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Common mistakes made by SMEs on VAT filings in UAE

05/02/2020

It has been almost two years since the introduction of 5% VAT on goods and services. Since the taxation system has been introduced for the first time in the country, a number of smaller companies have been prone to making mistakes in filing their tax returns, thus attracting fines.
Tax experts say poor planning, hiring of the wrong resources, failure to issue valid tax invoice, non-maintenance of records and mistakes in simply calculating and paying VAT but failing to file the appropriate amounts, limited understanding of the concept of exempt, zero-rated and outside of scope supply are the most common mistakes committed by SMEs in the UAE while filing TAX returns. As a result, these mistakes can attract fines as high as Dh50,000.

Similarly, a lot of mistakes have been observed related to the input tax deduction due to the misinterpretation of the VAT legislation. The VAT legislation only allows reclaiming input VAT paid to suppliers of goods and services that have been used to make taxable sales. 
Common mistakes include the deduction of input VAT on non-compliant invoices, incorrectly performing the calculations for the partial deduction, incorrect deduction of input VAT for blocked items or linked to exempt supplies, incorrect recovery input VAT on capital assets and the deduction of import VAT paid on behalf of other businesses.
Fines for non-registration or late registration is Dh 20,000, while failure to issue valid tax invoice/credit notes is Dh 5,000 per document. Non-maintenance of records and documents per requirement is Dh10,000 for the first time and Dh50,000 in case of repetition.