Common UAE VAT Mistakes, and How to Correct Them

Here they are, with what each one costs.

1. Registering late, or not at all

You must register once your taxable supplies pass AED 375,000 over the previous 12 months. That is Article 7(1) of the Executive Regulation. You then have 30 days to file the application.

Miss it and two things happen. The FTA registers you anyway, backdated to the day you first became liable. And under Article 7(7) you must account for and pay VAT on every taxable supply you made before you registered.

You did not charge VAT on those invoices. You still owe it. It comes out of your margin.

The fix is to register immediately and calculate the back liability yourself, before the FTA does.

2. Charging VAT before you are registered

This one is worse than late registration, and people do it thinking they are being prudent.

If you put 5% on an invoice without a valid TRN, you have collected money as tax that you had no authority to collect. That is not a filing error. Stop immediately, issue corrected invoices, and take advice before you go near a return.

3. Ignoring voluntary registration when you are buying

The voluntary threshold is AED 187,500, under Article 8(1).

Most people test that against their sales and stop. Article 8(5) also lets you register on taxable expenses. A pre-revenue business spending on rent, fit-out and professional fees can register and recover that input VAT.

Companies in their first year routinely miss this and never recover the VAT on their setup costs.

4. Recovering input VAT on blocked items

Two categories are blocked and they appear in almost every set of books we review.

Certain entertainment services. And motor vehicles that are purchased, leased or rented and are available for personal use.

The vehicle test is availability, not use. A car that sits at a director's home is available for personal use even if nobody drove it privately that month.

5. Getting the invoice type wrong

A simplified tax invoice is allowed where the recipient is not registered, or where the consideration does not exceed AED 10,000.

Above AED 10,000 to a registered customer you need a full tax invoice. Your customer cannot recover input VAT on a document that does not qualify, which means they will come back to you for a corrected one, usually months later.

6. VAT returns that do not tie to the accounts

Your four VAT returns and your annual financial statements come from one ledger, so revenue should agree.

When it does not, one of them is wrong and you have already filed it. Reconcile the returns to the annual revenue figure before you sign the accounts, not after.

How to correct an error

Do not quietly adjust the next return to absorb it. The FTA has a voluntary disclosure process, and using it puts you in a materially better position than being found.

The order is: quantify the error, decide whether it needs a voluntary disclosure, then correct it on the record.

What this article does not cover

Reverse charge, designated zones, zero-rated exports and partial exemption each have their own rules and their own common errors.

This is general information on published law, not advice on your position.

If you want the errors found before the FTA finds them

Send us four consecutive VAT returns and your trial balance. We reconcile the two and tell you what does not agree.