VAT Archives | Audiix https://audiix.com/category/vat/ Tax Auditing Tue, 12 May 2026 20:42:08 +0000 en-US hourly 1 UAE Subsidiaries of Foreign Companies: Tax, Accounting, and Reporting Requirements https://audiix.com/uae-subsidiary-tax-and-accounting/?utm_source=rss&utm_medium=rss&utm_campaign=uae-subsidiary-tax-and-accounting Tue, 21 Apr 2026 07:46:32 +0000 https://audiix.com/?p=4592 A practical guide to pre-incorporation planning, Corporate Tax, VAT, bookkeeping, transfer pricing, management structure, and head-office reporting for foreign-owned entities in the […]

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]]> A practical guide to pre-incorporation planning, Corporate Tax, VAT, bookkeeping, transfer pricing, management structure, and head-office reporting for foreign-owned entities in the UAE.

When a foreign group decides to establish a presence in the UAE, UAE subsidiary tax and accounting is rarely the first priority — the commercial side tends to dominate: the market opportunity, the licence, the office space, the first hires. The finance and tax side can feel like something to sort out once the entity is up and running.

That instinct is understandable. It is also, in our experience, one of the most common and avoidable sources of compliance problems, tax exposure, and unnecessary cost for foreign-owned UAE entities.

The reality is straightforward: a UAE subsidiary is a real local business with real legal, accounting, and tax obligations from the moment it is incorporated — not from the moment it registers for VAT, not from the moment it files its first tax return, and not from the moment it starts generating revenue. The obligations begin at incorporation. Accounting records must be maintained in accordance with applicable accounting standards from day one. LLCs, generaly, required to register for Corporate Tax within 3 months of incorporation. The VAT registration threshold must be assessed monthly from the date the entity begins making or incurring relevant supplies. Decisions about transactions between the subsidiary and the parent or other group members — whether capital contributions, funding arrangements, service charges, or any other intercompany dealings — need to be made deliberately, structured correctly, and documented in a transfer-pricing-compliant manner before those transactions take place, not after.

UAE subsidiary tax and accounting obligations begin at incorporation. Waiting until the entity is ‘established’ or until deadlines approach is a costly approach that creates avoidable risk.

This is why the right time to engage a tax adviser is before incorporation, not after. The choice of jurisdiction, legal form, and licence type carries significant tax consequences — and those consequences are far easier to plan around before the entity is formed than to correct after the fact. The management structure of the subsidiary also requires careful thought at the outset, for reasons that go beyond local compliance.

This guide covers the key areas foreign groups need to manage when establishing and operating a UAE subsidiary: pre-incorporation planning, Corporate Tax, VAT, accounting discipline, intercompany and transfer pricing matters, management structure risks, and head-office reporting. It also explains how Audiix supports foreign subsidiaries in bringing these areas together through one coordinated, ongoing engagement.

UAE Subsidiary Tax and Accounting: Why It Starts at Incorporation

The most effective time to engage a UAE adviser on subsidiary tax and accounting is before the entity is formed. At that stage, the group still has full flexibility over the choices that will define the subsidiary’s tax position for years.

Jurisdiction, Free Zone, or Mainland?

The UAE offers a range of establishment options: onshore mainland entities, and dozens of free zones with their own regulatory frameworks, licence types, and tax profiles. Each combination carries different implications for Corporate Tax, VAT applicability, the availability of free zone tax benefits (and the conditions attached to them), and the entity’s ability to transact with UAE mainland customers and suppliers.

The right choice depends on the group’s activity, operational model, customer base, and intercompany structure. There is no universal answer — but there is a right answer for each specific situation, and it is best identified before the licence is issued.

Legal Form and Licence Type

The legal form of the entity — whether a Limited Liability Company, a branch of a foreign company, a free zone establishment, or another structure — affects how the entity is treated for tax purposes, what filings are required, and what corporate governance obligations apply. These choices interact with the group’s existing structure in ways that are not always obvious without proper tax analysis.

It is strongly recommended to consult a UAE tax expert before incorporation. The right structure, jurisdiction, and legal form should be selected based on the group’s specific activity, operational model, and intercompany arrangements — not settled by default after the fact.

Corporate Tax Registration Timing

Once incorporated, the clock starts immediately. A UAE LLC is generally required to register for Corporate Tax within three months of incorporation — regardless of whether it has begun trading or generating revenue. Missing this deadline creates a compliance exposure from the outset. This is one of several reasons why tax planning cannot sensibly be deferred to the operational phase.

Management Structure: A Critical and Often Overlooked Tax Risk

One of the most important and frequently underestimated tax decisions in establishing a UAE subsidiary is who manages it, and from where.

Under international tax principles and many bilateral tax treaties, a company may be considered tax-resident — or to have a taxable presence — in a country where its place of effective management is located. For UAE subsidiaries of foreign groups, this creates a risk that runs in both directions.

The UAE Subsidiary: Management From Abroad

If the UAE subsidiary’s key management decisions are effectively made abroad — by the parent company’s board, a senior executive based in another country, or a committee with no meaningful UAE presence — the subsidiary’s status as a UAE-tax-resident entity may be questioned. Conversely, the UAE may be the place where a foreign entity is effectively managed, which brings us to the more common and more immediately concerning risk.

The Foreign Entity: Management From the UAE

If the person managing the UAE subsidiary is also involved in managing another foreign entity — as a director, manager, or decision-maker — that foreign entity may have a Corporate Tax obligation in the UAE. Under the UAE Corporate Tax framework, a foreign company can be treated as a UAE tax resident if its place of effective management is in the UAE. If key decisions for the foreign entity are being made by someone sitting in Dubai, the UAE tax authority may take the view that the UAE is where that company is effectively managed.

Example: If the manager of a UAE subsidiary is also a director of the parent company or a related foreign entity, and is making strategic decisions for that foreign entity from the UAE, the foreign entity may be considered UAE tax-resident — creating a UAE Corporate Tax obligation that the group did not anticipate.

This is not a theoretical risk. It is a practical consequence of how place of effective management is assessed under the UAE Corporate Tax law and is closely linked to the individual’s responsibilities, location, and decision-making authority. Double taxation exposure can follow if the same entity is treated as tax-resident in two jurisdictions simultaneously.

The Practical Implication

The management structure of the UAE subsidiary — who holds which titles, who makes which decisions, and from which location — should be reviewed carefully before incorporation, with specific attention to any individuals who have responsibilities across multiple group entities. This is not a formality. It is a substantive tax design question.

It is strongly recommended to consult a UAE tax expert on the proposed management structure before establishing the subsidiary. The wrong structure can create unintended UAE tax obligations for foreign group members, double taxation exposure, and significant complexity to unwind.

The Four Areas Every Foreign-Owned UAE Entity Needs to Manage Concurrently

Once the entity is established, four distinct areas of UAE subsidiary tax and accounting must operate in coordination from day one. Most UAE subsidiaries do not struggle because any one area is unmanageable. They struggle because these four areas are allowed to drift apart.

1. Tax Compliance

A UAE subsidiary must assess its Corporate Tax registration obligation immediately upon incorporation — an LLC is generally required to register within three months. VAT registration must be monitored monthly: for UAE-resident businesses, registration is mandatory once taxable supplies and imports exceed AED 375,000 over the previous 12 months or are expected to exceed that threshold within the next 30 days. Voluntary registration is available once taxable supplies, imports, or taxable expenses exceed AED 187,500. Corporate Tax returns and payment are generally due within nine months from the end of the tax period; VAT returns and payments are generally due within 28 days from the end of each tax period. Neither can be treated as a year-end concern.

2. Accounting Records and Financial Discipline

The obligation to maintain proper accounting records begins at incorporation, not at the point of first revenue. Records must be maintained in accordance with applicable accounting standards and must accurately reflect the entity’s financial position. Under the UAE Commercial Companies Law, companies are required to keep accounting registers at the registered office for at least five years from the end of the fiscal year. These records are the foundation for tax filings, intercompany reconciliations, audit support where applicable, and reporting to the parent company.

3. Group Transactions, Transfer Pricing, and Intercompany Structure

Before any transaction takes place between the UAE subsidiary and the parent company or any other group member, the group should decide what types of transactions are appropriate, how they will be priced, and how they will be documented. This applies to all categories of intercompany activity: capital contributions, shareholder loans and funding arrangements, management fees and service charges, software and technology licence fees, shared-service allocations, payroll or secondment arrangements, and any other related-party dealings. The FTA confirms that transfer pricing rules apply to UAE businesses transacting with Related Parties and Connected Persons, regardless of whether those parties are in the UAE mainland, a free zone, or a foreign jurisdiction. Documentation and pricing decisions made after the fact are significantly weaker than those established in advance.

4. Head-Office Reporting

Even a lean UAE entity is typically expected by head office to produce timely management reporting, clear reconciliations, explanations of unusual movements, and evidence that local compliance is properly under control. If the local books are delayed or poorly maintained, group finance receives unreliable information — and the UAE team spends its time answering questions rather than managing the business.

Tax Obligations in Detail: Corporate Tax, VAT, and Ongoing Compliance

Corporate Tax

Corporate Tax is not a year-end concern. An LLC must generally register within three months of incorporation — before any trading activity, before any revenue, and regardless of profit or loss position. The tax computation will need to be supported by the accounting records, which is why clean bookkeeping from day one has direct tax consequences. Relevant questions for foreign subsidiaries include free zone eligibility and qualifying conditions, deductible expenses, the treatment of intercompany charges, loss positions, and the consistency between financial statements and the Corporate Tax return. Corporate Tax returns and payment are generally due within nine months from the end of the relevant tax period.

VAT

VAT registration must be assessed monthly from the date the entity begins making or incurring relevant supplies — it is not a one-time threshold check at year-end. For UAE-resident businesses, mandatory registration is triggered once taxable supplies and imports exceed AED 375,000 over the previous 12 months, or are expected to exceed that threshold within the next 30 days. Voluntary registration is available from AED 187,500. Beyond registration, the ongoing challenge is getting day-to-day VAT treatment right: correct classification of supplies, appropriate treatment of imported services and cross-border transactions, proper documentation, and accurate ledger coding. UAE subsidiaries of foreign groups often face technical VAT questions specifically because of how they interact with their group members across jurisdictions. VAT returns and payments are generally due within 28 days from the end of each tax period.

Embedding Compliance in the Monthly Rhythm

Tax compliance works best when it is built into the monthly finance process rather than treated as a periodic filing exercise. Registrations, bookkeeping, reconciliations, document flow, tax coding, and intercompany accounting should all support the final return as a matter of routine. This approach produces cleaner filings, fewer corrections, and a consistently clearer picture of the UAE tax position for both local management and head office.

Group Transactions and Transfer Pricing: Decisions That Should Be Made Before Day One

For subsidiaries of foreign companies, intercompany activity is typically present from the beginning — and the way it is structured at the outset shapes the entity’s tax profile for years. The group must decide, before transactions begin, what intercompany arrangements are appropriate: what services the parent will provide, on what basis they will be charged, how funding and capital contributions will be structured, and what documentation will support the pricing.

Common categories of intercompany activity in foreign-owned UAE subsidiaries include:

  • Capital contributions and shareholder loans from the parent company
  • Management fees or overhead allocations
  • Shared-service charges (finance, HR, IT, legal, and similar functions)
  • Software, technology, or intellectual property licence fees
  • Payroll, secondment, or personnel cost allocations
  • Marketing, sales, or business development support charges
  • Intercompany balances and settlement timing differences

The FTA confirms that transfer pricing rules — grounded in the arm’s length principle — apply to UAE businesses transacting with Related Parties and Connected Persons, wherever those parties are located. This means each category of intercompany transaction must be priced as it would be between independent parties, supported by appropriate documentation, and treated correctly in both the accounting records and the tax return.

Transfer pricing documentation and pricing decisions established in advance are significantly more defensible than those reconstructed after the fact. The group should approach intercompany structuring as a planning exercise before the subsidiary begins operating, not a compliance exercise at filing time.

In practice, subsidiaries need support at two levels. The first is good day-to-day handling: accurate accounting treatment, organised supporting schedules, and ongoing awareness of the tax implications of each category of intercompany activity. The second is specialist support where the volume, materiality, or complexity of related-party transactions requires formal transfer pricing analysis, benchmarking, or group-structure advice.

Audiix’s services specifically include recurring accounting and tax plans alongside specialist Transfer Pricing and Group Structuring support, making this a natural fit for foreign-owned entities with intercompany activity from the outset.

Clean Books: The Foundation of Everything Else

For a foreign-owned UAE subsidiary, the quality of tax and accounting records is not simply an administrative matter. It is the foundation for VAT returns, Corporate Tax filings, management reporting, intercompany reconciliations, head-office reporting, and audit readiness. And the obligation begins at incorporation.

A smaller team and modest transaction volume do not reduce the importance of proper records — they make disciplined bookkeeping more critical, because management and head office depend heavily on the local records being complete, current, and explainable. The UAE Commercial Companies Law requires accounting registers that accurately reveal the company’s financial position to be retained for at least five years.

Clean books mean:

  • Transactions recorded correctly and on time, in accordance with applicable accounting standards
  • Bank and balance sheet reconciliations completed each month
  • Intercompany entries tracked clearly, with supporting documentation
  • Revenue and cost postings that reflect commercial reality
  • A month-end close process that produces usable, reliable numbers

Once that discipline is in place, other compliance areas follow more naturally. VAT returns are prepared from cleaner source data. Corporate Tax computations are better supported. Parent-company questions are answered faster. And where audit support is needed, the process is far less disruptive.

Audiix treats bookkeeping not as a disconnected back-office task but as the core of a coordinated compliance and reporting workflow. The service model is built around structured monthly close, clean records, on-time VAT and Corporate Tax compliance, and decision-ready reports — through one team.

Head-Office Reporting: The Expectation That Changes Everything

A UAE subsidiary is not only accountable to local regulators. It is accountable to its parent company — and the standards head office expects are often more demanding than the minimum required by UAE compliance alone.

Head office typically expects:

  • Monthly or quarterly management reporting
  • Visibility over local financial performance against budget or group targets
  • Clear reconciliations and explanations of unusual balances or movements
  • Confidence that local tax and compliance are properly under control
  • A smooth, reliable flow of financial data into group reporting processes

When the local books are delayed, intercompany balances are unreconciled, or tax positions are only reviewed near deadlines, the UAE subsidiary becomes a source of friction for the wider group. Questions escalate. Local management spends time chasing explanations. What should be a straightforward process becomes heavier than it needs to be.

A strong local finance partner reduces that friction — not merely by keeping records technically correct, but by making the financial information coming out of the UAE genuinely useful and trustworthy for group finance. Audiix describes this as keeping local books clean, filings on time, and reporting aligned with head office, so group finance can trust the numbers coming out of Dubai.

Where Foreign-Owned UAE Entities Commonly Run Into Trouble

Most UAE subsidiary tax and accounting problems do not begin with a single major technical error. They accumulate through smaller gaps in planning, process, and coordination. The most common patterns include:

Not engaging tax advice before incorporation. The choice of jurisdiction, legal form, and management structure is made without tax analysis — and the consequences are discovered later, when they are harder and more expensive to address.

Missing the Corporate Tax registration deadline. An LLC must generally register within three months of incorporation. Treating Corporate Tax registration as something to handle ‘when trading begins’ creates an immediate compliance exposure.

Unplanned management structure creating foreign tax exposure. A senior individual managing both the UAE subsidiary and a foreign group entity from Dubai may inadvertently create UAE tax obligations for the foreign entity based on place of effective management.

Intercompany transactions without prior structuring. Group charges and funding arrangements entered into without advance planning, pricing, or documentation create transfer pricing risk and make tax filings harder to support.

Treating tax as a year-end event. When VAT and Corporate Tax are only reviewed near filing deadlines, the team ends up resolving accounting gaps, documentation gaps, and technical tax issues simultaneously — under time pressure.

Relying on HQ records rather than maintaining local books. A group spreadsheet is not a substitute for a properly maintained local accounting system. The UAE entity needs its own complete, current, and accurate records.

Splitting bookkeeping, tax, and reporting across different providers. When there is no single owner of the full compliance and reporting picture, issues are discovered late and responsibility is unclear.

Assuming a small local office means a light compliance burden. A commercially lean UAE entity can still carry significant obligations in tax, records, intercompany activity, and reporting.

None of these are unusual. They are common operational challenges for foreign-owned entities — and they are highly fixable when the finance and tax function is structured properly from the outset.

How Audiix Supports Foreign Subsidiaries in One Coordinated Plan

Audiix is built for exactly this type of business. Foreign subsidiaries and regional offices are one of Audiix’s core client profiles, and the service model is designed around robust UAE compliance, clean books, and reporting that works for both local management and head office.

For subsidiaries, Audiix’s role is not a one-off filing or an isolated fix. It is to serve as the local accounting and tax partner that keeps the full finance and compliance picture moving properly throughout the year.

Pre-Incorporation and Structural Tax Advice

Audiix works with foreign groups before incorporation to assess the tax implications of different jurisdiction, free zone, mainland, and legal form options, and to advise on management structure in light of Corporate Tax residency and place of effective management considerations. This is the stage where the most consequential decisions are made — and where sound advice has the greatest impact.

Local Books, Done Properly

Cloud accounting setup, disciplined bookkeeping from day one, regular reconciliations, a structured monthly close, and financial records that are straightforward to support, explain, and rely on.

VAT and Corporate Tax in One Connected Workflow

Audiix’s recurring service model treats bookkeeping, VAT, Corporate Tax, and reporting as one coordinated process — not separate services handled by different parties. This means compliance deadlines are met as a matter of routine, not as a recurring last-minute effort.

Transfer Pricing and Intercompany Structure

Where the UAE entity has management charges, funding arrangements, recharges, related-party balances, or other intercompany activity, Audiix brings structure and visibility to those areas from the outset. Where the complexity warrants more formal transfer pricing analysis or group-structure advice, specialist input is available as part of the same relationship.

HQ-Ready Reporting

A good local partner makes it easier for the UAE office to report upward, explain the numbers clearly, and demonstrate that local compliance is properly under control. That is a core part of what Audiix delivers.

A Named Team and a Clear Process

Audiix operates on a team-based, process-driven model. Clients have a consistent, reliable point of contact backed by a structured workflow — not a single person managing everything informally.

In short, Audiix is designed to function as a well-run local finance function for the UAE entity: clean books from day one, coordinated tax compliance, disciplined intercompany handling, clearer reporting, and less friction for both local management and head office.

Is This Relevant to Your UAE Entity?

This approach to UAE subsidiary tax and accounting is particularly well-suited to:

  • Foreign groups in the process of incorporating a UAE subsidiary or regional office who want to get the structure right from the start
  • Newly formed subsidiaries that need proper local finance and tax discipline established from day one
  • Lean UAE teams that depend on head office for financial oversight but need a reliable local compliance and reporting function
  • Free zone or mainland entities with regular reporting requirements to the parent company
  • Businesses with recurring intercompany charges, funding arrangements, or related-party balances that require proper transfer pricing treatment
  • Groups where senior individuals have management responsibilities across multiple entities and need clarity on the tax implications
  • Regional offices where management wants one reliable local partner rather than coordinating several providers

One Local Partner. One Coordinated Plan. From Day One.

A UAE subsidiary is a real local business with real obligations from the moment it is incorporated. Those obligations do not wait for the entity to start trading, register for tax, or grow to a certain size. Accounting records must be maintained from day one. VAT thresholds must be monitored from day one. Corporate Tax registration must be addressed within three months of incorporation. Intercompany transactions must be structured and documented before they begin.

The groups that manage this most effectively are those that engage proper tax and accounting advice before incorporation — not after — and that put a coordinated local finance function in place from the outset rather than building one reactively.

Audiix helps foreign subsidiaries in the UAE do exactly that: maintain clean books, stay current on VAT and Corporate Tax, handle group transactions with appropriate structure and care, and produce reporting that supports both local compliance and head-office visibility — through one premium, practical, and coordinated engagement.

If your group is establishing a UAE subsidiary, or your existing UAE entity needs clean books, on-time VAT and Corporate Tax, and reporting your head office can trust, Audiix can help put the right structure in place from day one.

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]]> Simplify Your Business with Wafeq E-Invoicing and Accounting Software in UAE and KSA https://audiix.com/wafeq-e-invoicing-accounting-software-uae-ksa/?utm_source=rss&utm_medium=rss&utm_campaign=wafeq-e-invoicing-accounting-software-uae-ksa Wed, 11 Dec 2024 19:38:47 +0000 https://audiix.com/?p=4194 Managing your business finances can be a daunting task, especially when juggling multiple responsibilities. For small business owners and accountants in the […]

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]]> Managing your business finances can be a daunting task, especially when juggling multiple responsibilities. For small business owners and accountants in the UAE and KSA, Wafeq provides a comprehensive e-invoicing and accounting software solution tailored to meet the needs of modern businesses. Trusted by over 7,000 companies across diverse industries, Wafeq empowers you to streamline operations and focus on growth.

Why Wafeq E-Invoicing and Accounting Software Stands Out

All-in-One Solution for Every Business Stage

Whether you’re a startup or an established business, Wafeq offers essential tools to support your journey. From invoicing to inventory tracking, this software has everything you need to manage your business efficiently.

Core Features to Streamline Your Operations

Purchases & Claims

Manage bills, purchase orders, and expenses from a single platform. Save time and reduce errors with centralized data.

Payroll & Employees

Simplify payroll processes and empower employees to submit expense claims directly.

VAT Return Made Easy

Wafeq’s automated VAT return feature generates reports in compliance with FTA guidelines, making tax filing seamless without the need for an accountant.

Inventory Tracking

Track stock levels and let Wafeq automatically calculate the cost of goods sold (COGS) for better inventory management.

Customers & Suppliers

Gain clear insights into your receivables and payables. Always stay on top of who owes you money and who you owe.

Reports & Insights

Generate over 30 financial reports, including consolidated and cash flow reports. Access real-time insights for better decision-making.

E-Invoicing Compliance in the UAE and KSA

E-invoicing is an essential part of tax compliance in the UAE and KSA. In the UAE, the Federal Tax Authority (FTA) plans to implement mandatory e-invoicing requirements by 2026, aiming to enhance transparency and tax compliance. Wafeq is already approved by the FTA and has the e-invoicing feature ready, allowing businesses to issue e-invoices that meet compliance standards seamlessly.

In Saudi Arabia, e-invoicing has been mandatory since 2021 under ZATCA regulations, requiring businesses to issue electronic invoices with strict compliance features. Wafeq is ZATCA-approved and has the e-invoicing function already set up, ensuring businesses in KSA can generate fully compliant e-invoices while simplifying their financial processes. This dual approval makes Wafeq a trusted partner for businesses operating in both regions.

Key Invoicing Features

  • Customization: Adjust column labels, text colors, and layouts to match your brand identity.
  • Templates: Save and reuse your preferred invoice templates.
  • Company Stamp: Upload your official stamp for added authenticity.
  • Multi-Channel Delivery: Send invoices via email or WhatsApp, and customize messages for recipients.

Simplified Invoice Management

With Wafeq, you can download and preview invoice PDFs before sending them. Manage customer communication directly from the platform to ensure a professional experience.

Collaboration and Team Access

Wafeq allows you to invite your team and manage their permissions with over 60 customizable options. For example:

  • Grant salespeople access to quotes only.
  • Restrict HR access to payroll data.

Built-in chat features and expense claim submissions further enhance teamwork and communication.

Multi-Organization and Branch Management

Running multiple businesses or branches? Wafeq supports both under a single account. Easily switch between organizations or branches and manage them with minimal effort.

Time-Saving Features

Efficiency is at the core of Wafeq’s design. Features like bulk data entry, sheet view editing, and quick shortcuts allow you to save time and focus on more critical tasks.

Cost-Effective E-Invoicing and Accounting Software by Wafeq

Starting at just $15 USD per month, Wafeq offers unlimited users on all plans, making it an affordable option for businesses of all sizes. Local support ensures you’ll always have help when you need it, via chat, email, or phone.

Why Choose Audiix as Your Wafeq Partner?

Audiix is a proud FTA-authorized tax agency and an official Wafeq partner in the UAE. Our team of certified accountants and bookkeepers offers tailored Wafeq services, including:

  • Subscription and localized UAE setup.
  • Implementation, integration, and training.
  • Ongoing accounting and tax support for Wafeq users.
  • Tax Agent appointment services for hassle-free compliance.

Conclusion

Wafeq e-invoicing and accounting software UAE KSA simplifies financial management for businesses in the UAE and KSA. By combining powerful features with user-friendly design, it’s an ideal solution for small businesses and professional firms looking to stay compliant and efficient. Partner with Audiix to unlock the full potential of Wafeq and ensure your business thrives.

Explore Wafeq with Audiix today and take the first step toward smarter financial management.

Wafeq e-invoicing and accounting software UAE KSA

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]]> What is a Tax Agent in the UAE? https://audiix.com/what-is-a-tax-agent-in-the-uae/?utm_source=rss&utm_medium=rss&utm_campaign=what-is-a-tax-agent-in-the-uae Sun, 08 Dec 2024 09:40:52 +0000 https://audiix.com/?p=4174 In the UAE, businesses face complex and evolving tax regulations. A Tax Agent acts as a trusted advisor, ensuring compliance with Federal […]

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]]> In the UAE, businesses face complex and evolving tax regulations. A Tax Agent acts as a trusted advisor, ensuring compliance with Federal Tax Authority (FTA) requirements while simplifying tax administration. Appointing a Tax Agent allows businesses to focus on growth while benefiting from expert support in managing tax obligations.

How Tax Agent Registration Requirements Benefit Businesses

The stringent requirements set by the FTA for registering as a Tax Agent ensure businesses receive top-tier support from qualified professionals. These criteria include:

  • Educational Expertise: A strong academic foundation in tax, accounting, or law equips Tax Agents with advanced knowledge to address diverse tax challenges effectively.
  • Proven Experience: At least three years of recent professional experience guarantees that Tax Agents are well-prepared to handle real-world tax compliance, mitigate risks, and develop strategic tax solutions.
  • Police Clearance Certificate: Tax Agents must provide a certificate proving they have no criminal record. This safeguards businesses by ensuring their Tax Agent is of impeccable character and integrity.
  • Ethical Conduct: Any conviction for a crime results in immediate removal from the FTA register. This ensures businesses are always represented by professionals who uphold the highest ethical and legal standards.

Unlike general tax consultants, FTA-registered Tax Agents undergo rigorous vetting. This process ensures that businesses gain a reliable partner equipped with the expertise, integrity, and professionalism necessary to navigate the complexities of UAE tax laws and provide tailored solutions.

How the Code of Ethics Protects Businesses

The FTA’s strict Code of Ethics requires Tax Agents to uphold the highest professional and ethical standards. These include:

  • Integrity: Ensuring honesty and transparency in all interactions, fostering trust with clients.
  • Objectivity: Providing unbiased advice, free from conflicts of interest.
  • Confidentiality: Safeguarding sensitive business information.
  • Competence: Staying updated on the latest tax regulations to deliver accurate and effective guidance.
  • Professional Behavior: Maintaining compliance with laws and enhancing the credibility of the tax profession.

These ethical standards differentiate Tax Agents from other tax consultants, offering businesses the confidence of working with professionals who prioritize their interests and ensure compliance.

Duties and Responsibilities of a Tax Agent

Tax Agents play a pivotal role in supporting businesses with tax compliance and administration. Their primary duties include:

  • VAT and Corporate Tax Administration: Simplifying the preparation and submission of tax returns while managing records efficiently.
  • Compliance Assurance: Ensuring businesses meet all FTA requirements to avoid penalties and maintain a clean compliance record.
  • Efficiency Improvements: Streamlining tax processes to reduce administrative burdens and optimize operations.
  • Risk Mitigation: Identifying and addressing potential compliance risks, protecting businesses from errors and regulatory scrutiny.

By focusing on these areas, Tax Agents provide businesses with peace of mind and allow them to focus on growth rather than tax-related challenges.

Why Appoint Audiix as Your Tax Agent?

Audiix is a trusted FTA-authorized Tax Agency that partners with businesses to simplify VAT and corporate tax compliance. With a commitment to professionalism and reliability, Audiix offers:

  • Seamless Tax Administration: Expertise in VAT and corporate tax processes ensures accurate filings and efficient record-keeping.
  • Shared Compliance Risk: As your Tax Agent, Audiix assumes responsibility for compliance, reducing the risk of errors and penalties.
  • Penalty Avoidance: Proactive support minimizes the likelihood of costly fines or regulatory breaches.
  • Peace of Mind: Businesses can focus on their operations, knowing their tax obligations are handled by experts.

Audiix specializes in serving businesses across Free Zones and Mainland UAE, delivering tailored tax solutions to meet your unique needs.

Secure Your Tax Compliance Today

Partner with Audiix to streamline your VAT and corporate tax administration, mitigate compliance risks, and enhance efficiency. Contact us today to share your compliance burden and ensure your business stays ahead of UAE tax regulations.

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]]> FTA Grants Grace Period to Update Records and Waive Penalties https://audiix.com/uae-businesses-act-now-penalty-free-grace-period-to-update-your-tax-records/?utm_source=rss&utm_medium=rss&utm_campaign=uae-businesses-act-now-penalty-free-grace-period-to-update-your-tax-records Fri, 08 Nov 2024 18:48:10 +0000 https://audiix.com/?p=4091 Grace Period Announced for Updating Tax Records in the UAE The UAE’s Federal Tax Authority (FTA) has recently introduced a significant tax […]

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]]> Grace Period Announced for Updating Tax Records in the UAE

The UAE’s Federal Tax Authority (FTA) has recently introduced a significant tax update: a grace period for businesses to update their tax records without facing penalties. This is a move that aims to support businesses in maintaining accurate tax records while avoiding costly administrative fines. Here’s what you need to know about this new grace period and how it could benefit your business.

Key Takeaways

  • What: Grace period to update tax records without penalties.
  • When: The period starts on January 1, 2024, and ends on March 31, 2025.
  • Who: Any registrant with the FTA who needs to amend their tax records.

Why This Matters

Typically, businesses in the UAE are required to inform the FTA within 20 business days if there are any changes to critical information, like company name, address, trade license details, or legal entity type. Failing to report such changes within this timeframe can lead to penalties. The penalties could be AED 5,000 for the first occurrence, and even higher if repeated.

The new grace period provides a valuable window for businesses to correct and update their information without facing these fines.

What Can Be Updated

During this grace period, businesses can make various updates to their tax records, including:

  • Changes in company name, address, or contact details.
  • Updates to trade license activities.
  • Modifications to the legal entity type or business structure.
  • Adjustments to primary business activity or location.

How the Grace Period Works

From January 1, 2024, until March 31, 2025, any updates made to your tax records will not trigger administrative penalties, even if they are changes that should have been reported previously. This means you can bring your tax records fully up to date without fear of fines during this period.

Reversal of Previously Imposed Fines

If a business was already fined for failing to update its tax records within the required timeframe, there’s some good news. Any penalties imposed between January 1, 2024, and the effective date of the grace period will be automatically reversed by the FTA. If you’ve already paid these fines, the amount will be credited back to your tax account.

Steps for Businesses

  1. Review your current tax records with the FTA.
  2. Identify any updates that need to be made.
  3. Submit updates to the FTA before March 31, 2025, to avoid penalties.

There’s no need to contact the FTA specifically to request a fine reversal. Any penalties applied during the grace period will be adjusted automatically.

Take advantage of this window to review and correct any outdated information with the FTA, and stay compliant while avoiding fines.

For further details, consult your tax advisor or contact the FTA directly to make sure you’re fully aligned with this new update.

The post FTA Grants Grace Period to Update Records and Waive Penalties appeared first on Audiix.

]]> Key Updates to UAE VAT Executive Regulations https://audiix.com/key-updates-to-uae-vat-executive-regulations/?utm_source=rss&utm_medium=rss&utm_campaign=key-updates-to-uae-vat-executive-regulations Thu, 24 Oct 2024 15:47:24 +0000 https://audiix.com/?p=4011 Critical Changes Effective 15 November 2024 On 2 October 2024, the UAE Federal Tax Authority (FTA) issued Cabinet Decision No. 100 of […]

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]]> Critical Changes Effective 15 November 2024

On 2 October 2024, the UAE Federal Tax Authority (FTA) issued Cabinet Decision No. 100 of 2024, which introduces significant amendments to the UAE VAT Executive Regulations under Federal Decree-Law No. 8 of 2017 on Value Added Tax (VAT). Set to take effect on 15 November 2024, these changes include over 30 amendments aimed at clarifying VAT treatment across multiple industries and addressing compliance inconsistencies. Below, we highlight the key changes and their implications for businesses.

Scope of Supply of Real Estate – Article 2

The scope of real estate supply has been expanded beyond the sale and lease of property. It now includes any other forms of disposal that result in the transfer of ownership from one person to another. This expansion ensures that a wider range of transactions, including non-traditional ownership transfers, are subject to VAT.

Exceptions Related to Deemed Supplies – Article 5

The amendment to Article 5 simplifies compliance by refining the thresholds for deemed supplies. Key changes include:

1- Small-Value Supplies: Supplies of goods with a value not exceeding AED 500 per recipient within a 12-month period are no longer considered deemed supplies. This applies to samples or commercial gifts.

2- Output Tax Thresholds:

  • VAT on deemed supplies is capped at AED 2,000 per supplier over a 12-month period. Any amount exceeding this is considered payable VAT.
  • For government entities or charities, the cap is AED 250,000 when the recipient is another government entity or charity. Any excess will be treated as payable VAT.

Profit Margin Scheme – Article 29

The updated regulations clarify the calculation of the profit margin under the Profit Margin Scheme. The profit margin, defined as the difference between the purchase and selling prices, must now include any associated costs or fees incurred during the purchase of the goods. This ensures a more accurate determination of the profit margin for VAT purposes.

Zero Rating of Exports of Goods – Article 30

The updates to Article 30 provide greater clarity on the documentation required to qualify for zero-rating of exported goods. The new regulations expand the types of acceptable evidence and adjust definitions, offering businesses more flexibility. Key points include:

Evidence of Exports: Acceptable documentation now includes:

  • Customs declaration and commercial evidence (such as an air waybill, sea manifest, or land transport document).
  • Shipping certificate and official evidence (including export certificates or clearance certificates issued by the customs authorities).
  • Customs declaration proving a customs suspension arrangement.

Definitions Expanded: The regulations have broadened definitions to make it clearer what constitutes valid proof:

  • Official Evidence: Export certificates from UAE customs or clearance certificates from destination countries confirming goods’ departure or arrival.
  • Commercial Evidence: Documents from transport companies proving the goods have left the UAE, including air waybills, sea manifests, and land waybills.
  • Shipping Certificate: A certificate from shipping companies that serves as an alternative when commercial evidence is unavailable.

This revision simplifies the proof of export and resolves challenges businesses faced under the previous requirement of obtaining an Exit Certificate.

Zero Rating of Exports of Services – Article 31

Additional conditions have been introduced for services to qualify for zero-rating. Services that fall under special place of supply rules—such as restaurants, hotels, cultural events, and transportation—are now explicitly excluded from zero-rating. Likewise, services directly connected to movable assets in the UAE are no longer eligible for zero-rating.

This update, while reflecting current practices, provides further clarity by confirming that such services are considered provided within the UAE and therefore cannot be zero-rated for VAT purposes.

Zero-Rating Healthcare Services – Article 41

The VAT zero-rating for healthcare goods and services has been extended to include the importation of healthcare-related goods. This means that healthcare services and goods provided within the UAE, as well as goods imported for healthcare purposes, will now be eligible for VAT zero-rating, reducing costs for healthcare providers and consumers.

Management Fund Services – Article 42

The VAT treatment of financial services has been updated, particularly for the management of investment funds and virtual assets.

Management of Investment Funds: These services, when provided by fund managers, for a fee, to funds licensed by a competent UAE authority, are now VAT exempt. Services include the management of the fund’s operations, investments, and performance.

Virtual Assets – Article 42

One of the major updates is the VAT exemption for Virtual Assets as part of financial services. Virtual Assets are defined as digital representations of value that can be traded or converted digitally and are used for investment purposes. The definition explicitly excludes digital representations of fiat currencies and financial securities.

The following activities related to Virtual Assets are considered financial services and are VAT exempt:

  • The transfer of ownership of Virtual Assets, including virtual currencies.
  • The conversion of Virtual Assets.
  • The management, custody, and control of Virtual Assets.

This update aligns the VAT treatment of Virtual Assets with other financial services, ensuring that transactions involving Virtual Assets are treated as exempt supplies for VAT purposes.

Tax on Supplies of More Than One Component – Article 46

A key change in Article 46 is the introduction of a provision for cases where there is no clear principal component in a composite supply. Previously, the VAT treatment followed the principal component. Now, if no principal component can be identified, the VAT treatment will be determined based on the nature of the supply as a whole. This ensures the correct VAT application for complex supplies.

Input VAT Recovery on Employee-Related Expenses – Article 53

Article 53 has been updated to offer more flexibility in recovering input VAT on employee-related expenses, particularly health insurance. Key updates include:

  • Input VAT Recovery: Businesses can now recover input VAT on both standard and enhanced health insurance for employees and their dependents.
  • Covered Dependents: Recovery is allowed for insurance covering an employee’s spouse (up to one wife) and up to three children under 18 years of age.

This update broadens the scope of deductible employee-related expenses, providing businesses with a clearer framework for recovering VAT on health insurance costs.

Tax Invoices – Article 59

The amendments to Article 59 clarify the requirements for issuing tax invoices:

  • Simplified Tax Invoices: These must now be issued on the date of supply, in contrast to full tax invoices, which can be issued within 14 days. Simplified tax invoices cannot be used for supplies subject to the Reverse Charge Mechanism.
  • Summary Tax Invoices: If multiple supplies are made to the same customer in the same month, a summary tax invoice must be issued within 14 days of the end of that month.
  • Invoices Issued by Agents: When an agent issues an invoice on behalf of a principal (e.g., an e-commerce platform invoicing on behalf of a merchant), both parties must keep records detailing the names, addresses, and TRNs of each other.

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]]> Administrative Penalties https://audiix.com/penalties/?utm_source=rss&utm_medium=rss&utm_campaign=penalties Sat, 27 Jul 2024 09:06:00 +0000 https://audiix.com/?p=3946 The UAE tax legislations have established a comprehensive framework of administrative penalties for violations of tax regulations. These penalties, outlined in Cabinet […]

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]]>

The UAE tax legislations have established a comprehensive framework of administrative penalties for violations of tax regulations. These penalties, outlined in Cabinet Decision No. 49 of 2021, cover tax procedures, excise tax, and value-added tax (VAT), and Cabinet Decision No. 75 of 2023 &  No. 10 of 2024m cover corporate tax.

The following tables provide a detailed overview of the specific violations and the corresponding penalties, helping businesses understand their obligations and the consequences of non-compliance.

Table of Contents

  1. Tax Procedures' Violations and Administrative Penalties
  2. Value Added Tax's Violations and Administrative Penalties
  3. Corporate Tax's Violations and Administrative Penalties
  4. Excise Tax's Violations and Administrative Penalties

Tax Procedures’ Violations and Administrative Penalties

Related to the Implementation of Federal Law No. 7 of 2017

NoViolationPenalty in AED

1

The failure of the Person conducting Business to keep the required records and other information specified in the Tax Procedures Law and the Tax Law.

10,000 for the first time. 20,000 in case of repetition.

2

The failure of the Person conducting Business to submit the data, records, and documents related to Tax in Arabic to the Authority when requested.

20,000

3

The failure of the Taxable Person to submit a registration application within the timeframe specified in the Tax Law.

10,000

4

The failure of the Registrant to submit a deregistration application within the timeframe specified in the Tax Law.

1,000 in case of delay, and on the same date monthly thereafter, up to a maximum of 10,000.

5

The failure of the Registrant to inform the Authority of any circumstance that requires the amendment of the information pertaining to its Tax record kept by Authority.

5,000 for the first time. 10,000 in case of repetition.

6The failure of the Legal Representative of the Taxable Person to inform the Authority of its appointment as Legal Representative within the specified timeframe, in which case the Penalties will be due from the Legal Representative’s own funds.10,000
7The failure of the Legal Representative for the Taxable Person to file a Tax Return within the specified timeframe, in which case the Penalties will be due from the Legal Representative’s own funds.1,000 for the first time. 2,000 in case of repetition within 24 months.
8The failure of the Registrant to submit the Tax Return within the timeframe specified in the Tax Law.1,000 for the first time. 2,000 in case of repetition within 24 months.
9The failure of the Taxable Person to settle the Payable Tax stated in the submitted Tax Return or Voluntary Disclosure, or the Tax Assessment he was notified of, within the timeframe specified in the Tax Law.1. The penalty is up to a maximum of 300%, on the unsettled Tax amount, as follows:
a. 2% of the unpaid Tax due on the day following the due date
b. 4% monthly penalty is due after one month from the due date of payment, and on the same date monthly thereafter, on the unsettled Tax amount to date.
2. For Voluntary Disclosure and Tax Assessment, the due date shall be as follows:
a. 20 business days from the date of submission, in the case of a Voluntary Disclosure. b. 20 business days from the date of receipt, in the case of a Tax Assessment.
10The submittal of an incorrect Tax Return by the Registrant.1. Fixed penalty shall be applied: 1,000 for the first time. 2,000 in case of repetition.
2. As an exception to Clause 1 of this penalty, if the incorrect Tax Return results in a Tax difference less than the fixed penalty listed in Clause 1 of this penalty, a penalty equal to the that Tax difference of at least 500 shall be imposed.
3. Anyone correcting their Tax Return prior to the due date of payment shall be excluded from the penalty imposed under Clauses 1 and 2 of this penalty.
11The submittal of a Voluntary Disclosure by the Person/Taxpayer on errors in the Tax Return, Tax Assessment or refund application pursuant to Article 10(1) and 10(2) of the Tax Procedures Law.Without prejudice to the potential consequences of the penalty mentioned in Clause 10 of this Table, a percentage-based penalty shall be applied on the difference between the Tax that was calculated and that which should have been calculated, pursuant to the following:
1. 5% on the difference, where the Voluntary Disclosure is submitted within one year from the due date of submission of the Tax Return, the Tax Assessment, or the relevant refund application;
2. 10% on the difference, where the Voluntary Disclosure is submitted within the second year following the due date of submission of the Tax Return, the Tax Assessment, or the relevant refund application;
3. 20% on the difference, where the Voluntary Disclosure is submitted within the third year following the due date of submission of the Tax Return, the Tax Assessment, or the relevant refund application;
4. 30% on the difference, where the Voluntary Disclosure is submitted within the fourth year from the due date of submission of the Tax Return, the Tax Assessment, or the relevant refund application;
5. 40% on the difference, where the Voluntary Disclosure is submitted after the fourth year from the due date of submission of the Tax Return, the Tax Assessment, or the relevant refund application.
12The failure of the Person/Taxpayer to voluntarily disclose an error in the Tax Return, Tax Assessment, or refund application pursuant to Article 10 (1) and 10(2) of the Tax Procedures Law before being notified by the Authority that it will be subject to a Tax Audit.Without prejudice to the potential consequences of the penalty mentioned in Clause 10 of this Table, the person will be subject to:
1. A penalty of 50% on the amount of error.
2. A penalty of 4% for every month or part of the month, of the following: a. The unpaid Tax to the Authority, from the date the payment is due for the relevant Tax Period until the date of receipt of the Tax Assessment. b. The Tax that was not returned to the Authority due to ineligible refund, from the date of Tax refund until the date of receipt of the Tax Assessment.
13The failure of the Person conducting Business to facilitate the work of the Tax Auditor in violation of the provisions of Article 21 of the Tax Procedures Law.20,000
14The failure of the Registrant to calculate Tax on behalf of another Person where the Registrant Taxable Person is obliged to do so under the Tax Law.1. The Registrant shall be obliged to pay the penalty applicable to late settlement of Payable Tax up to a maximum of 300%, pursuant to the following: a. 2% of the unpaid Tax is due on the day following the due date of payment, where the settlement of Payable Tax is late.
b. 4% monthly penalty is due after one month from the due date of payment, and on the same date monthly thereafter, on the unsettled Tax amount to date.
2. For the purposes of this penalty, the due date of payment in the case of Voluntary Disclosure and Tax Assessment, shall be as follows:
a. 20 business days from the date of submission, in the case of a Voluntary Disclosure.
b. 20 business days from the date of receipt, in case of a Tax Assessment.
15A Person not accounting for any Tax that may be due on the import of goods as per the Tax Law.50% of unpaid or undeclared Tax.

Value Added Tax’s Violations and Administrative Penalties

Related to the Implementation of Federal Decree-Law No. 8 of 2017

NOViolationPenalty in AED
1The failure of the Taxable Person to display prices inclusive of Tax.5000
2The failure of the Taxable Person to notify the Authority of applying Tax based on Margin.2500
3The penalty shall be the higher of 50,000 or 50% of the Tax, if applicable, chargeable on the goods in relation to the violation.The failure to comply with the required conditions and procedures related to keeping the Goods in a Designated Zone or moving them to another Designated Zone.
4The failure of the Taxable Person to issue a Tax Invoice or the alternative document when making any supply.2,500 for each detected case.
5The failure of the Taxable Person to issue a Tax Credit Note or the alternative document.2,500 for each detected case.
6The failure of the Taxable Person to comply with the conditions and procedures regarding the issuance of a Tax Invoice and a Tax Credit Note electronically.2,500 for each detected case.


Corporate Tax’s Violations and Administrative Penalties

Related to the Application of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses 

NoViolationPenalty in AED
1Failure of the Person conducting a Business or Business Activity or having a Tax obligation under the Tax Procedures Law or the Corporate Tax Law to keep the required records and other information specified in the Tax Procedures Law and the Corporate Tax Law.10,000 for each violation.
2. 20,000 in each case of repeated violation within 24 months from the date of the last violation.
2Failure of the Person conducting Business or Business Activity or having a Tax obligation under the Tax Procedures Law or the Corporate Tax Law to submit the data, records and documents related to Tax in Arabic to the Authority when requested.5,000
3Failure of the Registrant to submit a deregistration application within the timeframe specified in the Corporate Tax Law and its implementing decisions.1,000 in case of late submission of the application and on the same date monthly, up to a maximum of 10,000.
4Failure of the Registrant to inform the Authority of any case that may require the amendment of the information pertaining to his Tax record kept by the Authority.1,000 for each violation.
2. 5,000 in each case of repeated violation within 24 months from the date of the last violation.
5Failure of the Legal Representative to provide notification of their appointment within the specified timeframes, in which case the penalties will be due from the Legal Representative’s own funds.1,000
6Failure of the Legal Representative to file a Tax Return within the specified timeframes, in which case the penalties will be due from the Legal Representative’s own funds.500 for each month, or part thereof, for the first twelve months.
2. 1,000 for each month, or part thereof, from the thirteenth month onwards.
7Failure of the Registrant to submit a Tax Return within the timeframe specified in the Corporate Tax Law.500 for each month, or part thereof, for the first twelve months.
2. 1,000 for each month, or part thereof, from the thirteenth month onwards.c
8Failure of the Taxable Person to settle the Payable Tax.A monthly penalty of 14% per annum, for each month or part thereof, on the unsettled Payable Tax amount from the day following the due date of payment and on the same date monthly thereafter.
2. For the purposes of this penalty, the due date of payment in the case of the Voluntary Disclosure and Tax Assessment, shall be as follows:
a. 20 Business Days from the date of submission, in the case of a Voluntary Disclosure.
b. 20 Business Days from the date of receipt, in the case of a Tax Assessment.
9The Registrant submits an incorrect Tax Return.500, unless the Person corrects his Tax Return before the expiry of the deadline for the submission of the Tax Return according to the Corporate Tax Law.
10The submission of a Voluntary Disclosure by the Taxable Person in relation to errors in the Tax Return, Tax Assessment or Tax refund application pursuant to Clauses 1 and 2 of Article 10 of the Tax Procedures Law.A monthly penalty of 1% on the Tax Difference, for each month or part thereof, to be applied as of the date following the due date of the relevant Tax Return, the submission of the Tax refund application, or the Notification of the Tax Assessment and until the date the Voluntary Disclosure is submitted.
11Failure of the Taxable Person to submit a Voluntary Disclosure in relation to errors in the Tax Return, Tax Assessment or Tax refund application pursuant to Clauses 1 and 2 of Article 10 of the Tax Procedures Law, before being notified by the Authority that it will be subject to a Tax Audit.A fixed penalty of 15% on the Tax Difference.
2. A monthly penalty of 1% on the Tax Difference, for each month or part thereof, to be applied as follows:
a. Where the Taxable Person submits a Voluntary Disclosure after being notified that it will be subject to a Tax Audit by the Authority, the penalty shall be imposed for the period from the day following the due date of the relevant Tax Return, or the submission of the Tax refund application or Notification of the Tax Assessment and until the date the Voluntary Disclosure is submitted.
b. Where the Taxable Person fails to submit a Voluntary Disclosure, the penalty shall be imposed as of the date following the due date of the relevant Tax Return, or the submission of the Tax refund application or Notification of the Tax Assessment and until the date of issuance of the Tax Assessment.
12Failure of a Person subject to Tax Audit, his Tax Agent or Legal Representative to offer facilitation to the Tax Auditor in violation of the provisions of Article 20 of the Tax Procedures Law, in which case the penalties will be due from the Person’s, Legal Representative’s or Tax Agent’s own funds, as applicable.20,000
13Failure of a Person to submit, or late submission of a Declaration to the Authority, as required in accordance with the provisions of the Corporate Tax Law.500 for each month, or part thereof, for the first twelve months.
2. 1,000 for each month, or part thereof, from the thirteenth month onwards.
14Failure of the Taxable Person to submit a Tax Registration application within the timeframe specified by the Authority in accordance with the Corporate Tax Law.10,000

Excise Tax’s Violations and Administrative Penalties

 Related to the Implementation of Federal Decree-Law No. 7 of 2017

NoViolationPenalty in AED
1The failure of the Taxable Person to display prices inclusive of Tax.5000
2The penalty shall be the higher of 50,000 or 50% of the Tax, if applicable, chargeable on the goods in relation to the violation.The failure to comply with the conditions and procedures of transferring Excise Goods from a Designated Zone to another Designated Zone, and the mechanism of preserving, storing, and processing such Excise Goods.
3The failure of the Taxable Person to provide the Authority with the price lists of the Excise Good that it produces, imports or sells.5,000 for the first time. 10,000 in case of repetition.

 

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]]> Avoid Costly Penalties: Update Your FTA Records Promptly https://audiix.com/amendment-of-tax-registration-records/?utm_source=rss&utm_medium=rss&utm_campaign=amendment-of-tax-registration-records Sun, 21 Jul 2024 07:20:16 +0000 https://audiix.com/?p=3902 Keeping your tax records up to date with the Federal Tax Authority (FTA) is a legal requirement in the UAE. Here’s what […]

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]]> Keeping your tax records up to date with the Federal Tax Authority (FTA) is a legal requirement in the UAE. Here’s what you need to know to avoid AED 10,000 late amendment penalties and ensure compliance.

Brief

  • Notification Requirement: Fore changes in your tax records with the FTA, submit an amendment application within 20 days.
  • Penalties for Non-Compliance: AED 5,000 for the first failure, AED 10,000 for subsequent failures.
  • Information to Update: Business address, activities, partners, and other records with the FTA.

Grace Period

The Federal Tax Authority (FTA) has granted a grace period from 01 January 2024 to 31 March 2025. During this time, you can update your tax records without incurring any penalties.

Detailed Insight

Late Amendment Penalties

The FTA has stringent penalties for failing to update your records on time:

  • Initial Penalty: AED 5,000 for the first failure to notify the FTA within the 20-day period.
  • Subsequent Penalty: AED 10,000 for any subsequent failures.

How to Notify the FTA?

UAE Tax-registered individuals and businesses must:

  1. Log in to Emaratax Portal: Use your account to file amendment application.
  2. Submit Amended Information: Include all necessary documents and details of the changes.
  3. Deadline: Submit the application within 20 business days from the date of the change.
  4. FTA Review: The FTA will review and either approve the application or request additional information.

Types of Changes to Notify

  • Legal Name: Any changes to the Registrant’s name.
  • Address: Updates to physical or mailing addresses.
  • Email Address: Changes to the contact email with the Authority.
  • Trade License: Renewal or amendments, including activities, address, managers, owners, and contact details.
  • Legal Entity Type: Changes in entity type (e.g., sole proprietorship to LLC).
  • Partnership Agreements and Articles of Association:
    • Unincorporated partnerships: Changes in partnership agreements.
    • Incorporated entities: Updates to articles of association, including business names, managers, partners, and ownership.
  • Nature of Business: Modifications to business operations.
  • Business Address: Changes to the business operating address, or adding branches.

Practical Steps for Compliance

  • Monitor Records: Regularly check the validity and expiry of your tax records, including: license, partners IDs & passports, rent contract.
    • Amend the license for any changes such as address update even before the license expire and notify the FTA for the change within 20 business days.
    • If you’re on a Flexi-desk in a free zone, request the rent agreement from the free zone authority, and update the FTA for any changes.
  • Communicate with Your Tax Agent: Ensure your tax agent or legal representative is aware of any changes or renewals on a timely basis.
  • Timely Submission: Ensure amendment applications are submitted within 20 business days of any changes, and keep a copy of the acknowledgement and references of the application.

Laws References

  • Federal Decree-Law No. 28 of 2022: Tax Procedures Law.
  • Cabinet Decision No. 74 of 2023: Executive regulations on tax procedures.
  • Cabinet Decision No. 49 of 2021: Penalties.

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]]> Manpower vs Visa Facilitation services https://audiix.com/manpower-vs-visa-facilitation-service-ensuring-compliance-when-employees-hold-visas-from-another-company/?utm_source=rss&utm_medium=rss&utm_campaign=manpower-vs-visa-facilitation-service-ensuring-compliance-when-employees-hold-visas-from-another-company Sun, 09 Jun 2024 05:28:43 +0000 https://audiix.com/?p=3873 Ensuring VAT Compliance When Employees Hold Visas from Another Company The Federal Tax Authority has released a public clarification on the treatment […]

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]]> Ensuring VAT Compliance When Employees Hold Visas from Another Company

The Federal Tax Authority has released a public clarification on the treatment of Manpower services vs Visa Facilitation services (VATP038) on 31 May 2024.

It is common practice in the UAE, especially among related companies, for one company to hold the employment visas while the employees work under the supervision and control of another entity. From a VAT perspective, these services can either be classified as manpower services or visa facilitation services. Differentiating between these two is crucial due to their distinct VAT treatments.

The challenge for UAE businesses lies in determining the nature of the service, the value of the service, and whether to charge VAT, especially when the businesses are part of the same corporate group.

In this tax alert, we will explain the difference between manpower and visa facilitation services, and how to determine the value and VAT treatment of such services.

Manpower Services

Manpower services encompass identifying, recruiting, and hiring candidates to make them available for work at another entity. Typically, the supplier (sponsor) bears all employment obligations, including salary and benefits.

Generally, the default classification of such supply is manpower service, and VAT must be charged accordingly. However, as an exception, if certain conditions are met, the supply will be treated as a facilitation service, which has a different VAT treatment.

Value of Supply:

The total value of the supply subject to VAT for Manpower Services includes:

  • Services and fees related to visa provision.
  • Employee salaries and benefits, whether recharged to the customer or directly paid to employees.

In this case, the supplier of manpower services must charge VAT on the total value of the supply, including salaries and benefits.

Visa Facilitation Services

A service qualifies as visa facilitation, not manpower, if it meets specific criteria. These services are usually within the same corporate group.

Criteria for Visa Facilitation Services:

  • The sponsor (facilitator) and the customer are part of the same corporate group.
  • The facilitator’s business activities do NOT include manpower supply as per their license and practiced activities.
  • The facilitator is not responsible for any employment obligations (including HR services).
  • Employees sponsored by the facilitator work exclusively under the customer’s supervision and control.

Value of Supply:

For VAT purposes, the value of visa facilitation services includes:

  • Charges for services like typing fees, medical tests, and issuance of Emirates IDs.
  • Excludes employee salaries, annual flight allowances, and other monetary benefits, which are the customer’s obligations.

In this case, the supplier of Visa Facilitation Service must charge VAT on the visa and Emirates ID fees & expenses.

Special Valuation Rules

Special valuation rules apply for supplies between related parties and supplies made free of charge.

If the facilitator charges a fee that is less than market value and the other entity is not entitled to full input recovery, the value of the service is the market value. Thus, the facilitator is required to impose VAT on the market value.

If the facilitator provides the visa facilitation services free of charge, the supply would constitute a deemed supply, so the special VAT rules for this type of supply apply.

Implications for VAT Group

When the facilitator and the customer are part of a VAT group, they are considered the same entity. Consequently, no supply is made, and the activity falls outside the scope of VAT.

Conclusion

The exception for visa facilitation services and the exclusion of employee salaries and benefits from the value of supply are welcome developments, especially for related companies and corporate groups. Companies with similar arrangements must assess these transactions and apply the correct VAT treatment.

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]]> VAT Update: New VAT Treatment for Specific Electronic Devices https://audiix.com/vat-update-new-vat-treatment-for-specific-electronic-devices/?utm_source=rss&utm_medium=rss&utm_campaign=vat-update-new-vat-treatment-for-specific-electronic-devices Sat, 11 Nov 2023 08:56:51 +0000 https://audiix.com/?p=3621 Implementing the Reverse Charge Mechanism for Mobile Phones, Computers, and Tablets. Effective from October 30, 2023. Cabinet Decision No. 91 of 2023 […]

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]]> Implementing the Reverse Charge Mechanism for Mobile Phones, Computers, and Tablets.

Effective from October 30, 2023.

Cabinet Decision No. 91 of 2023 has introduced a unique VAT treatment for domestic supplies of certain electronic devices. This decision outlines the criteria and requirements necessary for applying VAT through the reverse charge mechanism, which comes into effect on October 30, 2023. In this article, we will examine this new VAT treatment, which carries significant implications for businesses engaged in Electronic Device transactions.

Understanding Reverse Charge Mechanism (RCM)

The recently introduced VAT treatment, known as the Reverse Charge Mechanism (RCM), fundamentally shifts the VAT obligation from the seller to the buyer. In simpler terms, it means that the buyer takes on the responsibility for VAT accounting. Meanwhile, the seller is relieved of the duty to levy VAT on sales or report it in their tax returns, provided specific conditions are met.

The new VAT treatment

In the context of the new VAT treatment, when VAT-registered suppliers sell Electronic Devices to VAT-registered buyers who have the intention to either resell these devices or use them in manufacturing, the suppliers are no longer responsible for accounting for VAT on these transactions. Instead, the VAT liability associated with these supplies falls on the buyer, who must account for it using the Reverse Charge mechanism.

In summary:

  1. Sellers of Electronic Devices are not required to charge or account for VAT on these supplies, and they do not need to report any tax liability in their VAT returns.
  2. Buyers bear the responsibility for all tax obligations and must account for VAT as output tax. Subsequently, they can reverse or claim it following the standard VAT claim rules and the special conditions outlined in this decision.

Scope of “Electronic Devices”

It’s important to note that this decision applies exclusively to Mobile Phones, Smartphones, Computer Devices, Tablets, and Pieces and Parts thereof. Please be aware that the Ministry of Finance will further specify the criteria for electronic device parts and components.

The term “Mobile Phones” encompasses a broad range of devices, from basic call functionality models to advanced smartphones. “Computer devices” encompass personal computers, desktops, servers, computerized engine control units for vehicles, and similar computing devices. Meanwhile, “Tablets” are defined as wireless, portable personal computers equipped with a touchscreen interface.

Exclusions from the Scope

This decision excludes the following:

  1. Electronic devices beyond those mentioned above.
  2. E-readers lacking additional features such as gaming or web browsing.
  3. Direct or indirect exports of the specified Electronic Devices outside the UAE.

Scope Pieces and Parts of Electronic Devices

In accordance with Ministerial Decision No. 262 of 2023, it’s important to define the components and parts that are considered related to Electronic Devices. These components fall within the scope if they meet any of the following criteria:

  1. Manufacturing Necessity: Pieces and Parts that are typically used in the manufacturing or production of Electronic Devices and are deemed essential for the normal operation of these devices.
  2. Operational Necessity: Pieces and Parts that may not be directly used in manufacturing but are vital for the proper functioning of Electronic Devices. This category includes items like chargers, power cords, battery packs, and similar components.
  3. Replacements: Components that serve as replacements for those falling under categories (1) and (2).

However, it’s essential to note that certain items are excluded from the scope of Electronic Device Components. These excluded items will follow standard VAT treatment and do not fall under the category of Electronic Device Components. These exclusions include:

  1. Enhancement Components: Pieces and Parts that enhance the functionality or user experience of Electronic Devices but are not necessary for the basic operation or activation of their features.
  2. SIM Cards and Similar Smart Cards: External smart cards, such as SIM cards, or those with similar purposes, do not fall under the scope of Electronic Device Components.

Intent to Resell or Use in Production

A pivotal criterion for transactions falling under the Reverse Charge Mechanism is the “intent to resell” or use in production. This means that when a buyer intends to resell electronic devices or use them in the production of other electronic devices, the responsibility for VAT payment shifts to the buyer. However, if the devices are intended for internal use or distribution among employees, they do not meet the “intent to resell” requirement.

Compliance Requirements for Suppliers

To adhere to the Reverse Charge Mechanism for Electronic Devices, suppliers must meet specific compliance requirements outlined by the Federal Tax Authority (FTA) in the UAE. Here are the key compliance requirements for suppliers:

  1. VAT Registration: Suppliers must be registered for VAT in the United Arab Emirates (UAE).
  2. Buyer’s Declaration: Suppliers must obtain and retain a declaration from the buyer. This declaration serves as confirmation of the buyer’s VAT registration and his intent to either resell the Electronic Devices or use them in production.
  3. Verification of Buyer’s VAT Registration: Suppliers are responsible for verifying the VAT registration status of the buyer.
  4. Adherence to VAT Obligations: Suppliers must fulfill all other VAT obligations as stipulated by UAE tax regulations. This includes the issuance of a Tax Invoice that contains a specific statement indicating that “The recipient (buyer) is required to account for tax pursuant to Cabinet Decision No. 91 of 2023.”

Compliance Requirements for Buyers

Buyers engaging in transactions covered by the Reverse Charge Mechanism (RCM) for Electronic Devices in the UAE must adhere to specific compliance requirements. Here are the key compliance requirements for buyers:

  1. VAT Registration: Buyers must be registered for VA in the UAE.
  2. Declaration to the Supplier: Buyers are responsible for providing a declaration to the supplier before the scheduled date of supply. This declaration serves as formal confirmation of the buyer’s intent, either to resell the Electronic Devices or use them in production.
  3. VAT Accounting via Reverse Charge: Buyers must account for VAT using the reverse charge mechanism as mandated by UAE tax regulations. This means that the buyer becomes responsible for calculating, self-charging, and reporting the VAT amount related to the transaction, subsequently reversing it or claiming it as part of their VAT return, following the specific requirements above and the standard VAT claim rules.

Effective Date

The application of Cabinet Decision No. 91 becomes effective on October 30, 2023. Supplies of the specified Electronic Devices with a date of supply on or after October 30, 2023, shall be subject to the VAT treatment and compliance requirements outlined in the decision.

Non-Compliance Consequences

Adherence to the prescribed conditions is crucial for both buyers and sellers engaged in transactions covered by the Reverse Charge Mechanism for Electronic Devices in the UAE. Failing to meet these conditions can result in specific consequences:

  1. Seller’s Responsibility: If any of the conditions are not met, particularly if the buyer fails to provide the required declaration of intent and VAT registration before the agreed supply date, the seller is obligated to charge and account for Output Tax. This means that the seller will need to include VAT on the transaction and report it as part of their VAT obligations.
  2. Buyer’s Implication: On the buyer’s side, non-compliance has significant implications. If the buyer does not fulfill the necessary conditions, including the timely provision of the declaration of intent, they will be unable to recover the input VAT related to the transaction. This essentially means that the buyer will bear the cost of output VAT without the possibility of reclaiming it.

AUDIIX Insight

The new VAT approach offers Electronic Devices traders an opportunity to alleviate the burden of compliance and enhance their cash flow. It’s crucial for Electronic Devices traders to grasp and abide by the compliance prerequisites to fully leverage the advantages of this new VAT treatment and avoid any negative consequences resulting from non-compliance.

We strongly advise businesses in this sector to make necessary adjustments to their VAT processes and systems to incorporate and track the new Reverse Charge Mechanism for Electronic Devices. Additionally, implementing robust processes and control procedures is essential to ensure full compliance, which includes accurate record-keeping of buyer declarations, VAT registration, and other pertinent documents.

Useful Downloads

Declaration Template

Legislative References

  • Federal Decree-Law No. 8 of 2017 on Value Added Tax and its Executive Regulations.
  • Cabinet Decision No. 91 of 2023
  • VAT Public Clarification VATP034

Elsir Badri,
Partner,
FCCA, MBA, CMA, UAECA, Tax Agent.

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]]> Amendment of the VAT law https://audiix.com/amendment-of-the-vat-law/?utm_source=rss&utm_medium=rss&utm_campaign=amendment-of-the-vat-law Sun, 19 Feb 2023 12:44:02 +0000 https://audiix.com/?p=1655 On September 2022 the UAE has issued the Federal Decree-Law No. (18) of 2022 (“the Amendment of VAT Law”) to amend some […]

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On September 2022 the UAE has issued the Federal Decree-Law No. (18) of 2022 (“the Amendment of VAT Law”) to amend some provisions of the Federal Decree-Law No. 8 of 2017 on Value Added Tax.

The amendments take effect from 1 January 2023.

This article highlights the key changes introduced in the amended United Arab Emirates VAT law, and outlines some potential implications on UAE businesses.

The key changes are summarized below:

Statute of Limitations

A new article (Article 79 bis) was added to the VAT Law.

According to this article, the FTA may not conduct a Tax Audit or issue a Tax Assessment after 5 years from the end of the relevant Tax Period. However, the standard period of 5 years can be extended in the following situations:

  • There is a notification prior the expiry of 5 years
  • The audit is related to Voluntary Disclosure made in the 5th year
  • The audit involves a tax evasion situation (the FTA may conduct a Tax Audit or Assessment within 15 years)
  • In cases of non-tax registrations (the FTA may conduct a Tax Audit or Assessment within 15 years)

These amendments are consistent with the Federal Tax Procedures Law. Accordingly, it may apply not only to VAT but also other taxes (namely Corporate Tax and Excise Tax). However, the article also mentions that extension of periods can further be amended by virtue of a Cabinet Decision.

Voluntary Disclosure limitation

It is worth noting that a Voluntary Disclosures cannot be filed after 5 years from the end of the relevant tax period.

Potentially, UAE businesses may consider strengthening their tax policy with respect to records keeping. Additionally, as a compliance strategy, it would be a good practice to conduct a mock tax audit at least each four years to reserve the legal right of voluntarily correcting any erroneous tax reporting or treatment.

Agent/Principal Place of residency

Place of Residence of the principal shall be considered as being the Place of Residence of the agent if the agent maintain stocks or enter into agreement on behalf of the principal.

This could have a significant impact on UAE businesses having agency arrangements. for instance, if the agent is in a foreign jurisdiction, the place of residence of the principal business would be that foreign jurisdiction not the UAE. This has to be carefully taken into consideration in order to identify the correct VAT treatment and implications.

On the opposite scenario, foreign businesses may be considered as resident in the UAE if their UAE based agents fulfills the conditions stipulated above.

Zero rated rules on import of certain goods and services

The new amendment included importation in addition to the supply of the category of zero-rated supplies. This includes:

  • The import of means of transportation, and related goods and services
  • The import of rescue aircraft or vessels,
  • The import of crude oil and natural gas
  • The import of related basic healthcare Goods
  • The import of investment precious metals (if imported for investment purposes)

Importers of such goods must report these supplies as zero-rated in their tax return and must fully comply with invoices and imports documentation requirements.

Output Tax Adjustments

A taxable person shall adjust output tax after the date of supply not only if the tax was charged in error but also if the application of the tax treatment was incorrect (e.g., where it was treated as exempt/zero rated instead of taxable at 5%)

Tax Credit Note – Mechanism for Output Tax Adjustment

If the VAT charged exceeds the amount that should have been charged, a tax credit note must be issued within 14 days from the date on which any of the following cases occur:

  • The consideration (payment) is changed
  • The supply was canceled
  • The VAT treatment has changed due to a change in the nature of the supply
  • The customer returned the goods or services and the supplier refunded the payment
  • The application of tax treatment was incorrect, for example applying a zero rate instead of 5%. (newly added amendment)

Businesses must ensure that they have the appropriate processes and systems to identify the need to issue a tax credit notes in a timely manner within 14 days.

Date of Issuance of Tax Invoice for continuous supplies

Tax invoice should be issued within 14 days from the date of supply including continuous supplies or consecutive invoices.

Businesses making periodic or continuous supply of goods or services that is invoiced on a monthly basis, for example, should review their systems and contracts to issue a tax invoice within 14 days from the date of supply (which explained below).

Special Date of Supply

In determining the date of supply for contract with periodic or consecutive payments or invoices a new date is added which is the date of expiration of one year from the date the Goods or Services were provided.

Now after this amendment, the date of supply of periodic payments is the earlier of:

  • The date of the issue of the tax invoice;
  • The date payment is due, as shown on the tax invoice;
  • The date payment is received; and
  • One year from when the goods or services were provided (newly added amendment)

Place of Supply of Goods for continuous supply

The place of supply of import/export of goods that involve continuous supply will be in the UAE, if the transfer of ownership happens in the UAE.

Place of Supply in Special Cases (transport-related services)

The place of supply of transport-related services is where the transportation starts (even if provided separately from transportation services e.g. by different suppliers).

Deemed Supply for Related Parties

Where a deemed supply occurs between related parties, the value of supply would be determined by the market value (not at cost) if:

  • The supply i for free or below market value
  • The recipient of the supply does not have the right to recover the full input VAT (for example, if he is not registered or he will use the deemed supply to make exempt supplies)

Deemed supply applies to goods or services that are bought for business purposes but are used privately, as gift, or commercial samples.

Recovery of Input Tax (Imports)

Input VAT on imports of goods & services can only be recovered upon receipt of invoice (and customs documents in case of goods).

Obligation to pay VAT

A taxable person is required to pay VAT if they issue a tax invoice with VAT or receives a VAT amount.

Supply of goods

The supply of goods is also an entry into a contract between more than two parties entailing the transfer of Goods at a later time.

Other out-of-scope transactions

A new clause that allows the Executive Regulations to stipulate any other transactions that should be considered outside the scope of UAE VAT.

Registration Exceptions

Registered taxable persons can apply for registration exceptions (as a result of making only zero-rated supplies), unlike in the previous version of VAT Law, where taxable persons could only apply for such exceptions at the time of registration

Cases of Tax Deregistration

The FTA has the right to deregister any registered person shall it assume such registration may cause any harm to the tax system.

Applicability of domestic reverse charge

Article 48 of the Decree Law now refers to “Pure Hydrocarbons” as a qualifying factor applying reverse charge under domestic RC mechanism. Furthermore, the term “Pure Hydrocarbons” is also defined as “Any kind of different pure combinations of a chemical equation made only of hydrogen and carbon (CXHY).”

Consequently, the domestic reverse charge provisions will apply to “Pure Hydrocarbons” that fall within the new definition as opposed to “Hydrocarbons” of any kind.

Definitions under Article 1 of the Amended Decree Law

Certain terms are defined for the first time under the Amended VAT Law, these include:

  • Relevant charitable activity
  • Tax evasion
  • Tax audit
  • Tax assessment
  • Voluntary Disclosure
  • Tax Procedures Law

How can Audiix help?

Audiix will work with you to apply all the amendments applicable to your business starting 01 January 2023. if you have any question please feel free to email us using your dedicated Audiix email or at tax@audiix.com.

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