Common VAT Filing mistakes made by business in GCC

In the last two years, the number ‘5’ has found a different meaning for the people living in the UAE. For most people doing business in the GCC countries, it reminds them of the percentage of VAT (Value Added Tax) applicable to goods and services. The GCC (Gulf Cooperation Council) implemented this VAT system from the beginning of 2016 – starting off with GCC countries like UAE and Saudi Arabia. As per this tax law, businesses in UAE apply a charge of 5% VAT on all eligible business transactions.

Because it is the first time that a taxation system has been in place in UAE and few other GCC countries, many small businesses (or SMEs) have found it difficult to come to terms with the filing of VAT returns. Implementation of VAT has been mandatory, so businesses have been made to break their heads in ensuring compliance, as any non-compliance incurs a penalty (fines as high as 50,000 dirhams). So, how can businesses avoid penalties related to non-compliance with regards to VAT filing? By ensuring they avoid the mistakes that have been reported by several businesses during the early days of VAT implementation in GCC.

In this post, we have a look at some of the most common mistakes committed by SMEs or businesses during VAT filing in GCC since 2018.

Top Mistakes Made by Small and Medium Enterprises / Companies in GCC While Filing Tax Returns

1. Lack of a Proper Plan and Accounting Setup

Many businesses failed to comprehend the complexities associated with ensuring compliance with a new tax law like VAT. They didn’t have a proper plan in place to upgrade their accounting team or hired the wrong people to tackle VAT and could not manage to have a well-trained and well-informed accounting setup required to handle VAT returns filing in the most efficient way.

2. Incorrect Understanding of VAT Legislation

Several companies failed to correctly interpret the VAT legislation related to the input tax deduction. This led to several related errors being committed, such as:

• Inaccurate input VAT deduction related to blocked items or exempt supplies
• Inappropriate input VAT deduction on non-compliant invoices
• Wrong recovery input VAT related to capital assets
• Inaccurate deduction of import VAT payment done

3. Delay in VAT Registration

While VAT registration was made mandatory for businesses, it wasn’t easy for them, considering they had to comply with all the relevant VAT regulations. The struggle to deal with VAT regulations delayed the VAT registration process for several businesses. Those companies who either delayed or failed to complete their VAT registration had to pay a penalty of 20,000 dirhams.

4. Issuing Invalid Tax Invoices and Credit Notes

If all mandatory details that need to be present in an invoice are not included, the invoice issued by businesses becomes invalid. This has been a common occurrence amongst several small enterprises. And a fine of 5000 dirhams per document is applicable for businesses that fail to issue a valid invoice or credit note.

5. Irregular Filing of VAT Returns

Businesses are supposed to file the VAT returns by the deadline date provided for the same. Since this practice is relatively new for several businesses, many have been found wanting on this front, and they have either missed filing the tax returns altogether or filed them pretty late.

Other Typical Errors Committed While Filing VAT Returns

• Failure to amend VAT registration on time due to the addition of branches
• Inability to maintain documents as well as records, as specified in the VAT law for UAE (which incurs a penalty of 10,000 dirhams for the first miss, and 50,000 dirhams for repetitive miss)
• Input tax recovery related to blocked expenses like medical insurance, entertainment expenses, and so on

The above-listed errors are a few of the most common ones committed by different businesses while filing tax returns (VAT) in GCC, ever since VAT implementation has happened in the GCC in early 2016. This list should help businesses to avoid these errors in the future and save a lot of money, which is otherwise lost in paying the applicable penalties. It is high time businesses invest some time, money, and resources to train their team on VAT, get the right VAT experts / consultants, and have appropriate processes in place for their accounting team to ensure perfect VAT compliance.

CA Vishal Thakkar

The author is an expert in GCC VAT and is an adjunct professor with S P Jain School of Global Management, Dubai, Mumbai, Singapore & Sydney.

He can be reached at authorvishalt@gmail.com

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