Filing VAT returns is a mandatory requirement for all VAT-registered businesses in the UAE. The VAT return process can seem complex, especially for businesses new to VAT, but breaking it down into manageable steps makes it simpler.
What is VAT Return Filing? VAT return filing is the process by which businesses report to the FTA the amount of VAT they have charged on sales (output VAT) and the amount of VAT they have paid on purchases (input VAT). The difference between these two amounts is the VAT payable to the government or the VAT refundable to the business.
When to File VAT Returns: Most businesses in the UAE are required to file VAT returns on a quarterly basis, though some larger businesses may file monthly. The deadline for filing VAT returns is 28 days after the end of the tax period.
For example, for the tax period ending on September 30, the VAT return must be submitted by October 28.
Steps to File VAT Returns:
- Calculate Output VAT: Output VAT is the VAT that your business has charged to customers on its sales. This includes sales of goods, services, and any other taxable activities. To calculate this, sum up the VAT charged on all invoices issued to customers during the tax period.
- Calculate Input VAT: Input VAT is the VAT that your business has paid on purchases. This includes any VAT charged on goods or services purchased for business use. Make sure to include VAT on capital expenditures, rent, utilities, and other operational expenses. Input VAT can only be claimed if you hold a valid tax invoice for the purchase.
- Prepare the VAT Return Form: The VAT return form, available on the FTA portal, includes fields to report both output and input VAT. The form will calculate whether your business needs to pay VAT to the FTA or claim a refund.
- Submit the VAT Return Online: Once you have completed the form, submit it through the FTA portal before the deadline.
- Pay Any VAT Due: If your output VAT exceeds your input VAT, you will need to pay the difference to the FTA. Payment can be made through various channels, including online banking, credit card, or bank transfers.
- Request a VAT Refund (if applicable):If your input VAT exceeds your output VAT, you can request a VAT refund through the FTA portal.
Common Mistakes to Avoid When Filing VAT Returns:
- Incorrectly Categorizing Sales: Some businesses mistakenly apply the wrong VAT rates to their sales, especially when dealing with a mix of zero-rated and standard-rated goods.
- Forgetting to Claim Input VAT: Failing to include all business expenses, such as utilities or small purchases, can lead to lost VAT refunds.
- Submitting Late: Missing the filing deadline can result in penalties. It’s important to set up reminders and file VAT returns well before the due date.
Penalties for Incorrect Filing:
- Incorrect or late filing can result in penalties of up to AED 2,000. Additionally, businesses may face penalties for failing to pay VAT on time, which can include interest on late payments.
Best Practices for VAT Return Filing:
- Keep All Receipts and Invoices: Ensure that you keep a record of every business expense and income to support your VAT return.
- Use VAT-Compliant Accounting Software: Automating your VAT return filing process can help reduce errors and ensure compliance.
- Reconcile Your VAT Accounts Regularly: Regularly reconciling your accounts can help catch any errors or discrepancies before filing.
By staying organized and using the right tools, businesses can simplify the VAT return filing process and avoid costly mistakes.
