A company is required to list the details of sales, purchases output VAT, and input VAT paid over the past quarter or month as the case may be. The output VAT is the amount of tax collected on the company’s sales, and the input VAT is the amount paid to the supplier towards purchases and expenses. A VAT refundable position occurs when the input VAT exceeds the output VAT. The taxpayer can either request a VAT refund or alternatively carry forward the excess or VAT credit to subsequent tax periods, which can be offset against the future payable tax or penalties, or they can apply for a refund later at any point in time.
In order to be eligible for a VAT refund, the following conditions need to be complied with:
- The business has to be registered under VAT.
- The traders/businesses must charge VAT reasonably. The inappropriate VAT charged on goods and services shall not be refundable.
- Proper VAT invoices must be presented to authorities for claiming input tax returns.
- Amount paid or payable after six months of supply date is not eligible for refund claims.
In order to claim the excess VAT back, an option will be available on the tax return to request a refund. The VAT refund will be acknowledged as payable by the FTA within 20 days and the amount repaid once the claim is accepted.
What are some of the myths about VAT refunds in the UAE?
|1||All customers can claim a refund on VAT||End customers cannot claim an input VAT refund|
|2||Refund is available on the excess of all amounts paid or payable over amounts received or receivable||Amount paid or payable after six months of supply date is not eligible for refund claims.|
|3||The VAT shall be refunded automatically in the case of excess VAT paid over received||A VAT refund has to be specifically applied for|
|4||A foreign company can claim any amount as refund||The minimum amount of VAT that may be claimed is AED2,000 (USD544)|
|5||There are various VAT Refund Schemes available under the UAE Vat Law wherein only registered persons can also get benefit out of it||Vat Refund Scheme for UAE Nationals are available to those who are building new residences in the UAE irrespective of whether they are registered or not|
|6||VAT refund is available on exempted products and services||Any input tax charged for goods and services in the exempted category is non-refundable. Exempted supplies include local transport, financial services like life insurance as well as zero charge financial services|
|7||All businesses in the GCC can claim a VAT refund under the Foreign Business VAT Refund Scheme in UAE||A business that is registered and located in a Gulf State where VAT is not in practice, as of now, can claim VAT refund under this scheme. This includes all the GCC member States, except for Saudi Arabia and the UAE|
What are some of the best practices that SMEs can apply to process for VAT easily?
SMEs are encouraged to review their existing operations, financial management, and book-keeping and try to understand the implications of VAT now through the help of professional advisors.
The VAT regime requires SMEs to maintain proper books of accounts irrespective whether they are eligible for VAT or not. The books should be prepared for adapting the accrual accounting method. SMEs in the UAE will need to record their financial transactions and ensure that their financial records are accurate and up to date.
Proper training programs
All staff should be trained on VAT, specifically on its impact on their area of responsibilities. Staff would need to know how to explain to customers and suppliers on the requirements of VAT and how it affects business transactions.
Proper cash flow management
In order to ensure that adequate funds are available to pay off the VAT liabilities, it is essential that a good and robust cash flow management system is in place. This is particularly important since there can be a timing lag between invoicing for service and getting the payment, especially in the case of delays. A good practice would be to keep aside a certain percentage of revenue in a separate bank account which cannot be accessed very easily. Also, asking customers to make partial or full payments upfront will go a long way in ensuring there is adequate working capital for the business.
Invest in a reliable accounting system
A proper accounting system can ensure the integrity of the numbers churned out. It is recommended to opt for VAT compliant software that can automatically compute the VAT liability of a business.
Book a discussion session with Xcel accounting and we’ll help you with VAT refund.