining your VAT processes, providing a seamless and collaborative experience. With MS, you gain more than just a service provider; you gain a partner who understands your unique business story in the dynamic UAE market, supporting your growth and success every step of the way. Choose MS and experience the difference beyond mere numbers.

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UAE enters a new era of Tax administration with CIT Return Form

UAE enters new era of Tax administration with CIT Return Form
UAE enters new era of Tax administration with CIT Return Form

The United Arab Emirates (UAE) has long been a top choice for businesses seeking a tax-friendly environment. Unlike many countries, the UAE historically boasted minimal taxes, attracting a significant amount of foreign investment. This tax landscape played a major role in establishing the UAE as a global hub for trade and commerce.

In this scenario, the UAE has taken a major step forward in its tax administration with the release of the Corporate Tax (CIT) return form. This mandatory document signifies a new era for businesses operating within the UAE, requiring them to report their taxable income for a specific tax period.

What is the CIT Return Form?

The CIT return form is essentially a report card for businesses in the UAE. It captures a company’s financial health and tax situation for a designated tax period. Businesses are legally obligated to submit this form electronically, no later than nine months from the end of the relevant tax period.

What information does the Form capture?

The CIT return form is designed to be comprehensive, ensuring accurate tax calculations and adherence to UAE tax laws. Here’s a breakdown of the key sections:

  • Taxpayer Information: This section gathers basic details about the entity, including its name, tax registration number (TRN), the tax period being reported, and the accounting basis used.
  • Elections: This section empowers businesses to make strategic choices that can impact their tax liability. Options include opting for Small Business Relief, which offers benefits for smaller companies, or excluding income generated by foreign permanent establishments (PEs) from their taxable income.
  • Financial Summary: This section dives into the company’s financial performance. It captures details like revenue, expenses, Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA), and most importantly, the net profit or loss before tax. This data forms the foundation for calculating the CIT liability.
  • Tax Computation: This crucial section takes the financial information from the previous section and factors in exemptions, reliefs, and non-deductible expenses. By applying the relevant tax rates, this section determines the final amount of Corporate Income Tax payable by the company.
  • Additional Information: This section serves as a catch-all for any additional information or supporting documents the tax authorities may require. Businesses should use this space to ensure complete transparency and compliance with UAE tax regulations.

Importance of timely and accurate submission

Filing the CIT return form accurately and on time is not just a formality; it’s a legal requirement. Failure to comply can lead to penalties. The UAE enforces a tiered penalty system, with fines starting at AED 500 per month for late filings during the first year, escalating to AED 1,000 per month thereafter.

The road ahead in the UAE tax landscape

The introduction of the CIT return form represents a significant step in the UAE’s ongoing efforts to build a robust tax infrastructure. This system facilitates businesses in meeting their tax obligations while contributing to the country’s economic development. As a business operating in the UAE, it’s crucial to familiarize yourself with the CIT return form and its requirements. By ensuring timely and accurate submissions, you can guarantee compliance with UAE tax regulations and avoid any potential penalties.

MS for your timely and accurate tax compliance

Our tax team at MS provides a hassle-free solution for all your tax needs. We expertly manage your Corporate Tax, VAT, and ESR to ensure seamless compliance and optimize your bottom line. By staying current with the latest UAE tax regulations, we guarantee accurate filings and minimize your risk of penalties. Our team identifies all available deductions and credits to help reduce your overall tax burden. Furthermore, we offer strategic tax planning advice tailored to your business goals, enabling you to make informed decisions that maximize long-term profits.

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FTA Issues VAT Clarification on SWIFT Messages for Financial Sector Tax Recovery

FTA Issues VAT Clarification on SWIFT Messages for Financial Sector Tax Recovery
The Federal Tax Authority of the UAE has released VAT Public Clarification offering directives on using SWIFT messages for both VAT documentation and the recovery of input tax.

The Federal Tax Authority of the UAE has released VAT Public Clarification offering directives on using SWIFT messages for both VAT documentation and the recovery of input tax.

The UAE financial institutions are treated as engaging in self-supplies when availing of interbank services from foreign banks. This means they must handle VAT obligations as if they were the service providers, including fulfilling all tax-related duties and generating tax invoices for the services received. However, SWIFT (Society for Worldwide Interbank Financial Telecommunications) messages, commonly used to document international bank charges and their underlying transactions, might not satisfy the required criteria to be acknowledged as tax invoices for UAE VAT compliance. But On February 5, 2024, the United Arab Emirates Federal Tax Authority (FTA) issued VAT Public Clarification VATP036 that addresses the use of SWIFT messages for VAT documentation and input tax recovery, initially focusing on the Financial Services (FS) sector but potentially impacting companies across various industries.

The question is, what made FTA simplify the process?

The FTA emphasizes that due to the substantial volume of SWIFT messages received, mandating Financial Institutions to self-issue a tax invoice for each SWIFT transaction would be impractical. Hence, the FTA introduces a simplification measure. If a SWIFT message, termed a “Qualifying SWIFT message,” includes adequate information to ascertain the details of the supply, UAE Financial Institutions are exempted from self-issuing tax invoices for interbank services received from non-resident banks when such SWIFT communications are received. Consequently, for input tax recovery purposes, a SWIFT message is deemed acceptable documentary evidence if it provides the necessary particulars of the supply.

A SWIFT message becomes a ‘Qualified SWIFT’ message if it includes;

• Name and address of the non-resident bank (SWIFT sender/supplier).
• Name of the UAE financial institution receiving the service (SWIFT receiver/customer).
• Date of the transaction.
• SWIFT message reference number.
• Transaction reference number.
• Description of the transaction.
• Consideration charged, and currency used.

Let’s explore who stands to gain from this simplification;

Financial Services Sector: The provided clarification serves as a beneficial simplification for the UAE FS sector, reducing administrative burdens. Businesses within this sector need to assess whether their exchanged SWIFT messages meet the criteria of a “Qualifying SWIFT Message” to benefit from this simplification. Adjustments to existing documentation and governance may be necessary to take full advantage of this provision.

Potential Broader Industry: The FTA explicitly states in the Public Clarification that, for service imports, the recipient must issue a valid tax invoice to itself, as the VAT legislation places the responsibility for “all tax obligations” on the recipient. If this clarification is intended as a general statement, it implies that any UAE business importing services, regardless of industry, would be obligated to self-issue a tax invoice to comply with UAE VAT invoicing requirements. This additional requirement, along with reporting output tax and recovering input tax if applicable, could become standard practice for all industries. Whether this self-invoicing mandate extends beyond the services discussed in this clarification remains to be cleared, as the FTA’s practical enforcement in various industries is yet to be determined.

How can MS help you with VAT Clarification on SWIFT Messages for Financial Sector Tax Recovery?

If you are uncertain about the appropriate course of action in the use of SWIFT messages for VAT documentation and input tax recovery, seeking guidance from experts like us could be a prudent decision. There’s a risk that the government might reject your request to claim the Input VAT if the documents did not have ample information. MS can make sure that you completely adhere to the regulations and make best use of the recent simplification.

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NEW! FTA introduces the “Raqeeb” Whistleblower Program

UAE FTA introduces a new mechanism, the RAQEEB Whistleblower Program for tackling tax violations and evasions.

  • The new programme will provide a framework for the FTA to review, and process leads relating to tax non-compliances. It includes monetary rewards for informants to encourage members of society to report tax non-compliance.
  • The FTA has released a guide to better understand the programme and procedures.

 

SCOPE

The leads covered under the Raqeeb Programme include suspected tax evasion (VAT and EXCISE TAX) and suspected non-compliances with tax procedures such as invalid tax invoices incorrect amounts mentioned on tax invoices. The programme does NOT cover Economic Substance Regulation (ESR) non-compliance.

The whistleblowing form cannot be submitted anonymously to ensure validation of the authenticity of the information received. However, confidentiality provisions have been put in place and the identity of the informant will remain confidential and protected by the FTA.

CONDITIONS FOR MONETARY REWARDS

  • The information provided is credible and not obtained by FTA previously;
  • The whistleblowing form is filled accurately and completely;
  • The tax amounts collected from the reported business exceed AED 50,000;
  • The reported person has exhausted all forms of objections and appeals.

It is pertinent to note that FTA employees and their relatives up to forth degree of consanguinity will not be eligible for monetary rewards. However, they will still be able to report non-compliances under this programme.

IMPACT OF THE NEW PROGRAMME

  • The introduction of the Whistleblower program has a significant impact on businesses in UAE. Businesses should rectify any identified errors or omissions at the earliest voluntarily before any stakeholder reports the non-compliance to the FTA.
  • Further, the businesses should have regular checks and reviews to ensure that they are in compliance with the VAT and Excise Tax laws.
  • An inspection/ audit from FTA under the Whistleblower program may increase the possibility that any errors by the business will be treated as tax evasion, potentially resulting in higher penalties and imprisonment.
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10 Essential Things To Know Before Filing Your VAT Returns!

HERE ARE THE 10 ESSENTIALS TO KEEP IN MIND BEFORE FILING YOUR VAT RETURNS IN THE UAE !

Confusion or lack of knowledge when dealing with the United Arab Emirates’ Value Added Tax may result in incorrect filings and potentially expose your business to penalties.

As a business leader or entrepreneur, you must ensure your business is aligned with local regulations at all times.

To avoid facing any issues with the Federal Tax Authority (FTA), here are 10 key tips to take note of, as you present your VAT Returns

1. Three Calendar Months as the Standard Tax Period.

The standard tax period applicable to a taxable person shall be a period of three calendar months ending on the date that the Federal Tax Authority (FTA) determines. Such a period would be different for each entity.

2. Tax Returns Submission Date

A Tax Return must be submitted online to the FTA no later than the 28th day following the end of the Tax Period concerned (or by such other date as directed by the FTA). VAT payment must also be reflected in the FTA portal no later than the 28th day following the end of the Tax Period concerned. If the 28th of the month falls on a weekend or a national holiday, the deadline for filing the VAT Return or making a payment is extended to the next business day.

3. Emirate-specific VAT on Sales

The VAT on sales must be reported emirates-wise. That is, the standard-rated supplies are reported separately for Abu Dhabi, Dubai, Sharjah, Ajman, Umm Al Quwain, Ras Al Khaimah, and Fujairah.

4. Zero-rated Supplies & Exempt Supplies

The zero-rated supplies and exempt supplies do not have any effect on the VAT Amount; they must both be reported to the authority through the periodical return submissions.

5. Maintaining Documentation for Exports Goods

Though the exports of goods get reported as zero-rated, the UAE VAT regulations stipulate that a business must maintain export documents issued by the local Emirate Customs Department in respect of Goods leaving the state. The commercial evidence shall include airway bill, bill of lading, consignment note, certificate of shipment, etc.

6. Import of Services Reporting

Import of services must also be reported under the reverse charge mechanism. This implies the VAT amount must be shown as both liability and an asset. The input VAT could be claimed as a credit only when all the compliance requirements set by the FTA are fulfilled.

7. Foreign Currency Transactions Reporting

The foreign currency transactions are to be reported in AED as per the UAE Central Bank Rate. The official website of the central bank of UAE provides the exchange rates against UAE Dirham for VAT-related obligations.

8. Recovering VAT on Input Expenses

VAT on input expenses can be rightfully recovered only if the invoice is fully compliant according to the requirements set by the regulations and the clarifications from the authorities. The compliance requirements are separately clarified for a simple tax invoice and a full tax invoice.

9. Recovering Input Tax & Conditions

Input tax must be recovered in the first tax period, provided two conditions satisfied:

  • a) The tax invoice is received; and
  • b) Consideration is paid or an intention to make the payment of consideration of the supply before the expiration of six months after the agreed date of payment.

If the input tax is not recovered in the tax period under which both conditions are satisfied, the taxable person can only recover the input tax in the immediate next tax period. If tax input isn’t recovered during any of the first two taxation periods, then taxable entities are required in submitting a voluntary disclosure.

10. Keeping Records for 5 Years

The VAT Registered individual or business must keep the required records for a minimum of 5 years (15 years in case of real estate owners) after the end of the tax period to which those records relate. However, there could be specific cases where the FTA may require the person to retain the records for a further period.

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Tax Penalty Deadline Extension

Good news tax registrants! The Federal Tax Authority (FTA) has stated on Monday 24th January 2022, to extend the grace period for the re-determination of administrative penalties on violating tax laws until 31st December 2022.

That is to benefit from Cabinet Decision No.49 of 2021. Those tax registrants who were not able to fulfill the conditions to benefit from re-determination before 31st December 2021, can now fulfill the conditions before 31st December 2022.

The UAE Cabinet’s decision stated that the amount of total unpaid penalties that were imposed before June 28, 2021, equal to 30 percent of the total unpaid penalties, provided the conditions set by the Cabinet are met. The FTA will determine the procedures for implementing the provisions related to the re-determination of administrative penalties for tax law violations. A maximum of 30 business days from the date specified in the Cabinet Decision will be allowed for redetermination of administrative penalties on tax registrants imposed by the FTA.

Such a decision has been made to provide an opportunity for the business sector to benefit from the reduction of penalties and reducing burdens on them due to the pandemic and to amplify their abilities in contributing to more growth of the national economy. This decision is also a part of the FTA’s goal to provide a legislative environment that encourages a high level of tax compliance.

Highlighting the eligibility of the tax registrants, it added that:

Firstly, the administrative penalty should have been imposed before June 28, 2021, and the amount due was not settled in full before that date.

Secondly, the tax registrant has settled all payable taxes by 31 December 2022.

Thirdly, the tax registrant has also settled 30 percent of total unpaid administrative penalties no later than 31 December 2022.

The FTA explained that the actual penalties imposed as a result of the re-determination of administrative penalties are already reflected in the accounts of many eligible tax registrants who have met the conditions stipulated in Cabinet Decision No. 49 of 2021 on amending some provisions of the Cabinet Decision on Administrative Penalties for Violation of Tax Laws in the UAE, which came into effect on 28th June 2021. For such registrants, the new values after re-determination appeared on the accounts of registrants on the FTA’s e-Services portal; registrants were also informed by emails that the re-determination process had been completed.

The Arab world’s second-biggest economy, the UAE is carrying out economic, legal, and social structural reforms aiming at strengthening its business environment and attracting foreign investment. UAE’s vat and tax amendment penalty rules change from time to time to aid businesses and motivate companies to expand their operations in the country. MS accounting & tax consultants in Abu Dhabi can keep your business up to date with VAT and tax rules alterations and handle your VAT registration and VAT filing processes in the UAE.