Since the introduction of VAT in the UAE in 2018, businesses often face challenges in navigating complex tax reporting requirements. VAT filing requires accuracy, expertise, and effective compliance with regulations and deadlines.
This article explains common VAT filing challenges in the UAE, and how premier VAT Consultants in UAE such as VAT Registration in UAE can help ensure accurate and compliant submissions.
8 Common Challenges Businesses Face During VAT Filing in UAE
1. Inaccurate Record Keeping and Documentation
The UAE VAT regime requires businesses to maintain complete and correct records, including sales invoices, receipts for purchases, importation and exportation records, credit and debit notes, and VAT return records for at least five years.
Secondly, errors in support documents lead to discrepancies between disclosed VAT amounts and actual accounts, leading to complications during the auditing period. Therefore, because of such risks, companies are advised to purchase fresh ERP systems and reconcile transactions frequently under the professional guidance of service providers of VAT filing services UAE.
2. Incorrect VAT Calculation
Businesses must class supplies correctly as:
- Standard rated supplies (subject to 5% VAT)
- Zero-rated supplies (0% VAT, including exports and selected healthcare and educational services)
- Exempted supplies (for example, rental of residential buildings and life assurance services)
Misclassification leads to mischarged VAT to customers and misclaimed input VAT. In addition, the reverse charge on imported services is complicated. Misuse of the reverse charge leads to underpayment or overpayment of VAT.
It is also more complicated for firms that have taxable and exempt supplies, where in such a case they have to allocate their input VAT. It can result in over-claiming of input VAT if not properly done, through which firms are penalized.
3. Filing of VAT Returns After Delay
One common error companies make when they submit VAT filing in Dubai is missing the tight time frame for return filing and payment of payable VAT. Under UAE regulations, VAT returns should be filed quarterly or monthly, as allotted by the FTA, and not later than 28 days from the expiry of the tax period.
Non-compliance with these deadlines attracts automatic administrative penalty and late payment penalty, which are incurred on a daily basis. Repeated failure in some cases can trigger repeat FTA audits and visits.
The most common reason for late filing is an internal tracking system or reminder shortage, especially where companies utilize finance functions only alongside other responsibilities.
4. Limited Knowledge of Input VAT Recovery Rules
The UAE VAT legislation prohibits recovery of input VAT on:
- Certain entertainment expenses,
- Personal use road motor vehicles
- Capital goods and services utilized other than for business.
5. Errors in VAT Return Form
The EmaraTax portal offers a simple VAT return form, but businesses make the following errors while filling it out:
- Incorrect taxable and exempt supplies reporting
- Misreporting of intra-GCC trade,
- Non-accounting for the reverse charge liabilities,
- Misreporting adjustments for earlier periods.
Inaccuracies in VAT return will notify the FTA to conduct audits and impose administrative penalties. Further, errors must be corrected via voluntary disclosures, once more adding to compliance costs.
6. Insufficient Knowledge of VAT Law Updates
The UAE VAT landscape continues to evolve, with periodic improvements, further clarifications, and modifications by the FTA aimed at streamlining the VAT regime and making it fairer. For example, new administrative penalties were introduced in 2021, while constant updates occur on topics such as electronic invoicing and VAT guidelines for e-commerce in the world of e-commerce.
Hiring professionals offering VAT filing services in UAE ensures businesses remain aware of all changes to VAT laws and revise compliance practices accordingly well in advance.
7. Lack of Internal VAT Expertise
Even though VAT has been applicable since 2018, the majority of companies continue to lack in-house VAT specialists. Their accounting and finance staff can handle standard VAT procedures but lack competence to handle the complexities such as intra-GCC supplies, free zone operations, exports, and VAT grouping agreements.
This lack of professional expertise usually leads to repeated errors, failure to meet regulatory terms, and fines for incorrect VAT returns.
Professional VAT filing services in UAE or corporate tax consultant bridges this gap in such professional expertise by providing businesses with experienced VAT consultants who handle technical VAT issues efficiently.
8. Difficulty in Dealing with Corrections and Voluntary Disclosures
Where errors amounting to more than AED 10,000 are found after the filing of a VAT return, firms are statutorily obligated to correct them through a Voluntary Disclosure to the FTA.
Failure to correct errors or insufficient filing of voluntary disclosures will incur penalties and undermine the business relationship with the tax authority. Most of the companies do not have experience in preparing and filing voluntary disclosures in proper format, hence at risk.
Also Read: How to File VAT Return in the UAE
How UAE Professional VAT Filing Services Can Be of Help
Professional VAT filing service providers in UAE ensures the following:
- All VAT returns are accurately prepared from audited books,
- VAT calculations and classification are accurate,
- Filing deadlines are closely tracked and followed,
- Input VAT claims are accurately estimated,
- Mistakes are detected and eliminated promptly,
- Ongoing modifications to VAT legislation are integrated into company procedures.
Seek the Expert Services of VAT Registration UAE
To seamlessly determine VAT taxability and ensure compliance with UAE VAT regulations, businesses are advised to seek the expert services of VAT Registration UAE, a premier VAT registration service in Dubai. Contact us today and we shall be glad to assist you.
Frequently Asked Questions About VAT Filing in the UAE
Q1. What is the VAT filing deadline in the UAE?
VAT returns must be filed within 28 days of the end date of the respective tax period, either monthly or quarterly depending upon the company’s registration.
Q2. What is the penalty for delayed filing of VAT return by a company in the UAE?
Delayed filing of VAT will attract penalties, an initial one-off fixed penalty and also a further penalty per day until the return is submitted.
Q3. Are expenses recoverable as input VAT?
No. Some expenses like entertainment and non-business cars are not admissible to claim input VAT under UAE VAT law.
Q4. How do businesses correct mistakes in previously filed VAT returns?
Differences of more than AED 10,000 must be corrected in a Voluntary Disclosure to the FTA, whereas small mistakes can be corrected in the subsequent VAT return.
Q5. How do businesses remain informed about evolving VAT legislation?
Companies should consult professional VAT filing services UAE or corporate tax professionals periodically to remain informed about VAT law amendments and compliance regulations.
