Tax returns have always been the task that one dreads to get to. With layers of protocol and planning involved, there are quite a few threads where you can go wrong. Especially in UAE, with the taxation system having been recently introduced, small businesses are very prone to make some common mistakes while filing their VAT returns. While most businesses rely on hiring someone to carry out this task, some slip-ups are still observed in their filing, mainly due to improper VAT return review. The reviewing process often brings out the irregularities, which can be cleared out at initial stages. Failing to do so might result in your business being non-compliant with several legal protocols, some of which hold high penalties and fines.
Here we have listed a few common mistakes made in the entire extended tax filing process in the UAE. These are some areas that should be paid special attention to before the VAT returns are validated.
- Poor tax planning
Since the UAE’s tax laws are relatively new, many are oblivious to the idea of tax planning. This can only be done when one knows the areas where tax can be reduced. For instance, the taxation system in the UAE does not require federal income taxes to be rendered. There are no income taxes paid by employees, and there is no set system for corporate and inheritance taxes. For businesses, several tax-free zones and property levies can be explored for efficient tax planning.
- The validity of Tax Invoices
Many organizations fail to issue a valid tax invoice in compliance with the UAE VAT law. Here, as per article 67, all tax invoices are to be issued within fourteen days of the Date of Supply. While some invoice elements may be handwritten, but a few of them are required to be pre-printed (e.g., the GSTIN Number). All required details need to be mentioned in the company of the payable amount. There is also a possibility of deduction of input VAT on any non-compliant invoices. They can be denied in case fraud is known to exist. It opens an opportunity for the taxpayer to provide a corrective invoice and evidence to preserve the invoice’s deduction.
- Non-registration/ Late Registration
Several issues are also encountered in cases of non-registration or late registrations for taxation in the UAE. A late payment is something that needs to be avoided at all costs. A late taxation penalty includes 2 percent of the unpaid tax, 4 percent due on the seventh day, and a 1 percent daily penalty. If it still remains unpaid for one month, it could extend up to a maximum of 300 percent of the payment. This situation is highly undesirable; thus, keeping a tab on tax deadlines is extremely essential.
- Lack of maintaining required records and documents
When it comes to business taxes, maintaining thorough documentation and preserving it for future references is vital. While you might not realize the requirement of such documentation immediately after an iteration of filing. But any discrepancies in the future rely heavily on evidence that is recorded meticulously and documented. A big mistake can be avoided by merely maintaining the required documents and preserving them.
- Fines due to non-disclosure
The non-disclosure penalties in the UAE are clearly laid out. A fixed penalty for non-disclosure is ascertained when a taxpayer fails to disclose errors in the returns filed voluntarily. Here, a fine of AED 3000 is exerted for the first time, and a repeated offense requires AED 5000 to be paid. These can be hefty on small businesses; thus, non-disclosure is a common mistake that can be easily avoided.
Final Words These are some avenues where you can encounter an error in VAT return filing. Thus, even though you rely on a professional resource for the filing and review process, it is essential to make sure that all required facets have been disclosed and comply with the law. Such discrepancies often occur due to natural assumptions and unclear communications with your tax agent, and this should be avoided at all costs. With proper tax planning and filing under the due protocol, these minor mistakes can be avoided along with the benefits of a smooth filing process.