What is the VAT return?
VAT return is an official document to be completed by every Taxable Person and submitted to the Federal Tax Authority (“FTA”) at regular intervals detailing any output tax due and input tax recoverable and including any other information that is required to be provided.
Tax period and Tax Liability
The tax period is a specific period of time for which the Payable Tax shall be calculated and paid, either a standard period of three calendar months or on a monthly basis as determined by the FTA. If a taxable person is assigned the standard tax period, he may request that the tax period ends with the month as requested by him subject to the approval of FTA.
Tax liability is the difference between the output tax payable for a given Tax Period and the input tax which is recoverable for the same Tax Period. Where the output tax exceeds the input tax amount, payment of the difference must be made to the FTA. However, where the amount of input tax exceeds the amount of output tax, a Taxable Person is entitled to a refund of VAT from the FTA.
Sales subject to 5% standard rate
For the purpose of filing the VAT return, sales subject to standard rate will have to be classified on the basis of each emirate. As per general rule, the classification is based on the location of the supplier, that is, the location of the fixed establishment related to the sale. If the supplier has no fixed establishment, then the classification is based on the location of the customer. This is based on the Executive Regulations No. 72, paragraph 2 and 3, stated as follows:
Fixed Establishment is defined as “Any fixed place of business, other than the Place of Establishment, in which the Person conducts his business regularly or permanently and was sufficient human and technology resources exist to enable the Person to supply or acquire Goods or Services, including the Person’s branches.”
Standard rated expenses
As per Law, tax paid on most of the business expenses can be recovered. The following are certain expenses on which the related tax paid are non-recoverable in nature:
expenses where the input tax is specifically disallowed, such as entertainment costs, motor vehicles which are available for private use and any other costs which are put to private use
purchases that were purely for private or personal use
expenses which were incurred to make exempt or non-business supplies
In addition, for the purpose of filing the vat return, the following are excluded as part of standard rated expenses:
wages and salaries
money put into and taken out of the business by you
exempt or zero-rated purchases
purchases from members of the same tax group
gifts or donations of money freely given for nothing in return
fines and penalty charges received e.g. traffic fines
VAT Return and Payment Deadline and Penalties
The VAT return must be submitted no later than 28th day following the end of the Tax Period. Where payment is due to the FTA, the same deadline applies. Where the due date for the submission of the VAT Return and the corresponding payment falls on a weekend or a national holiday, the deadline for filing the VAT Return or making a payment is extended to the first business day thereafter.
If the VAT Return is not submitted within the specified timeline, a penalty amounting to AED 1,000 will be imposed for the first time and will be increased to AED 2,000 for each offense in case of repetitive non-compliance within 24 months.
On the other hand, if you fail to pay your VAT return before the due date, it would result in a late payment penalty consisting of:
1. (2%) of the unpaid tax immediately levied once the payment of Payable Tax is late
2.(4%) is due on the seventh day following the deadline for payment, on the amount of tax which is still unpaid
3.(1%) daily penalty charged on any amount that is still unpaid one calendar month following the deadline for payment with an upper ceiling of (300%)
VAT News UAE
Bank interest and dividends not subject to VAT in the UAE
The UAE’s Federal Tax Authority (FTA) has clarified that ‘passively earned interest income’ from bank deposits and dividend income are not subject to value-added tax (VAT) in the country.
There is no requirement to report them in the VAT return.
“VAT is imposed on the import and supply of goods and services at each stage of production and distribution, therefore, VAT implications arise only when there is a supply – if there is no supply, there is no VAT implication,” the FTA explained
The FTA also noted that under the VAT law, the payment or collection of any amount of interest and dividend is considered to be a financial service and is therefore exempt from VAT.
However, the authority also noted that the ruling only applies to interest derived from bank deposits and does not have any bearing on the interest generated from extending loans or credit, which are exempt supplies for VAT purposes.
BMS AUDITING & CONSULTING CO. Suite No.1001, 10th floor, Smart Height, Dubai, United Arab Emirates PH: +971 45516399 | MOB : +971 555569829 firstname.lastname@example.org | email@example.com