How to make your business accounting systems ready for VAT?

The VAT law, which is set to launch in the six GCC nations, including the UAE, on January 1, 2018, brings along with it several compliance norms for eligible businesses and penalties for those who fail to follow the rules.

Compliance with the VAT law may not be as easier for GCC businesses, especially for small businesses, as it will require some changes in the business management, operation, technology, operations, bookkeeping and financial practices. The Federal Authority is committed to levying tax penalties from noncompliant businesses in order to ensure a proper implementation of VAT in the region.

The administrative penalties, of minimum Dh500 ($136) but not more than three times the tax amount, will be charged from businesses that fail to provide required and accurate information when registering for VAT and when requested by the FTA, or intentionally destroys any relevant documents/data. In case of tax evasion, a business will be charged a penalty worth up to five times the original tax amount and/or a prison sentence.

The bookkeeping and compliance requirements as published by the authorities suggest that businesses will need to maintain proper accounting system to be VAT compliant. However, it is highly unlikely that the GCC businesses, in terms of technology and systems, are at present ready for VAT, as this is the first time that they have to manage themselves for a proper tax system.

VAT implications on business processes

Some of the short-term VAT impacts on the businesses are explained below.

Businesses are, from now on, required to maintain proper records of their tax information, including the receipts, invoices, credit and debit notes, account ledgers, annual account records, etc.

In addition to the above records, businesses will also be required to maintain proper books of the following information for minimum five years from the transaction date:

§  Tax invoices and credit/debit notes

§  Records of all imported/exported goods and services by/from the company

§  VAT account management, including VAT paid, VAT due, penalty, recoverable tax, etc.

§  Goods/services that are disposed of by the company

All the transactions performed by a taxable business must be accompanied by proper VAT invoices, which will be according to the following rules:

§  It should be in Arabic

§  The invoice currency should be UAE Dirham (Dh). If it is in another currency, it should be converted to Dirham before it’s processed.

§  The invoice must include

§  the name, address and VAT registration number of the supplier

§  the issue date

§  The name and description of goods/services

§  The transaction amount and VAT applicable on it

This will, obviously, be an issue for businesses that never before had to issue a tax invoice or credit note for any of their supplies or had to maintain accounting records for the same. As per the VAT norms, businesses will be required to file their tax returns on quarterly basis online on the government’s portal.

Many professional accounting software solutions are already being launched by software companies and experts to provide businesses with VAT calculation and filing assistance. Businesses can use one of the VAT software to ensure seamless tax compliance and filing of tax returns. You can also contact the expert tax consultants for better guidance regarding the implementation of VAT in your business system.

A good VAT software will let you manage all your VAT returns, reporting, tax liability, payments and refunds, VAT registration and view your VAT account from a central dashboard. It may also let you generate proper VAT-compliant invoices to attach with your business supplies. Just be sure to research thoroughly before choosing a tax software.

The implementation of VAT might get a little confusing for some businesses’ accounting processes, but there is nothing to be worried about as the government is eager to provide full guidance to those who need it. The best thing you can do as a GCC company starts preparing your business for the new tax system.