Customs documentation for VAT registered traders
Since the introduction of Value Added Tax in 2018, customs regulations and procedures have gained renewed precedence due to the intertwining nature of the two. Customs documentation, in particular, have become instrumental for businesses active in trading. Whether it be for the recovery of input VAT on imports or Zero-rating of exports, customs documents are the key form of evidence as prescribed in VAT laws and procedures. Here we will explore the documentary evidence required to be retained by importers & exporters to successfully apply Reverse Charge Mechanism on the import of goods into the UAE and treat their exports as zero-rated supplies.
One of the primary considerations related to the import and export of goods is the ability to substantiate with appropriate documentation that goods have physically entered or departed the UAE borders. The UAE, along with other GCC member states, follows the GCC Common Customs Law (‘CCL’) which contains provisions and procedures for the importation, exportation, and transit of goods across the territories of GCC member states. While the CCL does not explicitly state the required documentation for import or export, each Emirate’s customs authority provides guidance on the documentary requirements.
Documentary Requirements for Export
The UAE VAT Law mandates importers and exporters to retain documentary evidence, showing the details and considerations related to the supply of goodsFor exports, the UAE VAT Law has bifurcated the documentary evidence into ‘commercial’ and ‘official’ evidence - both of which are required to be retained by the exporter as a condition to prove the export as a zero-rated supply. ‘Official’ evidence are the documents issued by the local Emirate customs authority whereas ‘commercial’ evidence will consist of particulars such as supplier, consignor, goods, value, destination and mode of transport. The timeline needed to export the goods, or to place them in customs suspension, is 90 days from the date of supply. In cases where the ‘official’ and ‘commercial’ evidence has not been obtained, or the goods have not been exported within 90 days of the date of supply, the exporter is required to account for VAT at 5% on such exports.
Most common documentary evidence retained by an exporter are as follows:
Documentary Requirements for Import
To apply Reverse Charge Mechanism on imports, documentary evidences are critical for the input tax recovery of the import VAT paidOne of the conditions for input tax recovery is to retain the import documentation, showing the details of the auto-populated or adjusted import VAT in the VAT return.
For the import of goods, the following are the set of documents an importer must retain:
Timeline for document retention
The CCL provides that customs officers are entitled to have access to all the customs-related documents that are required to be retained by the companies for 5 years from the date of completion of customs operations. Similarly, the requirement of record keeping under the UAE VAT law is for 5 years with an exception to any records related to real estate which is to be kept for 15 years instead. It is vital for the importer and exporter to retain the aforementioned documents and keep them available for an audit or a verification request by a customs officer, or a VAT audit by the FTA.
It is unquestionable from the requirements illustrated above that VAT and customs are inter-related and that a lapse in compliance of customs may easily impact VAT and vice-versa. Traders are obliged now, more than ever, to be compliant with all facets of customs and taxation lest the lapse in one invite the attention of another.
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