Understanding the United Arab Emirates’ tax position

Occupying a strategic location between Asia, Europe and Africa, the United Arab Emirates (UAE) ranks first among the countries most attractive to foreign direct investment in the Middle East (ME) and Africa region. If you are a new reader of the Deloitte Middle East Doing Business guides series, you will find this document a useful companion and supportive guide throughout your journey in the UAE business terrain. 

If you have followed our reports for a while now, you will appreciate the updates, highlighting the most important changes, presented in the familiar format.

This Taxation and investment guide is a first stop for investors wishing to gain a working perspective on the operating conditions and investment climate. The areas covered in this guide are listed below:  

• About the United Arab Emirates
• Legal and regulatory framework
  • Entering the market
  • Mainland and Free Zone establishments
  • High-level entity set-up comparison in mainland vs. Free Zones
  • Offshore establishments and formation procedures and registration
• Taxation in the United Arab Emirates
  • Taxation of oil and gas companies
  • Taxation of branches of foreign banks
  • Withholding taxes
  • Capital gains and tax incentives
  • Transfer Pricing and country-by-country reporting
  • Stamp duty
  • Real estate transfer fees and municipal charges
  • Economic substance rules
  • Value Added Tax
  • Excise Tax
  • Customs duty
  • Personal Taxation
• Immigration and labor landscape
  • Work authorization
  • Exit requirements/de-registrations
  • Processing challenges for work permits
  • Inter-emirate assignments and employer compliance
  • Emiratization
  • Business visitors
  • Virtual work program and labor laws
• United Arab Emirates double tax treaty network

Source :  Deloitte

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A peculiar situation was noticed when a Person (an individual) was highlighted a portion of the Director’s fee he received in 2018 for the board meetings that he attended in 2017, was not accounted for VAT.

The question was whether such services should be subject to VAT or is the amount received an ‘Out of scope’ transaction since the services were rendered in 2017 (i.e. before the introduction of VAT).

It is important to note that the fee that was paid to the Director was not fixed when he provided the services in 2017, but the amount was finalized in the AGM held in 2018 and paid thereafter.  This means that the Director provided his services in 2017 but the amount of fee to be billed to the Company was only determined in 2018 and therefore, he could neither issue an invoice nor receive any advance.

This is a peculiar situation because such instances require an analysis of the ‘transitional’ provisions under Article 80 (3) of the UAE VAT law that covers situations where the contract to provide a service is entered into before 1st Jan 2018, but the service is completed post 1st January 2018.

It is also important to look at the Public Clarification on ‘place of supply for independent directors’ that clarified that when the director’s fee is not determined at the time of provision of services but later in the AGM, the time of supply shall be the time when such amount is fixed in the AGM.  It was clarified that the service of providing directorship services shall be deemed to be completed when the fee amount was determined in the AGM.

The above is subject to the condition that the Director had neither issued any invoice nor had received any advance. If either of these events occur, the time of supply shall trigger upon happening of these events.

Thus, in this given case itsa possibility that the Director who rendered his services in 2017 could be liable to VAT on his board fee, both determined and paid in 2018. This is on the basis that the time of supply clarified by FTA read with Article 80(3) of the UAE VAT law could potentially make this transaction subject to VAT.

Source:GCCFintax

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WHAT IS VAT DE-REGISTRATION?

Tax De-registration is the provision for a registered taxable person to cancel his/her VAT registration with the Federal Tax Authority (FTA). It means de-activation of the registration and the VAT number of the taxable person. Tax de-registration can be applied for by a person registered under VAT or done by the FTA on finding that a person meets the conditions for de-registration.

ELIGIBILITY FOR VAT DE-REGISTRATION

VAT deregistration in UAE is as important as registration for a VAT. There could be various reasons for canceling the registration for VAT in UAE.

De-registration reasons should comply with the conditions defined by the Law related to VAT. If the reasons are not valid and the conditions are not fulfilled, the FTA might reject the application for de-registration.

As per the current UAE VAT regulations that are set by the country’s tax authority, Federal Tax Authority in UAE, a business has to follow the conditions listed below in order to be eligible for VAT de-registration.

1-MANDATORY VAT DE-REGISTRATION:

A Registrant shall apply to the Authority for Mandatory Tax Deregistration in any of the following cases (as per Article 21 of the Decree-Law read with Article 14 of its Executive Regulation)

•  If the business or a person stops making taxable supplies and does not expect to make any taxable supplies over the next 12-month  period then they must apply for VAT  Deregistration.

•  If the value of the Taxable Supplies made over a period of 12 consecutive months is less than AED 187,500/- If the business or a person is still making taxable supplies but the value in the preceding 12 calendar months is less than the Voluntary Registration Threshold (AED 187,500) and said Registrant  does not expect that the total value of taxable supplies and imports subject to reverse charge provisions or the expenses which are subject to tax that will be incurred, will not exceed AED 187,500/- during the coming 30-day period then they must apply for VAT Deregistration.

TIME FRAME FOR VAT DE-REGISTRATION

The registrant should apply for deregistration within 20 business days of the occurrence of the conditions mentioned above. 

PENALTIES AGAINST NON DE-REGISTRATION 

As per the guidelines issued by the Federal Tax Authority (FTA)  on registration, amendments & Deregistration, if the date of submission of the de-registration form is more than 20 business days from the date the Taxable Person is required to de-register then, a late de-registration penalty of AED 10,000/-  will be levied by the Federal Tax Authority.

VAT registrant in the UAE shall mandatorily verify as to whether they will fall in the categories specified in UAE VAT Law to avoid any non-compliance penalties.

2- VAT VOLUNTARILY DEREGISTRATION

A registered entity for VAT in UAE can deregister voluntarily if it meets any of the following:

•  If the business or a person is still making taxable supplies but the value in the previous 12 months was less than the Mandatory Registration Threshold (AED 375,000) AND
• 12 months have passed since the date of registration if you were registered voluntarily then you may apply for VAT Deregistration.

Note that a person who has voluntarily registered under VAT cannot apply for de-registration in the 12 months following the date of registration. 

TIME FRAME FOR VAT DE-REGISTRATION

There’s no specific deadline that has to be met to apply for deregistration for VAT (voluntarily) with the Federal Tax Authority.

DE-REGISTRATION FOR VAT GROUPS

The eligibility for the VAT deregistration of VAT groups is the same as the criteria for the individual taxable entities. However, certain other criteria also apply to the VAT groups for applying for deregistration:

1. The VAT deregistration will be approved if the group no longer meets the conditions to be considered as a VAT group
2. The group could be granted deregistration if the constituent member companies are no longer financially associated with the group
3. Deregistration will be approved if the FTA anticipates the tax status of the group may lead to tax evasion

The companies that are closing down should upload their liquidation letter from authorities

PROCESS OF VAT DEREGISTRATION IN THE UAE 

A registered entity should follow the below-mentioned procedures to cancel VAT registration in UAE: –

• Check they meet the criteria for the cancellation
• Log into their VAT Account on FTA Portal
• Fill in the vat deregistration form UAE online with the details along with the reason for the cancellation
• Submit the form electronically
• Receive SMS confirmation on the registered number for submission.

Subsequent to the submission of Application, the FTA will: –

• FTA will review the application and if they confirm the VAT De-registration the status of VAT De-Registration will be changed to ‘Pre-Approved’.
• After that the businesses have to submit final VAT Return Filing, after the last VAT Return filing the businesses must clear all the outstanding liabilities in order to complete the VAT Deregistration process.
• An email and an SMS notification of the status of the application and requesting you to complete the payment of the outstanding liabilities will be sent by FTA.
• If the VAT deregistration application is approved, only then the Federal Tax Authority will cancel the VAT registration of the registrant and will deregister with effect from the last day of the Tax Period during which the Registrant has met the conditions for deregistration or from such other date as may be determined by the Federal Tax Authority.

A Registrant shall not be deregistered unless he has paid all Tax and Administrative Penalties outstanding and filed all due Tax Returns under the Decree-Law and the Federal Law No. (7) of 2017 on Tax Procedures

Source : xpertsleague.com

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After the decision of the GCC Commission for Financial and Economic Cooperation on 25 October 2020, amendments to the GCC Unified Customs Tariff have come into effect on 1 January 2021. Dubai Customs adopted these amendments through Dubai Customs Notice 2/2021.

Tariff amendments

The amendments include modifications to the “Description” column of 2 Tariff Codes, 4 newly-created Tariff Codes’ Headings, and 65 changes to existing Tariff Codes’ Sub-headings.

The commodities affected by the amendments are:

• Tobacco-related products
• Electronic products (including smart TVs and receivers…)
• Cocoa powder and other instant preparation drinks with added sugar or sweetener
• Water, milk, and cocoa beverages with added sugar or sweetener
• Miscellaneous Chemical products

Implications for businesses

Importers and exporters must review the tariff classification of their products to ensure that they are in line with the new version of the Tariff Codes. They should also consider updating their commodity codes’ databases to reflect these amendments.

News Courtesy :  KPMG

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His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai chaired a meeting of The Executive Council of Dubai, during which he launched the Invest in Dubai platform.

The largest one-stop-shop platform of its kind, ‘Invest in Dubai’ enables investors to obtain trade licenses and launch their business easily in a matter of minutes.

Key features of the platform:

• First integrated digital platform for setting up a business in Dubai.

• Requires a few minutes only to obtain commercial licenses in Dubai.

• Largest integrated and trusted platform serving over 2,000 businesses in the emirate, including free zones.

• With standardized procedures and processes, platform allows services and transactions to be completed without visiting service centers

• Platform features value-added services such as opening a bank account, issuing an establishment card, and other services to facilitate the establishment of companies.

• Interactive tools offered through ‘Dubai Business Map’ feature provide investors information on the best commercial opportunities by geographical location.

• Interactive tool provides recommendations on ideal free zone based on investor requirement and comprehensive information on the value propositions of each free zone.

Dubai, a leading business destination

Sheikh Mohammed issued directives to the team to work to consolidate Dubai’s status as a leading global business destination, stressing that no effort should be spared in achieving this vision.

Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum, Dubai Crown Prince and Chairman of The Executive Council, said Dubai offers businesses and investors an attractive environment “with all the elements needed to achieve success and gain the agility needed to transform challenges into opportunities”.

“Despite the prevailing global situation, Dubai has demonstrated the strength of its digital infrastructure and leveraged advanced technologies to develop economic solutions for helping investors and entrepreneurs accomplish their goals.”

he confidence that international investors have placed in Dubai stems from its “agile economy, solid legislative environment, and robust, investor-friendly infrastructure”, said Sheikh Hamdan. “Dubai is a city that is constantly renewing itself, offering a fertile growth environment for investors from across the world. It has created an integrated investment ecosystem powered by advanced technology and designed to support constant development, economic growth and efficiency.”

Centralized portal

An integrated portal for doing business in the emirate, ‘Invest in Dubai’ offers users various services, including commercial licensing in which government permits and approvals can be obtained from a centralized platform, eliminating the need to physically visit any service center.

Also offered on the platform are packages and value-added services that support businesses in launching commercial projects.

Apart from providing a hassle-free process for establishing a business in Dubai, the platform enables investors to gain insights into investment opportunities (or projections for key sectors); and information on investment opportunities in commercial zones (or free zones), competitiveness assessments, locations of businesses in the city, key economic sectors; and cost of incubating businesses; in addition to sector reports and statistics on foreign direct investment (FDI).

Comprehensive experience

‘Invest in Dubai’ provides a comprehensive platform to support investors and entrepreneurs in setting up a business in Dubai. Its services, which cover the entire business cycle, assist businesses in searching for opportunities, registering trade names; getting initial approvals to issue a license; ensuring all government requirements are met; and obtaining trade licenses.

Furthermore, the platform offers a range of packages and value-added services to facilitate the launch of commercial projects.

These include opening a ticket for the new establishment as required by the Federal Authority for Identity and Citizenship, allocating labor quotas, opening a ticket at the Ministry of Human Resources and Emiratization, notarizing the establishment contract by the Department of Economic Development, notarizing a rental contract by the Real Estate Registration Department, and obtaining a membership in the Dubai Chamber of Commerce and Industry.

It allows investors to access information regarding the requirements, conditions and fees for issuing trade licenses in Dubai for more than 2,000 commercial activities. They can also immediately obtain licenses for their companies, as well as other commercial ones.

A seamless, integrated, and customer-centered digital process allows users to save time and effort, sparing them the need to physically visit service centers and reduce the paperwork required to establish companies.

The platform also allows them to manage their business using a personalized dashboard that provides an overview of partners, licenses, KPIs, and other useful insights.

Investor visa

Dubai encourages investors from around the world to set up their headquarters in the emirate, offering a safe home both for their companies and their families through its dedicated investor visa program.

Teamwork

The ‘Invest in Dubai’ platform was developed by Smart Dubai and the Dubai Department of Economic Development (DED), under the supervision of the General Secretariat of The Executive Council of Dubai. A team of more than 70 members, representing more than 20 local and federal government entities, worked in direct coordination with the private sector, a strategic partner in the emirate’s economic development, to develop the platform.

News Courtesy : khaleejtimes

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His Highness Sheikh Mohammed Bin Rashid Al Maktoum, Prime Minister and Vice President of the UAE and Ruler of Dubai announced the launch of Invest Dubai – a digital platform for entrepreneurs looking to set up shop in Dubai.

The new platform was approved during the Executive Council’s meeting held on Tuesday under the chairmanship of Sheikh Mohammed. The platform covers over 2,000 commercial activities and various license types, Sheikh Mohammed said in his tweet.

Making Dubai the best, easiest place to do business

The new initiative is another step making Dubai the destination of choice for entrepreneurs from around the world. UAE had issued a law in November 2020 which scrapped the need for a UAE national to be the sponsor when starting a business on the mainland.

Starting from December 2020 entrepreneurs of all nationalities could start businesses with 100% foreign ownership. In the Ease of Doing Business score by The World Bank in 2020, Dubai scored a high 94.8, based on 10 factors and ranks in the top 20 easiest countries to start a business.

The Invest Dubai platform combines all the information, requirements and procedure of starting a Dubai-based business in one place. From getting information on the kind of license you need to detail on the funding programmed available, the platform offers a wealth of information for entrepreneurs.

Instant license

The Dubai DED Instant License allows entrepreneurs to get a license in 5 minutes with no pre-approvals. The Instant License allows entrepreneurs to start a business with no tenancy contract and no requirement for a bank account for 12 months. The license is available to many categories of activities and four types of establishments – Limited Liability Company, One Person L.L.C, Sole Proprietorship and Civil Company.

The licensee gets an establishment card from the General Directorate of Residency and Foreigners Affairs along with three work permits for employees from the Ministry of Human Resources and Emiratization once the trade license is issued

While this license itself is not a new feature, the Invest Dubai platform allows you to check availability of the license based on activities, number of partners and type of company. It also shows you the fee payable if you were to go for the license.

Business Setup Recommendation

For example, we checked the feature of Business Setup Recommendation on the platform for a restaurant with two expat partners with an option to try the civil company formation. The website instantly showed us the approximate costs for an Instant License while also showing a normal license option.

Different company types can be checked on the website based on your search, and while some options are disabled, it shows you the company types you can check yourself if you know your activity and number of partners.

If you know what kind of firm you’re looking to establish, you can start your business through the platform. Clicking on ‘Start your Business’ takes users to the option of mainland or free zone business. Once you choose that, you can log in to the platform to start the process. Prospective investors can also use the UAE Pass to log in.

Once registered, the platform helps users manage the business through a personalized dashboard which includes an overview of partners, licenses, key performance indicators and other features.

Where should I start my business?

For mainland or free zones, it is nice for a prospective entrepreneur to know where exactly to base his or her business. The business map on the platform has a heat map of active businesses in the emirate. It also shows active businesses, top activities, business age range, areas and major activities in those areas, top sub-areas, etc. Hovering over the map shows you the area name and the number of active businesses in the area. You can further filter these results.

If you’re unsure of which free zone to choose for your FZE, the platform has a feature to find the best one for your operation. The website shows 19 free zones available in total which you can then filter based on business sector or industry, license type, facilities required, and amenities. Residency and citizenship

The platform allows investors to go through and learn all the details of getting a visa or residency through investment. UAE also recently announced citizenship for investors, doctors, professionals, talented people, and innovators. The same group of residents can also apply to get a Golden Visa. 

Apart from these, each type of license, based on activity and type of company, gives investors residency options for themselves and their families. All these details can be easily found and used from the Invest Dubai platform.

Start-ups

For start-ups in the ideation stage, the platform is extremely useful since it gives various incubator options, funding programmed details, and other features to understand exactly how, when, and where to start. The mentioned arenas for SME start-ups include the Hamdan Innovation Incubator (Hi2) in Dubai SME, Dubai SME approved incubators such as Re-urban Studio, Astrolabes, The Co-Dubai, etc., and the Dubai Entrepreneurship Academy.

News and success stories

Apart from this, the platform keeps interested readers updated with the latest news and press releases relevant to starting a business in Dubai. The website also features business success stories that can prove inspirational for the next crop of entrepreneurs.

News Courtesy : Gulf News

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Businesses engaged in making a mixture of taxable and supplies exempt from value added tax (VAT) must apportion the input tax which they incur for making such mixed supplies. Apportionment calculations must be undertaken by the taxable person on a period-by-period basis with an annual “wash-up” calculation to be performed in the period following the end of the tax year.

Taxable persons filing monthly returns with a 31 December 2020 tax year-end must undertake the annual wash-up calculation and make any required adjustments to input VAT recovered in the January 2021 VAT return to avoid potential penalties for late or underpaid VAT. Businesses operating in the following sectors generally are required to undertake apportionment calculations:

• Real estate, residential supplies
• Banks and financial institutions
• Local transport service providers
• Insurance companies

The requirement to undertake apportionment calculation is not limited to these sectors and can apply to any entity that makes both VAT-exempt and taxable supplies.

Apportionment

The UAE tax authority issued an updated guide (December 2019) covering special apportionments methods and annual adjustments. Based on this guide and the legislation, the tax authority requires the following:

• Comparative calculation for a full 12-month period (wash-up calculation):
  • With the monthly/quarterly apportionment done using the standard method, and
  • With the actual use calculation using one of the approved special methods listed in the guide
• Special apportionment methods include output-based method, transaction count method, floor-space method and sectoral method. The tax authority stipulates that only certain methods will be available to businesses from certain industries (not all methods will be available to all industries and businesses).
• A taxpayer must apply to the tax authority to use a special method of apportionment, and there is a formal process to obtain permission (a taxpayer cannot simply elect to start using a particular method at its own discretion). Typically, once approved, the taxpayer will be required to use this method for at least two years.
• It is not compulsory for a VAT registered business to apply for a special apportionment method; however, the tax authority expects when there is a difference of more than AED 250,000 in any tax year between the recoverable input tax as calculated in accordance with the standard apportionment method (outlined in the legislation) and the input tax which would have been recoverable if the calculation was made on the basis of the actual use of goods or services (applying a special method), the taxpayer is to request permission to use a special method.
• When the tax authority has granted permission to use a special input tax apportionment method, the taxpayer cannot apply to change the approved method for at least two years following the approval. However, the taxpayer will be required to notify the tax authority when the result produced over the full year by the input tax apportionment method approved by the tax authority differs more than 10% from the result the method generated at the time of application, in order for the tax authority to consider whether the approved method is still suitable for the business.

News Courtesy : KPMG

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Local emirates will need to offer 25-50 per cent subsidy for staff accommodation costs and utility companies waive off transfer fees for the UAE’s hotel industry to see off the pandemic.

There will also need to be an immediate waiver of all employment permit and visa charges, as well as of municipality and VAT payments as part of a multi-pronged effort to revive an industry pulverized by COVID-19 disruption and yet to make a sustained recovery.

And hotels must also be released from hosting “non-stranded guests who refuse to pay for their stay.

These form some of the recommendations a think-tank set up by Mashreq Bank has come up with. It had earlier issued one for the local retail sector.

Joel Van Dusen, Head of Corporate and Investment Banking Group at Mashreq Bank, said in a statement: “The regional hospitality sector already faces multiple headwinds, and the pandemic has only further impacted the industry with factors such as the global economic environment, struggling tourist numbers and oversupply.

“Despite this, there are numerous opportunities which can be leveraged to make the industry a more sustainable proposition. This report presents insights and recommendations that act as a stimulus for the industry to come together and rethink the existing model.

“Only by creating a permanent shift in the way business is done will the hospitality industry be able to create strong momentum during the medium term.”

News Courtesy : Gulf News

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Adhering to UAE’s Economic Substance Regulations (ESR) is now a ‘must do’ reality facing business owners in the region, amid the challenging financial circumstances brought on by the COVID-19 pandemic.

New regulations, which were implemented in the UAE for fiscal years commencing January 1, 2019 and onwards, were announced by the government the last year and encompasses several industries in the country.

These regulations are now being tackled with renewed urgency by UAE corporates, to make sure they comply with the ESR (Economic Substance Regulations) before the deadline of January 31, after being extended from an earlier deadline of December 31. The Ministry of Finance (MoF) has worked over time to release an array of notices, statutory forms and guidance notes to ensure adequate details are at the disposal of licensees to prepare.

What are economic substance regulations?

The Economic Substance Regulations, or ESR, was issued by the UAE and is aimed at curtailing harmful tax practices and closely tracks the global standard set by the OECD (Organization for Economic Co-operation and Development).

As the UAE is a member of the OECD framework, in response to an assessment of the UAE’s tax framework by the European Union (EU) Code of Conduct Group on Business Taxation, the UAE introduced a resolution on Economic Substance on April 30, 2019.

Why imposes such regulations?

The UAE is not a tax-free jurisdiction. In 2018, the UAE introduced VAT to the country, as well as an excise tax applicable to certain goods.

Corporation tax is levied on foreign banks and oil companies operating in the country, and the UAE Ministry of Economy has been clear for some time that it is studying the effect of the introduction of a more general federal corporate income tax.

With fiscal transparency and regulation being a global priority, international financial organizations such as the OECD champion better global co-ordination on tax regulation, including measures to tackle tax evasion, so that businesses cannot make profits from differences in tax legislation around the world.

Rules track similar moves made worldwide

The UAE is one of the several tax-free or low tax countries that have put similar regulations into practice last year – some of them being the Bahamas, Cayman Islands, British Virgin Islands, Mauritius, Seychelles, Jersey, Guernsey, the Isle of Man, and Bermuda.

As the UAE eyes prospects as an international incorporation destination, analysts say the country will be targeting to keep its most promising regard as one of the easiest countries in the world to do business in.

Companies active in these sectors are considered ‘relevant entities’ and must comply with economic substance regulations.

It applies to all companies established in the UAE (except those entities in which a minimum 51 per cent direct or indirect investment is from government authorities) and which have income from a relevant sector in any accounting period commencing on or after January 1, 2019.

However, allowances will be less stringent for those managing holding companies (such as those that only derive equity-based interest income) and additional requirements apply to anything related to high-risk intellectual property.

What are the economic substance tests that firms should get done?

All the firms falling under the above-mentioned list of activities, getting income in the relevant sector in the specified accounting period will be required to demonstrate adequate “substance” in the UAE

These are the pre-requisite tests that will allow the government to determine if firms comply with the norms.

News Courtesy : Gulf News

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ERP refers to ‘Enterprise Resource Planning’ software which integrates various functions of a business into a single unified system. With a single unified database and by integrating different functions, ERP system helps you get a complete picture of the business.

Just like there are different functions in a business, ERP systems too consist of different modules. Each ERP module is designed to manage the specific function of a business. For example, the inventory management module helps you manage all that is required to manage your stock. Likewise, different types of ERP modules are available to meet specific business needs.

Types of ERP modules

• Finance management module

Finance management module of ERP system helps in recording and tracking financial information and making it available in the form of financial statements. The key function of the finance module is record keeping, managing accounts receivables, payables, cash management, and on-time generation of financial reports such balance sheet, profit & loss account, cash flow statements etc.

• Inventory management module

This is one of the key modules of ERP systems. The inventory management module is responsible for optimum management of inventories that ensures uninterrupted production, sales, high customer satisfaction, reduced inventory handling cost and so on. The key function of an inventory management module is storage, track movement of stock, go down management, and insights in the form of reports such as re-order level, movement analysis, stock profitability and so on for optimum inventory management

• Production management module

Product management module of ERP systems helps in planning and optimizing manufacturing processes such as manufacturing capacity, parts, components, and material resources etc. using the past consumption pattern and the demand. The function of this ERP module is to automate the manufacturing process using the features such as bill of materials (BoM), cost estimations, track additional costs etc. It also includes managing job-work process as well.

• Purchase management module

The key function of the purchase management module is to streamline the procurement process right from receiving purchase requirements till the goods are received. It includes sending purchase orders, receipt of goods, invoicing, rejections etc.

• Sales management module

Sales management module helps in improving the process efficiency by streamlining the order management system right from order-to-Invoice-to-cash. This module of ERP system helps you manage all sales-related functions such as sending quotation, order processing, stock delivery and invoicing, and real-time reports.

• Payroll management

Payroll management module of ERP system helps you manage the pay-outs of your employees. It includes managing attendance, salary advance, production tracking, salary processing, payment remittance etc. This also helps you keep a complete database of employees and auto-generated reports provide you complete insights on employee’s pay-outs.

There are different types of ERP modules such as CRM, supply chain management etc. designed to manage the specific function of the business. Basis the business requirements, different modules can be integrated with ERP systems.

Similar to ERP system, there are also integrated business management software, specially designed for small and medium business, providing a complete solution within a single software. The best part of integrated business software is that you need not look for a different software or modules to manage different functions of the business. Instead, the same software comes with all the features that are required to manage your growing needs.

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What is e-invoicing?

e-Invoice known as ‘Electronic invoicing’ is a system in which all B2B invoices are electronically uploaded and authenticated by the designated portal. Post successful authentication, a unique Invoice Reference Number (IRN) is generated for each invoice by IRP. Along with IRN, each invoice is digitally signed and added with a QR code. This process is collectively called as e-invoicing under GST

E-invoicing has become a reality for businesses with a turnover of Rs. 500 crores and above, in the preceding year (2019-20), from 1st October 2020. As per the recent notification issued, e-invoicing will be applicable for businesses with a turnover with 100 crores and above from 1st January,2021. It is expected that it will be applicable for all the businesses doing B2B invoicing starting from 1st April,2021.

Which businesses will require to generate e-invoice?

All businesses falling in the above criteria will be communicated to register on e-invoice portal to start e-invoicing mandatorily. Only those businesses who are mandated to generate e-invoice and have registered on the e-invoice portal will be allowed to generate e-invoices.

Once registered, these businesses will have to upload their B2B invoices (Sales, Credit Note and Debit Notes made to businesses, government entities and all types of exports) on e-invoice portal and get it registered before removal of goods from their premises.

This will also facilitate:

• Generation of e-way bill along with e-invoice
• Auto-population of information in GSTR 1 of taxpayer
• Auto-population of information in GSTR 2B of the receiver

e-Invoice system will have multiple options for the taxpayer, using which e-invoice can be generated:

• Directly entered on the Web (IRP portal)
• Based on API (Business software communicate with IRP)
• Offline Tools like Excel (downloaded on e-invoice portal)

Once the invoice is registered on e-invoice portal, a digitally signed JSON along with QR Code, IRN (Invoice Registration No.) and e-way bill no. will be generated. Using that customer can prepare e-invoice.

How is e-invoice different from the current practice of invoicing?

E-invoice is a system in which the invoice needs to be electronically uploaded and authenticated with a unique invoice reference number (IRN) and digitally singed QR code. The change is that the seller needs to print the QR code and IRN number on the invoice before issuing it to the buyer. Businesses using ERP/ business management software that seamlessly connects with IRP system and automatically prints the QR code and IRN on the invoice will find it easy to manage e-invoice requirements without much changes to the business process.

Benefits of e-invoicing for MSMEs

One of the main reasons why the government introduced e-invoicing is to curb tax evasion and reduce fake invoicing. Below are some of the most crucial benefits which MSMEs will have once e-invoicing mechanism takes the forefront:

• Seamless account reconciliation

E-invoicing can help bridge the gap in data reconciliation to reduce mismatch errors, and data entry errors. It will also be possible to track invoices prepared by the supplier on a real-time basis, which reduces audits by the tax authorities since the required data will be available at the transactional level. The main aim of the tax department is to enable the pre-population of GST returns, which will reduce reconciliation-related problems. Once e-invoicing has been implemented, the data in the invoices can be pre-populated into the relevant tables of the tax returns without the need for fresh data entry.

• Faster availability of genuine input tax credit

Manual calculations while filing GST returns often lead to errors and with respect to under or over-claiming of input tax credits. A business is entitled to this amount for the tax that is already paid on the product. Any differences in the claiming of ITC can result in huge losses for a business and would also cost the business owner extra to fix the errors. Since details are available in GSTR-2 on real time basis, with e-invoicing, buyer’s ITC eligibility is confirmed

• Reduced compliance burden

Since systems are integrated with one another, information flows to GSTN system and e-way bill system, which will ultimately reduce compliance. On continuous upload of invoices, most of the details will be pre-populated in the return. All you need to do is simply include the additional details (B2C), verify and file return.

• Easy tracking of invoices

When using the e-invoicing system, it is easy to monitor where the e-invoice is sent in real-time. You’ll know for sure that the invoice will be submitted and received. The status of the invoice, whether approved, denied or pending by the client, can also be seen.

• Help MSMEs secure loans faster

Getting loans has always posed a major challenge for MSMEs. To get a loan sanctioned from financial institutions, MSMEs have to furnish a plethora of documents. However, with e-invoicing in place, MSMEs can avail loans, instantly, as banks can rate them on the basis of these invoices.

• Reducing fake invoices or duplicate invoices

As per the latest State of Tax Justice report, India is losing over Rs 75,000 crore in tax, due to global tax abuse. The non-digitizing of invoices by suppliers has led to an increase in fake/duplicate invoices which ultimately results in tax evasion. Implementation of e-invoice mechanism will help mitigate this tax evasion by keeping a track of fake invoices that are issued, and ensuring a common database is available to tax authorities which will help in driving tax compliance.

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Tax Audit is one of the compliance checks to verify a person’s VAT liability is correct by way of examining various records which are maintained by the taxpayer. A tax audit may be carried out at the taxable person’s business premises known as ‘field tax audit’ or in the offices of the FTA. Generally, prior notification of an audit will be given to the taxpayer.

In this article, let us understand Why Tax Audit in UAE? and the process involved in the Tax Audit.

Why Tax Audit?

VAT is a self-assessment tax, meaning the taxpayer himself assess the amount of tax payable and recoverable input tax based on the supplies done during the period and reports it to the FTA through VAT returns. In order to assess the self-assessed declaration is correct or not, the tax audit procedure is used by the FTA.

During the audit, if there are some discrepancies resulting into underpayment of the VAT or over claiming the input VAT deduction, the FTA will issue a notice in the form of assessment asking the taxpayer to pay the VAT along with penalties.

What is the timeline for Tax Audit?

All the VAT registered businesses will not be audited and also there is no fixed frequency in which the tax audit will be conducted. From time to time, the FTA will be select the businesses who are required to be audited. The decision to audit the businesses completely is at FTA’s discretion. The following are some of the factors which are considered in selecting the business for tax audit.

• How large or complex the business
• Past compliance history of the business
• The tendency of late submission of returns
• Instances of incorrect return filing and so on.

For example, a large business selling a high volume of goods and having a poor compliance record is more likely to be subject to a tax audit than a small business with a strong compliance record, as the risk to the tax revenue is greater.

Tax Audit Procedure

The FTA will usually inform the taxable person in the question of tax audit 5 business days in advance. However, in certain exceptional cases like suspected tax evasion, or if there is a reason to believe that notifying would hinder the conduct of the audit, no notice of tax audit will be given.

Tax Audit will be conducted at the taxable person’s place of businesses or in some cases at FTA’s office. If the audit takes place at the taxable person’s place of business, it will usually be during the FTA’s normal business hours.

The businesses which are subject to an audit (including their tax agent, or legal representative), must facilitate and provide the required assistance to the tax auditor to carry out the audit in a smoother manner. The following are some of the actions that the taxpayer should ensure on receiving the tax audit notice.

• Relevant premises are accessible;
• Tax records such as books of accounts, Tax invoices etc. are accessible for examination
• Relevant staff are present (for example the person responsible for compiling the tax return
• Original copies of documents or invoices

In the event of failure to provide the required records or assistance in conducting the tax audit, applicable penalties may be levied on the taxpayer.

On completion of the audit, the FTA will communicate the results of the audit to the taxable person. If the conclusion of the audit leads to the determination of any of the following cases, then tax assessment will be issued.

• Failing to apply for registration within the timeframe specified by the VAT Law.
• Failing to submit a Tax return within the timeframe specified by the VAT Law.
• Failing to settle the payable tax stated as such on the Vax return that was submitted within the time limit specified by the Tax Law.
• Submitting an incorrect VAT return.
• The Registrant failing to account for Tax on behalf of another person when he is obligated to do so under the Tax Law
• The shortfall in VAT payable as a result of a tax evasion

Also, there could also be administrative penalties levied on the taxpayers if the findings lead to those instances specified in the law

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