How to Comply with Federal Tax Authority Decision No. 8 of 2024: A Guide for VAT Compliance
With the issuance of Federal Tax Authority (FTA) Decision No. 8 of 2024, businesses operating in the UAE must adopt an efficient approach to correct errors or omissions in VAT tax returns. Effective 1 January 2025, this decision outlines a clear mechanism for correcting mistakes without affecting the Due Tax. This blog will guide you on the essential aspects of the decision and how businesses can align their processes with regulatory expectations while optimizing for search engines.
What is FTA Decision No. 8 of 2024?
FTA Decision No. 8 of 2024 establishes a mechanism for correcting errors or omissions in VAT tax returns submitted to the Federal Tax Authority. This decision applies only to errors that do not result in changes to the Due Tax.
Key Highlights:
- Issued Date: 1 November 2024.
- Effective Date: 1 January 2025.
- Scope: Focuses on specific errors in VAT returns where no difference in Due Tax is involved.
- By addressing errors proactively, businesses can maintain transparency and avoid penalties.
Types of Errors Covered Under the Decision
The decision applies to errors or omissions in VAT returns where there is no difference in the Due Tax. These include:
- Reporting Errors by Emirate:
Example: Reporting standard-rated taxable supplies for Dubai in the box for Abu Dhabi.
- Incorrect Reporting of Zero-Rated Supplies:
Errors in overstating or understating zero-rated taxable supplies.
- Misreporting Exempt Supplies:
Errors in overstating or understating exempt supplies.
What Are VAT Errors?
VAT errors occur when taxable persons make mistakes in accounting for Value-Added Tax (VAT). When businesses fail to account for the correct output VAT or recover the accurate amount of input VAT, this results in a VAT error. Errors can lead to financial losses, penalties, or non-compliance with UAE VAT laws. Understanding what constitutes a VAT error and how to correct it is essential for every business operating in the UAE. Common errors include:
- Failing to charge or account for the correct amount of output VAT on taxable supplies.
- Not claiming the proper input VAT on purchases.
- Misreporting taxable supplies, zero-rated supplies, or exempt supplies.
Examples of VAT Errors:
- Incorrectly applying VAT to exempt or zero-rated transactions.
- Claiming input VAT without valid tax invoices.
- Reporting taxable supplies under the wrong Emirate.
Common Types of VAT Errors and Their Rectification
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Misreporting Supplies by Emirate
Issue: Reporting taxable supplies for one Emirate in another Emirate’s box on the VAT return.
Correction: File a Voluntary Disclosure using Form 211 to amend the error.
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Errors in Zero-Rated Supplies
Issue: Overstating or understating zero-rated supplies.
Correction: Submit accurate figures through a voluntary disclosure.
-
Exempt Supplies Misreporting
Issue: Errors in reporting exempt supplies, such as understating or overstating their value.
Correction: Correct the error using Form 211 if the discrepancy exceeds AED 10,000 or amend it directly in the next return if under AED 10,000.
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Errors in Tax Invoices
- Overcharged VAT: Issue a credit note to refund the excess tax.
- Undercharged VAT: Issue a revised tax invoice with the correct VAT amount.
How to Correct an Error in a Tax Invoice and Its Adjustments in a Tax Return
Correcting a Tax Invoice Error: Key Steps
- Identify the Error
- Overcharged VAT: The tax amount on the invoice is higher than the correct figure.
- Undercharged VAT: The tax amount on the invoice is lower than what should have been charged.
- Issue Corrective Documents
- Credit Note for Overcharged VAT:
If the supplier has charged more VAT than required (e.g., mistakenly applying VAT to a zero-rated supply), they must issue a credit note to reduce or negate the excess tax. Once the credit note is issued, the supplier can correctly adjust the tax in the next return.
- Revised Tax Invoice for Undercharged VAT:
If the supplier originally undercharged VAT (e.g., charging 0% instead of 5% on a standard-rated supply), they must issue a corrected tax invoice. The corrected amount of VAT should then be included in the supplier’s subsequent tax return.
- Credit Note for Overcharged VAT:
Impact on the Tax Return
- Overcharged Amount:
If no credit note was issued before filing, the supplier might initially report the higher VAT in its return. However, a subsequent credit note and corresponding adjustment must follow in a future period.
- Undercharged Amount:
The supplier should include the correct VAT figure in its tax return, reflecting the correction via the newly issued invoice.
What if You’re the Recipient of an Erroneous Tax Invoice?
- Request the Correct Document:
If you’ve received an invoice with incorrect VAT (overcharged or undercharged), contact the supplier for a credit note (if overpaid) or a revised tax invoice (if undercharged).
- Recover Input Tax Only on a Valid Invoice:
To claim input tax, ensure you possess a valid tax invoice showing the correct VAT amount. Any errors must be resolved to avoid complications with the Federal Tax Authority (FTA).
Contact RNG Auditing for expert guidance on VAT return filing, voluntary disclosures, and compliance audits.
What Are the FTA Thresholds for VAT Error Corrections?
Errors of AED 10,000 or Less
Correction: These errors can be corrected directly in the current VAT return during the reporting period in which the error was identified.
Examples:
- A minor overstatement of input tax.
- Incorrectly reporting a small zero-rated supply.
Errors Over AED 10,000
Correction: Submit a Voluntary Disclosure (Form 211) to the FTA within 20 working days of identifying the error.
Examples:
- Misreporting a taxable supply resulting in a significant variance in VAT payable.
- Substantial overstatement or understatement of exempt supplies.
When Is Voluntary Disclosure Required for UAE VAT?
A Voluntary Disclosure becomes necessary when businesses identify errors or omissions in previously submitted VAT returns, refund applications, or tax assessments. This process ensures adherence to UAE VAT laws by informing the Federal Tax Authority (FTA) of any discrepancies and rectifying them promptly.
Scenarios Requiring Voluntary Disclosure
- Errors in VAT Returns: If a VAT return contains mistakes that impact the Due Tax, a Voluntary Disclosure must be filed. Specifically, for errors exceeding AED 10,000, the disclosure should be submitted within 20 working days of discovering the error. Common examples include overstating or understating output VAT, incorrectly claiming input VAT, and misreporting supplies under the wrong Emirate.
- Errors in Tax Refund Applications: Should errors be identified after submitting a VAT refund application, a Voluntary Disclosure is required within 20 business days of discovering the mistake. Examples of such errors include claiming refunds for unpaid input VAT or miscalculating the refundable VAT amount.
- Errors in Tax Assessments: If discrepancies are found in the FTA’s tax assessment, a Voluntary Disclosure must be filed promptly upon discovering the issue. This includes instances where incorrect higher tax amounts are due to missing or incorrect data.
- Errors in Previous Periods: For mistakes in prior tax periods that cannot be corrected in the current VAT return, a Voluntary Disclosure is necessary. This applies to significant discrepancies in tax payable or reclaimable VAT from previous periods.
Thresholds for Voluntary Disclosure
- Errors involving amounts of AED 10,000 or less can typically be corrected directly in the current VAT return without the need for a Voluntary Disclosure. However, if such errors cannot be rectified within the return, a disclosure becomes necessary.
- Conversely, errors above AED 10,000 must be reported through a Voluntary Disclosure (Form 211) within 20 working days of their identification.
FTA Form 211: Voluntary Disclosure
Form 211 is the official mechanism for businesses to voluntarily disclose and rectify errors or omissions in their VAT returns.
When to Use Form 211
- When an error exceeds AED 10,000.
- When the error cannot be corrected in the current VAT return.
Steps to File a Voluntary Disclosure
- Log in to the FTA Portal: Access the FTA e-Services portal.
- Identify the Error: Review VAT records and confirm the discrepancy.
- Complete Form 211: Provide accurate details about the error and corrected values.
- Attach Supporting Documents: Include invoices, records, and calculations.
- Submit the Form: Finalize the submission and monitor the status.
How to Avoid VAT Errors
- Use Reliable Accounting Software:
Automate VAT calculations to minimize human errors.
- Conduct Regular Audits:
Periodically review VAT records to identify discrepancies early.
- Train Your Team:
Educate your finance team on the latest VAT regulations.
- Engage Professionals:
Consult VAT compliance experts like RNG Auditors.
Best Practices
- Invest in Training: Ensure your finance team is well-versed in VAT laws and updates.
- Use Automated Software: Leverage accounting software to minimize human errors.
- Conduct Regular Audits: Periodically review VAT submissions to identify discrepancies.
- Stay Updated: Keep track of changes in VAT regulations, including upcoming amendments.
Need Assistance with VAT Compliance?
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- Email us: [email protected]
- Landline Office: 04 276 5667
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