Contact Us!

Most common mistakes made by SMEs on VAT filings in UAE

Non-compliance would attract fines of up to Dh50,000

It has been almost two years since the UAE levied 5 per cent value-added tax 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 are some of the most common mistakes made by the small and medium companies in the UAE when filing tax returns. As a result, these mistakes can attract fines as high as Dh50,000.

Thomas Vanhee, founding partner one of the Audit Firms in Dubai, said failure to plan, hiring of wrong resources, not having the right accounting set-up and 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.

“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 to reclaim input VAT paid to suppliers on goods and services that have been used to make taxable sales,” he said.

“Common mistakes include deduction of input VAT on non-compliant invoices, incorrectly performing the calculations for 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.”

Nimish Goel, partner of another Accounting & VAT Consultancy , said non-filing or late filing of the periodic VAT returns; failure to issue valid tax invoice and VAT credit notes; non-maintenance of records and documents as per the requirements of the UAE VAT law; delay in amending the VAT registration on account of addition in branches; and recovery of input tax pertaining to blocked expenses (such as entertainment expenses, expenses incurred in a personal capacity, medical insurance, etc) are the most common mistakes occurred by small entities.

He said fines for non-registration or late registration is Dh20,000, while failure to issue valid tax invoice/credit motes is Dh5,000 per document. Non-maintenance of records and documents per requirements is Dh10,000 for the first time and Dh50,000 in case of repetition.

Goel suggested that companies should take a thorough review of compliances undertaken and positions adopted for the last 18 months, create a VAT governance framework with proper roles and responsibilities defined for the team members, appoint tax experts for periodic review of tax positions and VAT returns, upgrade IT setup to meet the record-keeping requirement and train to the users.

Vanhee suggested that investing in right people and technology in the solution.

“Businesses need to dare to invest in good resources and good accounting systems. Being compliant requires a constant follow-up of matters and dedicated staff. It is not enough to add tasks to the current tasks of finance managers or controllers. A more holistic approach is required. Although an accountant may have good operational knowledge, he might come short in the legal analysis,” he said.

“The fines are simply too important to get it wrong. We see many businesses surprised when they finally do end up getting advice, make a voluntary disclosure and end up being heavily penalised. it would be prudent for SMEs implementing the tax to follow best practices, train staff about VAT, change their core processes and adapt the accounting systems to achieve a reasonable degree of tax compliance,” he suggested.

number of professional services firms are announcing strategic alliances with some of the world’s leading technology businesses.

Here’s a snapshot. Apple and Deloitte announced a deal to team up in order to accelerate business transformation on iPhone and iPad, while BDO revealed a worldwide strategic alliance with tech giant Microsoft, a move that aims to help the digital transformation of their clients’ businesses.

At the same time, PwC and GE Digital agreed to form an alliance to help organisations harness the power of the Industrial Internet, while Accenture and Google announced plans to jointly develop cloud solutions to help clients improve business performance.

Some of the Top Audit Firms, on the other hand, has cut a niche in the financial technology business by deploying its IT practice to help companies overcome today’s challenges such as systems security, regulatory compliance, fraud, anti-money laundering, protection of consumer information, operational and third-party risk, among others.

Quality of audit
This paradigm shift is a clear testament that the future of audit, advisory and consulting is undergoing digital transformation, which is greatly needed in order to provide the businesses of the future meaningful analytics, automation, deliver additional value-added services, as well as improve internal efficiency and the quality of audit and advisory engagements.

A few weeks ago, there was an article about how disruptive technology and innovation is increasingly becoming a game-changer in today’s global competitive business environment, a phenomenon that clearly demonstrates the future of auditing is more than just the numbers. It highlights that now, more than ever, technology is radically causing a shift, enabling us perform a more comprehensive audit and provide clients with more actionable insights, in order to counter the disruptive nature of possible competition.

Businesses across the globe are undergoing digital transformation and these alliances are part of a broader strategy of harnessing joint power to develop the frameworks and tools to provide clients with leading technology, data and insights, to help them thrive in the digital age and capitalise on market disruption. With deeper insights at their disposal, auditors are now better positioned to deliver a more effective quality audit.

Privacy and security
By taking a broader focus that encompasses operations, compliance and non-financial reporting issues, through the use of data analytics and other advanced approaches, internal audit can provide value-added services and proactive strategic advice to the business, and provide deeper, more actionable insights into their financial statements and controls.

In particular, Industrial Internet, or the so-called Internet of Things (IoT) – a term that is used to describe anything and everything that is connected to the Internet and able to communicate with other ‘smart’ devices – is seen as vital to the turnaround of businesses. It’s a profound transformation in how man and machines interact with each other. However, key challenges that have come with such innovations include areas such as privacy and security. In this atmosphere, internal audit has been thrust into the spotlight, as market pressures for constant technical evolution and persistent IT security threats require us to provide IT and information security assurance.

Of course, with these advances in new technologies – such as the cloud, analytics, mobility, artificial intelligence – technological vulnerabilities are likely to expand exponentially. The question for us in the financial services industry is how we should respond to this growing phenomenon, as such innovations have come with new risks. As disruptive innovation continues to transform industries, the role of Internet of Things in internal audit and compliance is crucial as it helps in identifying those risks that emerge.

Certainly, the biggest risk to organisations that do not evolve or innovate is the risk of failing to respond to disruptive competition. With technology as an enabler, auditors can now analyse larger volumes of audit-relevant data that allows for targeted analysis of potential anomalies and risk areas, thereby supporting clients through transformational change and providing new ideas and innovative thinking to contribute to their commercial success.

The professional services market is in a constant state of change and these worldwide partnerships with technology players will no doubt accelerate the transformation of clients’ businesses across all areas of operations and industries.

Process of Filing VAT Return in UAE – VAT Return Form 201

To access the VAT Return Form 201, the taxpayer should log in to the FTA e-Services portal using your registered username and password. Form Navigation menu, select the ‘VAT’->VAT 201- VAT Return-> click on ‘VAT 201-New VAT Return’ to initiate the VAT return filing process.

For More Details on visit us on VAT please write us to, or Talk to us : Tel: +971 4 876 9377, Mob: +971 52 475 4007, +971 52 975 0690

Courtesy to Khaleej Times