With the UAE introducing VAT from January 1st 2018, what do businesses need to do to so that they are VAT compliant? We speak to Caroline Thevenot of CT Consultancy, an accountancy firm specialising in small businesses, to find out more
A value-added tax (VAT) is a consumption tax which is levied on goods and services at every point of supply. It is based on a percentage of the value of the product at the point of sale. Ultimately, it is the responsibility of the consumer to pay the VAT. However, if your business earns in excess of 31,250AED a month, and you have not charged VAT to your customers, as a business you are liable for the payments to the Government.
The processes of collection of the funds is vital for businesses say Caroline, “From January 1st, businesses need to be collecting VAT so that they are able to make payments to the government within 30 days of the date of the invoice (this should NOT be confused with the date of receipt of the payments). In light of this tight turn around, an enterprise needs to have a solid cash flow and money collection process in place, with the relevant processes in place, so that they can evidence that the payments are being made and collected during the audits.”
“There are many considerations that businesses need to think about when implementing VAT over the coming months. Things like availability of man-power to oversee the new system, reviewing new processes, and any other projects that will take time in other parts of the business,” she says when discussing what a business should be thinking of right now. However Caroline explains that the main points to think about are:
Train your Staff
VAT hits every single part of your business. Everyone needs to be aware of VAT and the implications of it for your business, “All of your admin, procurement and chain supply staff must know how the VAT should be paid and collected. Your sales staff needs to discuss this with their clients. Alternatively your admin staff needs to check that this is included on sales figures and correctly input into the systems so it is invoiced for. Where as your bookkeeper needs to ensure that this is shown clearly in case of an audit. Finally, do you need to oversee that this operation works? If not, should you consider changing it?” Caroline asks.
Include your Team in the Implementation Process
It is important to include your team in the implementation and roll out process not just because they are the ones that will be on the front line of the payments, but also, they will understand their roles within your company and where VAT may affect you that you otherwise might not have considered, as Caroline justifies, “Things to think about for example, are that all contracts (still running after 01/01/2018) have to be changed so that they include VAT (if not added, the VAT will have to be paid by your company to the FTA).”
There will be audits carried out by the Federal Tax Authority (FTA), so you need to ensure your filing is up to date and nothing has been lost as this could cost you and your business heavily. “All documents must be kept 5 years,” Caroline advises – Just in case you thought they would look back only one or two years!
All companies need to register their business with the FTA by the end of October. “If your turnover is over US$100,000 you must register your business. This is only AED 31,250 a month,” Caroline points out. Failure to meet the deadline could mean a heavy penalty.
Make sure your Advice is Correct!
“You need to get an accountant with VAT experience,” says Caroline. “If they have worked previously with VAT, they will know exactly how you will need to set up your system and/or to calculate for you the VAT return.” This is especially important, as there are so many instances of sales that will exempt from tax. The UAE government have said that it will take 6 months to refund payments where tax is paid incorrectly. This is a long time for money to be out of a business cash flow. And don’t even begin to think about the high penalties that will have to be paid for businesses that don’t pay the tax correctly…
Get Accounting Software to do the Book Keeping and also Invoice your Customers
“It will be very difficult to track the VAT due and VAT to be reimbursed if you still have a manual system. There are a great many accounting systems out there, but you need to have one that will work with your business,” Caroline advises. Do you have to pay taxes elsewhere? How many licenses will you need? Do you want the system to pay out for any other taxes that may be implemented, here or elsewhere in the world? These are just some of the questions, but as Caroline says, your accountant is best placed to discuss all of these with you and highlight areas of your business that you may not consider being included on the system.
Other Things to Think About
Other things to think about are the consequences on prices, “Does the inclusion of VAT mean that you are no longer competitive? If so, should you take a hit on hit on VAT and decrease profitability by 5%?”
Finally, you need to be aware of the consequences on your company cash flow. As previously advised, money will be collected by the company which needs to be paid quarterly to the FTA. Failure to respect this law means you and your company will be liable to heavy fines and penalties.
For more information, visit http://www.ctconsultancyuae.com
CT Consultancy – Your “A la carte” Finance Manager
Level 27, Marina Plaza, PO Box 5000305 – Dubai, UAE
Mobile +971 50 8760419 – Tel : + 971 4 424 5197 – Fax : + 971 4 455 8556 A