VAT Audit: Fixed the errors in VAT implementation and VAT registration

VAT Audit: Fixed the errors

The FTA (Federal Tax Authority) introduced VAT in the UAE on 1st January 2018. As per the rules and regulations, every company whose annual turnover is above AED 375,000 must implement VAT.

For VAT implementation, VAT registration is a must for every company. Every company needs to follow a standard format for creating invoices. Also, one needs to file a return carefully.

As per the FTA, VAT supplies fall under two sections – Exempted and Taxable Supplies.

A 5% VAT applies to taxable supplies with a standard/total rate, while 0% taxes apply to zero-rate supplies. Exempted supplies are exempt from taxes, and it is vital to assess to classify supplies correctly to apply the correct tax rate.

In this current case study, the reader will find out about the various VAT-related issues experienced by the company which deals with gas distribution. They reached out to us in January 2019, one year after the VAT implementation in the UAE. This case study explains how N R Doshi and Partners solved those issues, saving the company from huge penalties. Note that we created a detailed process and adhered to deadlines to receive quick, visible results.

The Challenge:

The group company had three entities, but only two were visible under group registration, and the company had not registered the third entity under VAT. Moreover, the company had only registered one under individual registration out of these two registered entities. Note that a company cannot register a single entity twice.

Vendors who were dealing with the company were providing incompliant invoices. Moreover, even the company’s invoice format was not as per the VAT rules and regulations.

The company had omitted some of its supplier details while reporting VAT. However, they didn’t appear under exempted goods and items list.

When the company filed a return for the same entity, it claimed the tax amount twice; first, from the group registration and second from the individual registration.

The company received an advance amount before 2018 from its customers to whom we provided the service post-2018. In these sorts of transactions, VAT implementation is a must and paid on 1st January 2018.

As you can see, companies need to resolve several issues must be solved before the authority detects them. If the authority had recognized it before us, the company needed to pay penalties, which could have cost it a fortune.

Fortunately, the company contacted us before the authorities caught hold of them. We accepted the challenge and conducted a detailed exercise to ensure compliance with the UAE VAT system.

Challenge Accepted:

First, we had to understand the company’s structure. We initiated the registration process of the third entity under the group VAT registration. Also, we started the deregistration process for the entity registered under group and individual registration. Our next task was to deregister the entity from individual registration and show it under group registration.

We checked the invoices sent by various vendors and found the following information missing:

  • There was no mention of the exchange rate, and information related to the tax rate was not visible.
  • The quantity of each line item was missing.

This makes the invoices incompliant as per article 59 of executive registration number 52 of 2017. Therefore, we suggested the company ask the respective vendors to provide compliant invoices.

Similarly, the invoices they produced while delivering their service to their customers were not per the authority’s instructions. Our team had to reissue all the invoices before filing the return, and we detected the following errors while inspecting the invoices.

  • No mention of the exchange rate.
  • No information about customers’ TRN numbers.
  • The exchange rate which the backend team used was incorrect.
  • The exchange rate was not what the Central Bank of UAE notified.

Upon further inspection, we discovered that the client had twice claimed tax for one entity, and we also discovered other inaccuracies. On top of that, our challenge was to calculate and revise the chargeable & claimable VAT.

We advised the client to report outward standard-rated supplies based on the establishment that supplied materials instead of the customer’s estimates.

Another major challenge we faced was making adjustments for import goods as the custom fields considered VAT part of the CIF value.

Hence, we suggested that the client offer VAT on the difference in income as per the working reconciliation of VAT return with books of accounts. Additionally, we advised the client to reverse charge the transactions in the books of accounts that they had not considered earlier.

We had noted that a particular employee was on the payroll of a tax group member, but he was exclusively working for a non-tax group company. The tax group member was not charging VAT for the workforce supply to the non-tax group member. We found that out and asked them to make the necessary changes.

Similarly, the tax group member paid some expenses on behalf of a non-tax group member and claimed the input tax credit. The tax-group member-created no corresponding VAT invoice, and hence we could not recover from the non-tax group member. We asked the client to rectify the mistake.

We discovered the total advance that customers had paid before 2018. Later, we calculated VAT on the entire amount, which increased the total VAT output. Then we also added it to the total liability.

After this, we filed a voluntary disclosure informing the authorities about the errors and omissions made.

Conclusion:

NR Doshi & Partners provided the company with a proper registration under a single group VAT registration with three separate entities. Furthermore, we also obtained the correct invoices from the vendors. Also, we detected errors in the invoice format that the company used.

The Federal Tax Authority would have imposed numerous penalties on the company for non-compliance had we not submitted the voluntary disclosure.

N R Doshi’s VAT Consulting Service

VAT implementation and compliance become easy if you have a reliable VAT auditor to assist you.  N R Doshi & Partners has a team of VAT Auditors who have provided VAT Audit Services in Dubai to numerous entities. As the registered tax agent with the federal tax authority, we provide you with all types of assistance in VAT Audit Services in the UAE.

We ensure that the VAT implementation process is as smooth as possible. Furthermore, we also provide VAT training to your employees, prepare VAT reports, and file VAT returns for your company.

Remain VAT compliant and save yourself from penalties.

We assure the correct VAT implementation on every aspect of your business through our reliable VAT Audit Services in Dubai.

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