One year after the introduction of VAT in the UAE, we’re still getting lots of questions about how to actually calculate the VAT return. In response, we’ve put together the Excel-based VAT Return System which does it all for you, (click here!) but let’s go through the step by step process so you understand it.
Here’s how it works. This list is a combination of steps and things to remember.
- Every invoice you send out must show your Tax Registration Number
- Each invoice must show the Emirate where the work is being performed
- As with any invoice, it’s important to be very clear about the product or service you are providing
- You should be using an invoice template which automatically calculates the VAT amount, whether you have quoted VAT inclusive, or VAT exclusive. You also need to be aware of whether the goods or services you are providing attract VAT. Some are full VAT at 5% and some are exempt (i.e. zero %)
- You must keep a register of all the invoices you send out, in date order. That’s so you can see what invoices fall within the VAT quarter.
- You have to pay the VAT you have charged at the end of the quarter, even if you have not been paid by your client. So, having a bring-up system and a really good process for collecting overdue payments is essential (check out our Collect Overdue Payments Process for $27)
- You also need to keep a register of every receipt you have collected by payments you have made which include VAT. This is what you are entitled to “claim back” against the VAT payments you have received. This is essential – otherwise, you are simply giving money to the government. So you need a robust system for logging each receipt as soon as you pay it.
- You need to make sure you are only including those which are allowed by the Tax Authority. For example, claiming VAT on your lunch probably isn’t allowed.
When it comes to the actual calculation there are some simple steps, as follows:
Step 1: Add up all the VAT invoices you have sent out in the period (if you have a good register this is really easy).
Step 2: Calculate and total the VAT component of all the invoices. That is your “output VAT” on your sales.
Step 3: Then calculate and total the VAT component of all your receipts, remembering to only include the ones you’re allowed to claim. This is your “input tax” on your payments.
Step 4: Deduct the output tax from the input tax.
Step 5: If the amount is positive (there is a balance after the deduction), this is what you will pay in VAT.
Step 6: If the amount is negative (there is a deficit after the deduction), this is what you are entitled to claim back from the Tax Authority.
Step 7: Governments never like giving tax back, so you will need to have excellent records to justify your claims.
Then you go to the online form in the Federal Tax Authority (FTA) website and add in the numbers you have calculated for output tax and input tax. There are a few other questions you answer, then press the submit butt and job done!
Our VAT Return System (click here!) does everything I have listed above and produces a form which is identical to the online VAT return form on the FTA website. So all you do is just copy and paste.
Nevertheless, understanding exactly how the process works is very important, so I hope you have found this useful!
Please like and share this article with people you know who are struggling with how to file a VAT Return in the UAE.