The Significance of a VAT Tax Agency: Simplifying VAT Compliance for UAE Businesses

The UAE’s Value Added Tax (VAT) system, introduced in 2018, marked a significant step in the country’s journey towards economic diversification. While VAT contributes to the nation’s fiscal stability, its implementation has introduced complex compliance requirements for businesses. Partnering with a VAT tax agency is a strategic way for businesses to navigate these requirements, avoid penalties, and focus on their core operations.

In this blog, we explore the vital role of a VAT tax agency in ensuring smooth compliance for businesses in the UAE.

UAE has implemented the Value Added Tax with effect from 01 January which covers the goods and services supplies in or from UAE. Even though many clarifications have been given by the authority, the businesses may still face issuing in VAT compliance and here is the role of an expert Tax Agency to handle the VAT matters of your businesses. Appointing a well-known tax agency will make sure that the business is compliant with all requirements as per the VAT Law in UAE. Also, this helps you to focus on your core business and avoid surprise penalties imposed for common mistakes happening while handling VAT compliance.

In this article, let us understand the role of VAT Tax Agency in your business for making sure that there is zero flow in VAT compliance.

1. Understanding VAT in the UAE

VAT is an indirect tax imposed on the consumption of goods and services. Which is 5%. Businesses that are going to register for VAT must go through some legal obligations.

(i) VAT Registration: Registration with the Federal Tax Authority falls under two thresholds;

a) When taxable supplies or import exceeds 187,500 AED*, which is a voluntary basis of registration

b) When taxable supplies or import exceeds 375,000 AED*, which says the mandatory basis of registration

(ii) VAT Return Filing: The VAT return filing is held every quarter in a year, and accurate data on taxable supplies, output tax, input tax, etc., need to be submitted.     

 (iii) Record-Keeping: As per the VAT Law, all the records are required to be maintained for a minimum period of 5 years. If the records are related to real estate assets, the records must be kept for 15 years.

(iv) VAT Refunds and Adjustments: Maintaining proper documentation and submission of accurate details to the authority is the key to getting the eligible VAT refund from the Federal Tax Authority

Non-compliance can result in significant administrative penalties depending on the nature of the violation conducted by the businesses.

2. What Does a VAT Tax Agency Do?

A VAT tax agency is a legal body, who are dealing with FTA. Responsibilities are to deal with VAT compliance, ensure accuracy and alleviate risk.

Key Services Provided by a VAT Tax Agency

(i) VAT Registration Assistance
This tax agency takes care of all end processes of VAT, handling the registration, and seeing to it the timely and accurate submission of all required documents to the FTA. Agencies provide guidance about VAT obligations, i.e., mandatory and voluntary thresholds, to business owners.

(ii) VAT Return Filing
Registration and submission of return filling is a major service of the agency ensuring that correct reporting of supplies and purchases of the businesses based on the nature. This includes the classification of supply based on the place of supply, classification of eligible input recovery etc.

Timely submission of VAT reports to the authority to avoid late administrative penalties.

(iii) VAT Refund Assistance
A VAT refund is a tedious process that requires various documents on time and regular monitoring of updates from the FTA side. As a VAT agency, it has a direct connection with the FTA and specializes in making the claim process painless.

(iv) Record-keeping and Audit Support
Agencies assist businesses to maintain their internal and external audit records, are available for professional guidance, and prevent fines.

(v) Penalty Waiver Services
Tax agencies work on imposed penalties to reduce or remove them by providing strong justification to the FTA.

3. Benefits of Partnering with a VAT Tax Agency

a) Expert Knowledge and Guidance

VAT Tax Agencies like Flying Colour Tax Consultant, hold in-depth knowledge of the existing VAT Law and regulations and keep up to date on the changes announced by the authority. This helps businesses to make sure that all the latest policies and procedures of the Federal Tax Authority have been complied with by the business.

b) Reduced Compliance Burden

When businesses hand over the VAT task to the agency. Then they will be left with their core operation and profit maximization.

c) Mitigation of Penalties and Risks

Minute errors can in the under-reporting of VAT which can be even worse if considered as a criminal offence. 2 ways the risks required to be mitigated. One is by submitting 100% correct data in the VAT returns and the second one is to make sure of timely filing. Both these objectives can be achieved through a Tax Agency.

d) Faster VAT Refunds

A proper review of documents, giving the list of documents upfront, and preparing the refund application with all due diligence will ensure a smooth VAT refund process. The involvement of an experienced tax agency in the VAT refund process can ease the process and allow the refund to be processed faster.

e) Cost-Effective Solution

The cost of hiring tax agencies will be fully covered when businesses start calculating their refunds from return filling, the cost of reduced compliance efforts, and the savings of avoided penalties.

4. Real-Life Example: How a VAT Tax Agency Can Help

If you are running a trading business with mixed purchases and sales in and out of UAE, in order to meet the VAT obligations, classification of your different supplies and expenses will be very difficult and a wrong report can lead to penalties.

By partnering with a VAT tax agency:

• The Tax Agency can handle return filing with zero error by making sure that the business has complied with all VAT rules.
• The company claims VAT refunds more efficiently, improving cash flow.
• In case of an FTA audit, the agency provides full representation, addressing queries and resolving issues on the company’s behalf.

This partnership not only saves time but also protects the company from financial and reputational risks.

5. Choosing the Right VAT Tax Agency

When selecting a VAT tax agency, businesses should consider the following:

• Experience and Expertise: Having an expert who has ample experience in handling VAT compliance matters is highly important. Their experience in handling complex matters is to be checked before the appointment.
• FTA Authorization: The Tax Agency must have a TAN (Tax Agency Number) provided by the Federal Tax Authority.
• Industry Knowledge: The Tax Agency must be familiar with the industry in which your business is operating.
• Transparent Pricing: Always look for a Tax Agency that gives clarity on their fee with no hidden charges.

Conclusion

As a business owner or a person who is responsible for the business, we recommend you to have your focus on your core business while relevant industry experts take care of the tax compliance matters. In this article, we have listed a few matters only whereas there can be many more scopes depending on the business to business. By partnering with a reliable VAT tax agency, businesses can ensure accurate compliance, reduce risks, and focus on growth.

To learn more about The Significance of a VAT Tax Agency in UAE Compliance, book a free consultation with one of the Flyingcolour team advisors.

Disclaimer: The information provided in this blog is based on our understanding of current tax laws and regulations. It is intended for general informational purposes only and does not constitute professional tax advice, consultation, or representation. The author and publisher are not responsible for any errors or omissions, or for any actions taken based on the information contained in this blog.