{"id":436,"date":"2023-04-03T15:48:04","date_gmt":"2023-04-03T15:48:04","guid":{"rendered":"https:\/\/hticglobal.com\/blog\/?p=436"},"modified":"2024-02-09T17:31:04","modified_gmt":"2024-02-09T17:31:04","slug":"what-is-a-vat-health-check-in-the-uae","status":"publish","type":"post","link":"https:\/\/hticglobal.com\/blog\/what-is-a-vat-health-check-in-the-uae\/","title":{"rendered":"What is a VAT Health Check in the UAE?"},"content":{"rendered":"

VAT Health Check is an objective evaluation of the effectiveness of a company\u2019s VAT procedures, control methods, and documents. It is necessary to ensure that a company is compliant with the VAT law in UAE. A VAT audit can be conducted by the Federal Tax Authority (FTA) at any time without any specific reason, so companies must be transparent and accurate with their VAT returns and related statutory requirements to avoid non-compliance penalties. In this blog, we will discuss how companies can prepare for a VAT audit in the UAE.<\/p>\n

Reconciliation of Trial Balance and VAT Returns<\/h3>\n

The value of taxable supplies is available to the FTA from the VAT returns submitted for each tax period. Therefore, the tax auditor will examine these details to ensure that any taxable revenue is included in the VAT return and that the input recovery amounts are not exceeding the actual costs incurred. Additionally, some revenue may not have been included in the VAT return or tax filing. In case corporations do not follow the procedures of periodic closing, limiting back-dated entries, and keeping reconciliation with returns, tax auditors can quickly spot discrepancies in the accounts. Reporting errors or undetected discrepancies may be viewed as taxable supplies, so it\u2019s essential to maintain accurate records.<\/p>\n

Export Documentation<\/h3>\n

Goods exported from the UAE are considered zero-rated if they are accompanied by official and commercial documentation, including departure certificates. However, many businesses in the UAE do not currently obtain the necessary export documentation, which may lead to non-compliance penalties. The tax authorities might not accept justifications that do not meet the VAT law\u2019s requirement for official documentation, which includes an export document issued by the customs authority. Hence, it is crucial that businesses provide accurate documentation to comply with the zero-rating of exported goods.<\/p>\n

Tax Policies<\/h3>\n

Tax auditors also examine if there are any discrepancies in the company\u2019s tax treatment practices, such as standard rates reported as zero-rated or exempted, deemed supplies, or related company transactions that are not considered taxable supplies or taxable supplies that are thought to be outside the scope. Industries with varying VAT rates such as real estate, healthcare, education, transportation, and electronic services may need to evaluate the tax laws to ensure compliance.<\/p>\n

Input Costs<\/h3>\n

Taxable persons who provide taxable supplies are eligible to deduct input related to the expenses of those supplies, subject to the condition that they possess a tax invoice and have paid or committed to pay within six months. Nevertheless, the recovery of input costs can be limited for certain expenses such as a vehicle, telephone, entertainment, and personal expenses. To determine whether the recovery of input should be refused, the tax officer will examine the expense categories and supporting evidence in the trial balance and working paper for VAT return filing<\/a>.<\/p>\n

Evidence of Payment for Expenditures<\/h3>\n

To be eligible for input recovery, the taxable entity must have either made payment for the taxable expenses or indicated their intention to do so within six months. During the audit process, the Tax Officer has the authority to demand payment proof, which may include documentation such as a receipt voucher issued by the supplier or an entry in the bank statement. Firms may occasionally claim input on expenses without paying the supplier due to various factors such as disagreements, lengthy credit terms, discounts, cash flow issues, etc. In such cases, the tax auditor may insist on reversing the VAT input.<\/p>\n

Penalties for Non-Compliance with VAT Law<\/h3>\n

In the UAE, the VAT audit is a comprehensive task taken by the authority to monitor the registrants\u2019 tax compliance and protect the federal government\u2019s revenue sources. Non-compliance with the relevant laws and regulations issued by the Ministry can lead to hefty penalties.<\/p>\n