Everybody makes mistakes; however, it should never happen on your business taxes. We’ll help you make sure you avoid the most common mistakes most businesses make when dealing with taxes in UAE.
Depending on the business’ legal structure, whether or not the business has employees, and the kind of industry it is in, it is required in filing and sending several different forms to UAE Federal Tax Authority or FTA.
Your business may be required to file quarterly or annually. If you choose to hire a regulated tax agent in Dubai to help you handle your tax affairs, you will be reminded of the payments and forms that are required by local tax authorities. You can also have the tax specialist set up a calendar for you, so you know exact what is due and when. UAE’s tax authority publishes a calendar for taxation every year listing all of the due dates for taxable entities.
If you are filing as a self-employed, a partner, a sole proprietor, or limited liability company, then you are most likely mandated to make quarterly payments for tax based on the estimated tax bill of the business you are running for the year. Local authorities know you won’t be able to guess the actual amount; however, it wants you to provide a pretty close estimate. Otherwise, you’ll be facing penalties and fines for underpaying and underestimating.
If the FTA believes that you are being unreasonably careless or negligent in reporting the income of your business or if you’ve understated the amount that you owe to the tax authority substantially, then you’ll be imposed with penalties plus you will get audited. Mistakes such as these are willful compared to simple math errors; however, you should strive in being scrupulously honest and accurate in reporting.
If the FTA finds an attempt in defrauding it intentionally, you will be facing criminal fraud charges and there is a high chance for your business to get shut down.
It is very easy for a business to get expenses mixed, most especially when you are new in business or you are self-employed. However, the FTA has strict rules related to VAT in UAE, most especially on commingling funds. Business-related expenditures are the only ones that are deductible from business income for VAT purposes. The only way for you to make sure you don’t mix up business and personal expenditures is by keeping your finances entirely separate.
This means you need to open a different bank account for your business, plus you need to utilize a business credit when making purchases that are intended for your company. In the event that you’re using personal assets for your business like your home office or car, then it is important that you retain detailed records in order to support the deductions that you make. There is no chance for you to make a deduction if you don’t have the supporting documents.
Even for a business that does not have any quarterly VAT return filing obligations, VAT should be not less than once every year proposition. If you leave it at the very least minute, this can ensure that you will miss out on the deductions that you are entitled to just because you have not kept track on all the spending of your business along the way. In addition, it can also cost you a lot more when it comes to accounting fees which you’ll have to spend in order to get things straightened out.
Make sure that you have set up a system in place which can help in the tracking of income and expenses. You should be reconciling the cash flow of your business with credit card and bank statements every single month. There’s a lot of tax professionals in UAE that can help you with this. In addition to providing help and guidance in preparing your VAT return, having a tax specialist helping you will allow you to manage your finances better.
As for getting the deductions that you deserve, tax authorities in UAE considers the expenses necessary and ordinary or part of running a business. Taking deductions for expenses that you don’t belong to your business will invite a surprise audit from the tax authorities. It can also come with severe penalties should tax officers catch errors when checking your books of accounts. Even legitimate deductions will trip you up when they are out of proportion against your income or to what a business of your business and in the same industry as you are in is claiming.
If you want to avoid tax problems, the best way in doing so is staying organized and seeking the help of regulated tax agents in Dubai like VAT Registration UAE. Call us today!