Before completing your VAT return filing in UAE, you should know there are financial measures that can significantly reduce the amount of Value Added Tax (VAT) you pay each tax period. These include deductions, credits, and more advanced relief or refund strategies. All these are practical steps for businesses to enhance VAT cash flow. There are particular tax savings that all businesses can avail while specific options can only be for eligible companies.
How to Reduce VAT Liability in UAE
It's important to note that the UAE VAT legislation changes frequently. The following strategies are based on the current law:
Reclaim Vat Paid on Business Expenses
While making preparations for VAT return filing in UAE, if you do not compile legal proof of VAT paid on business expenditures, you run the risk of losing a significant amount of money. All VAT-registered businesses in UAE are entitled to a refund for certain expenditures, such as machinery and office equipment, purchased for the business.
In addition, if you are leasing a car for both business and personal use, you are eligible for reimbursement of fifty percent of the money spent on fuel and its associated costs. However, it is your responsibility to make sure that you keep accurate records of your mileage, gasoline bills, and other relevant paperwork for VAT return filing in Dubai or UAE.
Seek Bad Debt Relief
When an account receivable turns into bad debt, the statute governing VAT in UAE allows for a VAT refund of any sales VAT that was paid. This VAT is due for repayment during the VAT period in which a debtor's account is classified as past due or bad debt.
It is recommended to perform a review of the customer listings and to consider writing off any delinquent accounts or bad debts that are discovered. During the VAT period in which the write-off has occurred, it is possible to take a deduction for the transaction that's to be written off by applying an adjustment onto the business' current VAT return.
Make annual adjustments for VAT recovery
If a company's operations include various activities that are subject to VAT taxation with others exempt from VAT, a VAT adjustment needs to be filed with the Federal Tax Authority UAE within a certain amount of time after the end of the fiscal year. A VAT adjustment must also be provided to the tax authority in the event that there's an incorrect calculation of the amount for VAT recovery.
The deadline for all non-resident businesses under the 'Foreign Business scheme' to submit their requests for VAT refunds through VAT refund filing in UAE is fast approaching. For the period March 1 2022 to August 31, 2022, non-UAE resident businesses are to consider whether or not they've incurred VAT in UAE which qualifies for a refund.
Manage all important information
A VAT-registered business can lose money when VAT paid on business expenses isn't reclaimed through VAT return filing in UAE. Therefore, it is essential to retain records. Always make sure you retain receipts for items that can be recovered as they can come in handy when you want to reduce VAT liability while increasing overall turnover. Avoid making the mistake of overlooking tax deductions.
Consider making donations, grants, and sponsorships
The donation, grant, and sponsorship income isn’t considered a supply and falls beyond the scope of Value Added Tax in UAE provided that the income is from a non-business transaction. This means any donation, grant, or sponsorship, to not be subject to taxation, must be freely given without any strings attached. The income has to be unrestricted and unconditional for such treatment to be deemed applicable. In such case, VAT paid by the business making a donation, grant, or sponsorship can file for a VAT refund in UAE. VAT, however, will apply if there is a close link as payment.
For instance, if a VAT-registered business donates supplies to a local hospital then the hospital provides the donor with space to market or display its products, the donation is subject to taxation. On the other hand, if the business makes a donation without receiving any benefit in return, the donation or sponsorship won't be subject to tax. Tax paid on such can be recovered during tax return filing in UAE.
TAX return filing in UAE has to be done on a quarterly basis, but it may also be each month should the UAE Federal Tax Authority deem it necessary. There are many expenditures of VAT-registered businesses that are considered deductible if they're for the furtherance of doing business in the country. However, there are also those that are non-recoverable input tax.
Before submitting your upcoming tax return, consult with the seasoned VAT consultant in Farahat & Co to help ensure your business is tax efficient. With the help of our VAT experts in UAE, small margins can be turned into huge profits which strengthen your company's cash flow. Call us today!
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