Common Mistakes made by SME for VAT filing in UAE

Since the introduction of Value Added Tax (VAT), a number of small and medium-sized enterprises in the UAE have found it difficult to cope with the VAT system, resulting in fines and penalties that could genuinely have been avoided.

Most Common Mistakes Made by SMEs When Filing VAT Returns

• Non-maintenance of records
• Mistakes in calculating and paying VAT, including filing incorrect amounts
• Poor planning
• Hiring the wrong resources for VAT compliance
• Failure to issue valid tax invoices
• Limited understanding of VAT law
• Not having the right accounting setup in place

Many mistakes relate specifically to input tax deduction, often due to misinterpreting VAT legislation. UAE VAT law only allows reclaiming input VAT paid to suppliers of goods and services genuinely used to make taxable sales, not every VAT-bearing purchase automatically qualifies.

Also check: VAT Consultants in UAE

Common Mistakes in VAT Record-Keeping

• Non-filing or late filing of VAT returns
• Failure to issue valid tax invoices and VAT credit notes
• Non-maintenance of records and documents as required under UAE VAT law
• Delayed amendment of VAT registration details following the addition of new branches
• Recovery of input tax on blocked expenses that aren’t actually eligible for recovery

Companies should thoroughly review compliance positions adopted over the past 18 months, establish a VAT governance framework with clearly defined roles and responsibilities, appoint tax experts for periodic review of tax positions and returns, and upgrade IT systems to meet record-keeping requirements while training relevant staff.

Genuine VAT compliance requires constant follow-up and genuinely dedicated attention, it isn’t enough to simply add VAT tasks onto a finance manager’s or controller’s existing workload. A more holistic approach is needed. An accountant may have strong operational knowledge, but that alone doesn’t guarantee the legal analysis VAT compliance sometimes requires.

Must check: VAT Registration Services

What Is the Eligibility to Register for VAT?

Businesses dealing with taxable supplies and imports must register for VAT once the mandatory registration threshold of AED 375,000 is exceeded.

Where taxable supplies exceed the voluntary registration threshold of AED 187,500 but remain below the mandatory AED 375,000 threshold, the business may choose to register for VAT voluntarily, this is optional, not required, and businesses in this range can genuinely decide either way based on their own circumstances.

How to File a VAT Return in the UAE

VAT returns must be filed with the FTA within 28 days of the end of the applicable tax period, using the online e-services portal or EmaraTax. The length of the tax period itself, monthly or quarterly, is assigned by the FTA based on the taxpayer’s specific circumstances and turnover, it isn’t universally quarterly for every registrant.

For example, a business assigned a quarterly tax period covering July through September must file its VAT return, and settle any VAT due, by 28 October, 28 days after the quarter’s end.

When Are VAT Penalties Imposed?

VAT penalties are imposed for non-compliance, including:

• Failure by a taxable person to register when required to do so
• Failure to submit a return or make payment within the required period
• Failure to keep records required under applicable tax legislation

What Sectors Are Exempt From VAT?

The following categories of supply are exempt from VAT:

• The supply of certain financial services
• Residential properties through sale or lease, other than those that qualify as zero-rated
• Bare land
• Local passenger transport

Frequently Asked Questions (FAQs)

How Farahat & Co. Can Help

Farahat & Co., a trusted Tax Firm in UAE, helps SMEs establish proper VAT governance, avoid common filing mistakes, and stay compliant with FTA requirements.

Contact Farahat & Co. today to discuss your VAT filing and compliance requirements.