How Startups in the UAE Can Simplify VAT Return Filing?

It is important to put the right systems and processes in place from the beginning for startups in the UAE to simplify VAT return filing.

It is essential for all the VAT-registered businesses to file the VAT returns with the Federal Tax Authority (FTA) to avoid penalties. UAE VAT registration is mandatory for all such businesses that make taxable supplies or imports exceeding AED 375000 in the past year or in the next 30 days. However, for the businesses that exceed AED 187500, voluntary registration is an option. The startups that do not reach the turnover mandatory for VAT registration still have the option to register voluntarily.

Why is VAT return filing important for startups?

The VAT return filing is useful for startups because of all these reasons.

• Help to build trust and credibility.
• Maintain VAT compliance
• Prepares startups for future growth
• Help in avoiding penalties.
• Recovers the input tax
• Proper record keeping
• UAE FTA compliance

So, by filing VAT returns, the businesses can easily get tax accuracy, and it is also essential for a startup’s financial health.

What are the key challenges startups face in VAT filing?

The startups face challenges in VAT filing due to different reasons. A few of such reasons are mentioned below:

•     Delay in filling and payments

The startups sometimes miss the deadlines for VAT filing due to delayed filing, and they may face significant fines from the FTA.

•     Incorrect VAT calculations and invoicing.

Different VAT errors, like mistakes in VAT calculations, issuing non-compliant VAT invoices, or applying wrong rates, result in penalties.

•     Lack of expertise in complex VAT rules.

Lack of expertise in intricate VAT laws is also a challenge for startups because sometimes it leads to incorrect input tax claims.

•     Incorrect financial record-keeping.

Startups may struggle with incomplete records or disorganized data that would result in errors at the time of claiming input VAT.

•     Lack of proper documentation.

At the start, maintaining proper documentation is a challenge for businesses.

•     Burden to comply with VAT regulations.

For startups, it is a burden to comply with the complex VAT rules because of a lack of awareness of it.

•     Accounting software issues.

Sometimes businesses also face accounting software issues, due to which VAT filing becomes challenging.

Different steps to simplify VAT return filing for startups

Breaking the process into different steps can help startups to simplify VAT filing because, for many startups, this can be confusing. Online VAT submission can be done through the FTA portal. So, here is an easy VAT filing process.

Step 1 – Maintain proper financial records

It is important for the startups to maintain a detailed record of taxable transactions for the filing period. It includes:

Standard VAT invoices issued for sales

• Standard-rated sales.
• Sales transactions with VAT-registered businesses.
• Exempt items and exports.
• Zero-rated sales.
• Other sale transactions.

VAT invoices received from purchases

• VAT deferred and paid at customs and imports.
• Exempt or zero-rated purchase.
• Purchases from non-VAT registered suppliers.
• Local purchases at standard rates.
• Other purchases.

Add to this, invoice management and maintaining accurate accounting records are mandatory. This includes VAT invoices and expense tracking.

Step 2 – Use Reliable Accounting Software

It is also important for startups to use reliable accounting software to help automate the VAT calculation, record transactions, and generate reports more easily. It also helps in automated VAT filing and saves time. Startups need to use the FTA-compliant software and VAT accounting software to ensure that VAT returns are accurate. This software is also helpful for cloud accounting, digital bookkeeping, and real-time VAT tracking.

Step 3 – Completely understand tax periods and deadlines

In order to stay compliant, startups need to understand their VAT tax period and submission deadlines. So, the taxable businesses must file returns within 28 days of the end of the taxable period with FTA. The taxable period is defined for each type of business. Such as:

• Quarterly VAT period applies to such businesses whose annual turnover is below AED 150 million.
• Monthly VAT filing is required for businesses whose annual turnover is AED 150 million or more.

However, FTA assigns a different tax period for certain types of businesses. And in case of failure to file VAT return on time, the violator is liable for fines according to the provisions of Cabinet Resolution No. 40 of 2017 on Administrative penalties for violation of tax laws in the UAE.

Step 4 – Review VAT calculations prior to filing.

It is important for businesses to review all VAT calculations carefully before submission. You need to check your output VAT, input VAT, and any other adjustment entries, as it helps to ensure accuracy and prevent errors.

Step 5 – Submit VAT return through the FTA portal

Businesses are required to review the tax calculation before filing the VAT return. So, to calculate the VAT, you need to access the FTA e-service portal for VAT filing online. This portal will guide you through the electronic VAT return form, where you need to enter the required details for VAT calculation. Such details are:

• Registration number of VAT.
• Period of tax (monthly or quarterly).
• VAT on sales.
• VAT on purchases.
• Calculated amount of VAT payable or refundable.

Review all the data and then submit it, and after the FTA review process, you need to clear the payment of VAT liability if applicable. And in the end, you will get the VAT confirmation receipt.

Step 6 – Pay VAT liability punctually

In the end, businesses need to pay off their VAT payment in the UAE before the VAT payment deadline. They may pay it by using different methods like bank transfer, eDirham, and online tax payment. For this, you need to access the FTA payment portal.

Some common mistakes to avoid during VAT filing

Here are some common mistakes that businesses need to avoid during VAT filing.

1. Incorrect VAT calculations.
2. Late payments and late VAT filing.
3. Claiming incorrect VAT inputs.
4. Incomplete or missing invoices.
5. Missing and duplicate transactions.
6. Not maintaining proper financial records.
7. Using the wrong VAT rates.

In case of these errors and mistakes, the business may face fines and penalties. So, it is important for them to hire a professional VAT consultant.

Penalties for Incorrect or Late VAT Filing

Under the FTA in the UAE, there are penalties and fines for incorrect or late VAT filings. Such includes:

• Missing the deadline or a late VAT filing penalty

For the first offense, it is a 1000 AED fine, and for repeated violations, it is a 2000 AED fine.

• Incorrect VAT return submission

The fixed fine in many cases is AED 1000 for the first time. And for repeated offense, it is AED 2000.

• In case of failure to maintain proper records.

Non-compliance charges of 10000 AED for the first and 50000 AED for repeated offences.

• Failure to issue VAT-compliant invoices

In case of failure to comply with the UAE tax authority rules and incorrect invoice, a fixed penalty of 5000 AED is imposed.

How can startups easily automate VAT compliance?

By following these guidelines, startups can easily automate VAT compliance.

• First of all, use reliable accounting software and AI-based VAT tools.
• Integrate the software with the FTA e-service.
• Now automate the invoice management for VAT automation.
• Schedule the VAT filing and automated reminders.
• Reconcile input and output VAT automatically.
• Generate e-reports for compliance tracking and auditing.
• Also consider a cloud VAT system.

Why is it important to hire a professional VAT consultant in the UAE?

It is important for startups to hire a professional VAT consultant so they can easily avoid errors and penalties. Hiring a professional VAT consultant UAE ensures:

• Accurate VAT calculation.
• Easily handle complex transactions.
• Full compliance with FTA rules.
• Optimize the VAT recovery.

These VAT firms support businesses with their experience and expertise.

FAQs

Q1. How to file VAT return in the UAE?

2. VAT return is easily filed online by using the FTA e-service portal. First of all, they need to gather the record of taxable transactions and calculate the VAT liability, and then complete the electronic VAT return form and submit it. In case of any VAT payment due, they need to pay online.
   Q2. What is the VAT filing deadline?
   A. After the end of the tax period, the businesses need to file their VAT return and pay the due VAT within 28 days.

Q3. What are the Startup VAT requirements?
A. If the taxable supplies and imports exceed AED 375000 in a year or are expected to increase in the next 30 days, then VAT registration is mandatory.

Q4. How to correct VAT return errors?

1. First, you need to determine the type of error, whether it is minor or significant. The minor errors can be corrected in the next VAT return, while significant errors must be reported to FTA and are corrected with an adjustment using the voluntary disclosure form.

Q5. What are the different VAT payment methods in the UAE?

1. There are different VAT payment methods in the UAE that include bank transfer, online payment, and eDriham.