UAE VAT health check will guarantee its adherence to FTA requirements. The knotty topic of VAT in the UAE affects every aspect of a business.
Different firms of various sizes and types must deal with a variety of VAT-related complications. Businesses must ensure VAT compliance to avoid fines and penalties from the Federal Tax Authority in order to operate efficiently.
UAE VAT Health Check: What Is It?
Making sure everything complies with FTA laws and regulations is the taxpayer's obligation. A VAT health check is a form of VAT audit that examines and evaluates previously submitted returns and refunds to find risks and faults in the Value Added Tax.
Regular VAT audits are carried out by FTA authorities at various UAE enterprises. If the FTA auditors discover a mistake or error in your VAT, your company will be fined.
Why Is It Necessary to Perform a UAE VAT Health Check?
A registrant shall conduct a Tax Health Check to identify areas where compliance and controls need to be tightened and eliminate any potential for error in the future. This is done to ensure that the tax records, procedures, and reporting are in conformity with the UAE VAT laws.
The most critical areas will be revealed by a top-notch health check. To halt the non-compliance and stop it from happening again, corrective steps must be planned.
A registrant can ensure increased compliance with VAT laws and regulations by doing a complete health check. An examination of sales and purchase invoices, import and export reporting and documentation procedures, and the reporting of sales in the appropriate boxes in return are all included in the health check.
After giving the registrant notice via notification, FTA may begin an audit. The registrant won't be able to determine the scope of FTA's review or the degree to which it will be scrutinized based on the industry in which the company is classified and the local business practices.
Also Read About: Amendment in the UAE VAT-Effective from 01.01.2023.
How Can I Get Ready for a UAE VAT Check/ Audit?
Based on their prior work, tax auditors may focus on the critical areas listed below to assure compliance.
Reconciliation of the Trial Balance and VAT Return
The FTA has access to the value of all taxable supplies through the accurate sources of data that are the VAT returns filed for each tax period. The officer can review these details to see if any taxable revenue is missing from the return or if any input recovery amounts are excessive compared to the actual costs incurred.
It's also possible that some extra money was earned but wasn't reported on the VAT return or in the tax filing. When firms don't adhere to the rules of periodic closing, restricting back-dated entries, and maintaining reconciliation with returns, tax auditors can identify anomalies in the accounts very fast.
These inconsistencies can be considered taxable supplies if they result from reporting mistakes or if they are not promptly discovered and explained to the officer.
Documentation Supporting the Export of Goods for the VAT Check-UAE
The VAT law stipulates that if items are exported with official and commercial documents, they must be treated as zero-rated. The necessary export papers, particularly departure certificates, are now not obtained by many enterprises in the UAE for the commodities shipped.
For a variety of reasons, such as exporting in small packages or aggregated exports, not being required by customs, not being provided by the logistic provider, and faulty document collecting, this documentation might not be available. The VAT law stipulates that official documents must include an export document issued by the customs office; thus, those defenses may not be accepted by the tax authorities.
In a similar situation, the officer may ask the taxpayer to consider each shipment of products as a local supply and account for its impact on taxes. The proper documentation must be provided by businesses in order to comply with the zero-rating of exported goods.
Analyzing the Tax Laws for a UAE VAT Check
The auditors also look for inconsistencies in the company's tax treatment procedures, such as standard rates reported as zero-rated or exempted, deemed supplies, related company transactions that are not considered taxable supplies, taxable supplies that are believed to be outside of the purview of the audit, etc.
To ensure compliance, businesses in industries with different VAT rates, such as real estate, healthcare, education, transportation, and electronic services, may need to review the tax legislation.
Also Read About: Which Company is the Best VAT Service Provider in the UAE?
Recovering Input Costs for Personal, Amusement, and Transportation-Related Fees
As long as they have the tax invoice and the payment is completed or agreed to be made within six months, taxable individuals who make taxable supplies are eligible to deduct the input related to the costs of those supplies. Some constraints on input recovery include the use of a vehicle, a telephone, entertainment costs, and personal expenses.
These restrictions are a result of possible input being claimed as personal expenses or are based on legal constraints. In order to identify the expense heads and assess whether input recovery should be disallowed, the tax officer will look at the trial balance and the working file for the VAT return filing.
Proof of Payment for Expenses Must Be Provided During the VAT Check-UAE
The taxable person must have paid the taxable expenses within six months or have stated their intention to do so in order to qualify for input recovery. During the audit, the tax officer may ask for payment evidence, such as a supplier-issued receipt voucher or a bank statement entry, to verify the payment to the supplier.
Businesses occasionally claim input on expenses without paying the supplier due to a variety of reasons, including conflicts, long credit terms, discounts, cash flow problems, etc. If the tax auditor finds a circumstance where input VAT is recovered without making the payment or intending to make the payment, he may insist on reversing the VAT input.
Connect with Us for More Information on the Audit/ VAT Check-UAE
The UAE VAT audit is more of an exhaustive work undertaken by the authority to safeguard the federal government's revenue streams and monitor the registrants' tax compliance. Heavy fines are imposed for breaking the pertinent laws and regulations set forth by the Ministry.
The only proactive way is to get ready for the audit by performing a UAE VAT check to make sure that regulations are followed and that there are adequate procedures in place to catch any non-compliance in the event that it occurs. Contact us for your UAE VAT health check, and we'll be glad to assist.