Preparing and submitting tax reports in the UAE
This article is dedicated to preparation and submission of tax reports in the Arab Emirates by businessmen who decided to establish a company in the UAE.
The Federal Tax Authority regulates fulfillment of obligations on calculation and payments of taxes in the UAE. “Tax Audit” is the process of verification of commercial entries or other information regarding the commercial activity of taxpayers. In revelation of any breaches upon the results of audit, tax bodies execute the “Tax Assessment” (fiscal notice-decision) and usually oblige taxpayers to submit the “Voluntary Disclosure” (detailed calculation) to the declaration for the period with a discrepancy found. Meanwhile, penalty sanctions may be applied.
At the end of 2018, upon the results of tax assessment shopping malls and shops received the first notices regarding breach of the tax legislation, for the incorrect form of tax invoices. Later tax assessment was applied to taxpayers who addressed for VAT recovery.
Since March of 2019, there are held assessments of taxpayers who did not claim VAT recovery – tax bodies treat taxpayers very strictly; in occurrence of any discrepancies the word of law is interpreted in the state interests. As a result, taxpayers who cannot argument their positions suffer from big penalties.
Therefore, it is important to organize fiscal and bookkeeping accounting, as well as to fulfill the requirements of the tax legislation of the Arab Emirates on calculation and payment of VAT, before the arrival of tax bodies. Such approach will minimize risks of bearing penalties and chances of tax assessment.
Bookkeeping accounting in the UAE – what should you know about powers and obligations of representatives of tax bodies during a tax audit
Representatives of tax bodies have right for:
- accessing the premises of taxpayers;
- withdrawal of the necessary documents;
- marking of already checked assets;
- obtaining entries that are necessary for the audit.
Representatives of tax bodies are obliged to:
- timely notify taxpayers on the upcoming audit (only except cases defined by the law);
- notify taxpayers on the results of the audit in terms defined by the law.
Bookkeeping accounting in the UAE – what should you know about powers and obligations of taxpayers during a tax audit
Persons undergoing a tax audit have right to:
- ask tax auditors to provide ID cards;
- obtain the copy of the notification on tax audit;
- be present at the tax audit being held outside the territory of tax bodies;
- obtain copies of any originals of electronic or printed documents that were withdrawn or received by tax bodies during the audit.
Persons undergoing a tax audit in the UAE are obliged to:
- let representatives of regulatory bodies do the audit;
- provide assistance and cooperation to representatives of tax bodies during the audit;
- provide all the necessary documents and information for the audit.
What may be a reason for a tax audit in the UAE after opening a company in the emirates?
A reason for a tax audit can be:
- Breach of registration term by a VAT payer. In such a case, a reason of an audit will be the absent application on registration of the taxpayer within the defined period.
- Absence of tax accounting for the third parties.A taxpayer did not account the tax of the counteragent, when such an obligation was born by him.
- Breach of the term for submission of the tax declaration, as defined by the legislation of the UAE.
- Submission of the tax declaration with false/incorrect data.
- Non–payment of taxes.A taxpayer failed to pay the applicable tax stated in the tax declaration which was submitted in the defined term.
- Underpayment of tax. As a result of intentional avoidance of tax payment using any schemes, underpayment of tax occurs in a taxpayer.
Bookkeeping accounting in the UAE — what mistakes can be found during a tax audit?
The purpose of the tax audit is to identify discrepancy between the company activity and the legislation of the Arab Emirates.
Among the most expensive mistakes for taxpayers are those related to unauthorized deduction of VAT under the following expenditure articles:
- representation expenses;
- insurance of company employees and their dependants;
- expenses for housing provided for employees;
- using mobile connection for personal benefits;
- using the corporate transport for personal benefits.
Besides, the Tax Authority of the United Arab Emirates pays attention to:
- non-fulfillment of the requirements to forms of tax invoices;
- absence of accounting of capital assets;
- application of an unofficial exchange rate;
- services provided in benefit of non-residents using the 0% VAT rate without the necessary corresponding documents;
- application of special rules of delivery between countries GCC (these rules are not applicable yet).
You should also understand that verification of the sum of VAT recovery under results of the audit will not be the automatic certification of correctness of tax accounting and accepted positions of taxpayers.
Sometimes tax audits are only limited to checking the correctness of completion of the tax invoice, and do not include the evaluation of whether taxpayers had right to include such expenses in the VAT credit.
Preparation of tax reports in the UAE — the Tax Authority of the Arab Emirates may request documents and information for the tax audit
One of the methods tax bodies use to obtain information from taxpayers is sending the electronic request to the official email, which is stated during registration as a VAT payer. Usually requests are sent for provision of information:
- on monthly trial balances;
- on checked financial reports;
- on expenses;
- on reasons of making amendments to goods that are imported in the territory of the UAE under each of tax declarations;
- on import of each of tax declarations;
- on cleared deliveries on each of tax declarations;
- on sales using the 0% VAT rate on each of tax declarations;
- on deliveries using the mechanism “Reverse Charge” on each of tax declarations (imported services);
- on sales using the 5% VAT rate on each of tax declarations.
It should be noted that provision of information is also made through completion of a form that is attached by tax bodies to email. A form should also be completed for each reporting period, and then forwarded to tax bodies within 5 working days after receiving the request; this is practically impossible without optimization of the process of tax and bookkeeping accounting.
Because of lack of experience in taxpayer when preparing the data, breach of terms often occurs. This, in turn, results in significant penalties. By this very reason it is important to carry the process of report preparation by qualified specialists in the sphere of VAT. Feel free to ask our advice at: [email protected] .
Because of relative newness of the tax legislation of the Arab Emirates, there often arise disputes between representatives of tax bodies and taxpayers regarding interpretation of certain tax regulations. Mismatching positions does not always mean that the state is only right.
If you correctly state your own interpretation of the regulation and present it to state officials, you may expect a 90% success during a tax audit.