VAT is a tax levied on the supply of goods and services, as well as imports, at all stages of production and distribution, including Deemed Supply. VAT is a consumption tax that is levied at all stages of the value chain, from production to distribution. As the name implies, the tax would be levied on value addition in each of these phases until the goods or services reach the final customer, implying that the eventual consumer would bear the entire tax burden.
1. A 14-day deadline for tax credit notes and the loss of input credit
The excess output tax levied on a tax invoice may be claimed back from the FTA in certain circumstances, such as discounts, sales returns, sales cancellation, and so on. The supplier must provide the buyer/recipient with a tax credit note, and the buyer/recipient must reverse the proportionate input tax credit recovered on the original invoice. Effective January 1, 2023, the provider could only claim the production tax if the tax credit note was issued within 14 days of the stipulated scenario taking place. VAT may become a cost in the value chain once the 14-day period has expired. The
vendor would lose the opportunity to claim back any overpayment of production tax. In any case, the buyer may only recover input credit equivalent to the net amount paid to the provider.
Globally, VAT regulations frequently allow credit notes to be issued without any VAT adjustment if the supplier and buyer are not engaged in any exempt supplies.
2. Issuing tax bills even when there is no VAT due
Since 2018, any person who gets an amount as VAT as a result of any document produced by him has been legally required to pay the amount to the FTA, even if it is not due. The provision has been modified to state that anyone who issues a tax invoice for an amount must pay that amount to the FTA.
Companies frequently title their invoices as ‘tax invoices’ due to ERP limits or accounting regulations, even if no VAT is charged on one or more products. In such circumstances, the new clause raises doubt regarding tax liability. The business community would benefit from a clarification from the FTA.
3. Invoices for items imported
It was noted this week that taxpayers must receive and preserve invoices for any import of service for which a reverse charge is payable. The requirement to receive and preserve invoices and import paperwork will also apply to products imported.
It appears that some taxpayers do not check the accuracy of the import VAT payable under reverse charge, which shows immediately in their VAT returns and recovers the whole amount without verification. The FTA requires a taxpayer to ensure that the credit is only recovered for verified imports made by the taxpayer.
4. Mandatory voluntary disclosure even if there is no additional tax to be paid
The tax procedures will also be changed beginning on March 1, 2023. Taxpayers would be required to make a voluntary disclosure to remedy an error or omission, even if the error or omission did not result in a change in the net tax owed reported on the initial VAT return.
This change could apply to cases in which a taxpayer failed to declare zero-rated supplies, exempt supplies, or reverse charge imports. Once a voluntary disclosure is completed, fines for inaccuracies in the original VAT returns may apply.
5. Reduced maximum administrative penalties
Since 2018, the maximum amount of administrative penalties, such as late tax payments, has been limited to 300% of the tax amount. The maximum amount of administrative fines would be limited to 200% of the tax amount beginning on March 1, 2023. However, the minimum penalty barrier of Dh500 would be eliminated, allowing the FTA to apply penalties of less than Dh500 as well.