VAT’s introduction is now a vital concern for companies in UAE as they try to prepare for it. Preparing for VAT is advisable for operational effectiveness, adhering to compliance, financial penalties associated with non-compliance, managing cash flow, the risk to goodwill, etc. VAT will apply to most goods and services except a few exempted ones.
A proper bookkeeping system is now inevitable for the companies in UAE as self-assessment is one of VAT’s main features. Every VAT registered business must record, assess and report its VAT obligations according to the existing laws. If they cannot do it themselves or lack the resources for the same, they can contact an agency that provides bookkeeping services.
What are VAT’s basic requirements? Let us look at the points below.
- VAT Registration, whether mandatory or voluntary
- Filing of periodic VAT returns with the tax authorities (either monthly or quarterly)
- Remitting any VAT payable by a specific date
- Record Keeping of all business transactions
There is little awareness regarding maintaining proper accounting records while now it’s recommended to do so because;
VAT is a transaction level TAX – Although the standard rate is 5%, some transactions will be either zero-rated or exempted. VAT must be verified and accounted for each transaction. It is important because transaction-based tax, and a proper accounting system helps identify the impact of VAT on each transaction.
Calculating and Reporting VAT – A VAT registered business must charge and remit VAT collected to the Tax authorities periodically. Proper maintenance of VAT charged on supplies and paid while purchases help to analyze the net VAT payable to the authority.
Claiming of input TAX credit – If a business sells or supplies zero-rated goods or services, it can claim input TAX credit that it has paid while its purchases. To claim the input tax credit, proper documentation and record maintenance are crucial. It is important in convincing the tax authorities in the future.
Problem of managing the cash flow – If you aren’t managing your books of accounts, it will be difficult for you to understand how much refund must be claimed, which might lead to a problem with cash flow.
Supportive for VAT Audit – The tax authorities would conduct periodic audits. Businesses often struggle to address questions raised by the authorities during the audit in case of insufficient documents to support their claims. This may lead to penalties for non-compliance with the VAT laws.
Therefore, a proper bookkeeping and accounting system is now inevitable for all the business houses, whether small or large.
Do you need help with VAT, accounting, or bookkeeping services in Dubai/UAE? Get in touch with us at firstname.lastname@example.org.