I have a client whose VAT return is due by August 28. However, he is on holiday and unable to get details of his sales and purchases in order to submit the return by the deadline. If he does not file this month, can it be submitted at a later date? Will the Federal Tax Authority portal allow me to enter the return after the cut-off date of August 28? If so, how soon it should be done and will there be a penalty for not filing by the required date? KP Dubai
The Federal Tax Authority always gives businesses a minimum of 28 days after the end of the reporting quarter to prepare and file their VAT return. When the 28th of the following month falls on either a Friday or Saturday, the deadline moves to the next working day. Any VAT returns not filed by the given deadline should be submitted as soon as possible afterwards. The FTA portal will allow you to file a return for a quarter after the deadline has passed. In fact you cannot file another VAT return until you have filed the previous one, so it forces you to file returns sequentially, even if you have missed a deadline.
The FTA impose separate penalties for failing to file a return and failing to make payment by the given deadline.
There is an automatic penalty for missing a filing deadline which is Dh1,000 in the first instance and then Dh2,000 for subsequent missed deadlines within 24 months.
If you fail to settle the tax due by the deadline you will be charged 2 per cent of the unpaid tax, which is charged immediately after the due date. This rises to 4 per cent of the unpaid tax if you have not paid up within seven days of the deadline. If you have still not paid a month after the deadline, you are charged at a rate of 1 per cent each day until the penalty reaches 300 per cent of the tax due. Note that if you make a payment but fail to file the corresponding return, the FTA will not recognise the payment until the return is filed.
In February 2019 we received an invoice in euros for services and accounted for it using the exchange rate issued by the Central Bank of the UAE at the date of the invoice. The company recently received a euro credit note dated July 25, which reversed the February invoice in full. What exchange rate should I use to convert this credit note to dirhams? If I use the July 25 exchange rate the input VAT reversed will be a different value to the initial input vat reported. The other option would be to use the same exchange rate as I used for the February invoice. Which option is correct? MT, Abu Dhabi
If you receive purchase invoices in a currency other than dirhams, you are required to use the exchange rates issued daily by the Central Bank to convert the transactions. The exchange rate you use must correspond to the date of supply. In currencies other than the US dollar this usually means that, due to currency fluctuations over time, the amount you pay won't exactly match the dirham liability you recorded at the time the invoice was received.
However, do not adjust the VAT on the amounts you eventually pay, as it will be dictated by the exchange rate in force at the later payment date. Subsequent to the Decree Law and Executive Regulations, the FTA issued a Public Clarification document VATP004 covering the use of exchange rates, which can be found on their website. While this does not cover your specific query, given that the exchange rate to be used is that of the date of supply of the service, that date is the same for the initial invoice and later credit note; you should therefore use the same exchange rate when booking the credit note that you used when accounting for the invoice. This means your transaction will be fully reversed in both euros and dirhams and you will not have any currency differences to report on your VAT return.
Lisa Martin, a chartered accountant with more than 20 years of commercial finance experience, is the founder of accounting, auditing and VAT consultancy, The Counting House. Email any VAT queries to email@example.com