Record Keeping for VAT
All tax registered, individuals and businesses in the UAE are required to maintain certain business records for a specified period of time. This article summarizes the type of records and the time periods for which they must be retained.
Record keeping is essential and will help businesses to pay the correct amount of tax. It also enables businesses to provide FTA’s requirements for a tax compliance check or a tax audit in proper and timely manner.
Overall, the record keeping purpose is to demonstrate a sufficient audit trail so a VAT amount can be traced from a source document, for example an invoice, through to the final tax return.
What records must be kept?
A VAT registered individual or company is required by law to keep all of the following records:
- Records of all supplies (sales) and imports of goods and services
- All tax invoices and alternative documents received (expenses and purchases bills)
- All tax invoices and alternative documents issued (sales)
- All tax credit notes, and alternative documents received
- All tax credit notes, and alternative documents issued
- Records of goods and services that have been disposed of or used for non-business purposes, detailing the VAT paid on those goods and services
- Records of goods and services purchased for which the input tax was not deducted
- Records of exported goods and services
- Records of adjustments or corrections made to accounts or tax invoices.
VAT account records
- Output tax due on taxable supplies (VAT on sales)
- Output tax due on taxable supplies accounted for via the reverse charge mechanism (reverse charge mechanism is applicable to import of services and to B2B gold trading)
- Output tax due after the correction of any errors or adjustments
- Input tax recoverable on supplies or imports (VAT on expenses, purchases, and import)
- Input tax recoverable after the correction of any errors or adjustments.
Accounting records & statements
- Balance sheet and profit and loss
- Records of wages and salaries
- Records of fixed assets
- Inventory records and statements (including quantities and values) at the end of any relevant tax period and all records of stock-counts related to inventory statements.
For how long should records be kept?
VAT registered individual or business must keep the required records for a minimum of 5 years (15 years for real estate owners) after the end of the tax period to which those records relate.
However, the FTA may require the person to retain the records for further periods not exceeding 4 more years is specific cases like an ongoing dispute with the FTA or a tax audit.
How businesses should keep, archive, and retrieve records?
Businesses are not required to keep their records in any specific way or format. But they must be kept in a suitable way that enables the FTA to easily check the validity of the data which has been used to complete a tax return.
Records must be readily available
Records can be kept on or off-premises, or even on the cloud. Each business can choose their own way to store their records, however, they are responsible to make those records available in a legible format and in a timely and efficient manner when requested by the FTA
Acceptable documents archiving methods:
- Original documents
- Electronic documents (soft format of originals or copies)
- Photocopies of original documents
- Other ways of recording and preserving the information or data contained in the original document.
Tips and best practices
Use online accounting software that is accessible from any device with an internet connection at any time. All your team can have access to enter transaction on the go and upload supporting documents in a centralized cloud database that is automatically backed up.
Cloud software can integrate with a whole ecosystem of business apps, so you can capture VAT records from emails, scanning apps, and many other third-party apps.
Most of the cloud accounting software comes with mobile app such as Xero Expenses, which enables multiple users to scan, upload, and claim expenses.
Keeping records can be complicated and time-consuming. In addition, there are a lot of legal requirements, which means there are serious risks to getting things wrong. For these reasons, many business owners prefer to leave it to the experts. It gives them more time, and extra peace of mind.
In addition, bookkeeping consultants are often able to do your record keeping at a relatively low cost as they use software to automate many of the tasks involved.
They also provide bundled packages of services at a low fee that include:
- Online accounting software
- Bookkeeping & data entry
- Financial reporting
- VAT return filing