VAT CALCULATOR

VAT CALCULATION

VAT stands for Value Added Tax.

It is a form of tax that is charged on the domestic consumption of goods and services except for that are zero rated such as food, medicines etc and on the goods and services that are classified as “Exempted” broadly on exports. The tax is levied at every stage from procurement of raw material, production and till distribution chain that is up to sales. The amount of VAT the user pays is on the cost of the product, less the tax that has already been paid during the production cycle. This form of taxation (VAT)ensures there is no double taxation of the same product or services.

Significance Of VAT Calculation in UAE:

VAT will be incorporated in all business transactions from January 1^st 2018.It will be a milestone for UAE as it will generate revenues for development of infrastructure and economic growth of the country. It is estimated that with the introduction of the new form of taxation “Value Added Tax” the economy may raise its annual revenues by Dh 12 billion in the first year of implementation of the VAT system. Gulf Cooperation Council (GCC) decided upon the implementation of VAT system as being one of the steps to diversify revenues due to the fall in oil prices. Tax reform was top priority in UAE succumb to the fall in oil prices and revenues. This fall in oil prices also affected real estate industry impacting the economic growth of the country.

VAT Calculation –  Rate of Taxation

Taxation rate in UAE will be 5% on all goods and services. Government has decided upon the marginal rate of 5% in the interest of the residents, as purchasing power of the consumer will not be hampered to an extent. Thus implementation of VAT will not have adverse effect on the people who are on the lower end of the spectrum.

However GCC has agreed on three VAT Calculation rates that will be levied by the member states at the time computation of tax:

• Standard Rate
• Zero Rate
• Tax Exempt

Standard Rate

• The rate of 5% will be applied on the all the business sectors.(does not hold good for zero rated and exempted goods).It is mandatory that all  invoices feature tax value separately and then be added to the final bill value. All invoices must also display VAT registration number to enable buyer to claim VAT credit.

Zero Rated

As the term suggests, the tax is computed at the zero rate. The tax column in the invoice of the sold good will be zero. Only the cost of the good will is charged.

In the contrary if tax has been paid for zero rated goods, tax credit of purchases can be availed for the sold good. You will need to record any zero-rated supplies in your VAT account and report them on your tax return

Zero Rated Items:

• Exports outside GCC
• Food items as per GCC list
• Medicine and Medical Equipment as per GCC list
• Supply of sea, land and air means of transportation
• International and Intra GCC transport and services
• Charity organizations
• Gold, silver and platinum – 99% and more purity
• First supply after extraction of gold, silver and platinum
• Supply for educational purposes and related goods and services beneficial for educations
• Residential real estate – first supply

TAX Exempt:

The Tax Exempt supplies are not charged with VAT, however any tax paid earlier on purchases of the item is not available for credit.

As an example considers a taxi service (local passenger transport) that is tax exempt and will not collect any VAT from passengers. Though it will not collect any tax it will not be able to get credit for the tax they have paid for purchase of motor vehicles.

GCC: Tax Exempt List

• Imports of goods which are custom exempt
• Local passenger transport
• Bare Land

UAE: Additionally exempt

• Residential buildings other than zero rated
• Some specific financial services – margin based

Registration of Business Entities under VAT Calculation

• A company whose annual turnover is equal or above AED 375000  should register it self under the Federal Law before 2017. If the Annual Turnover is between AED 187,500 & AED 375,000/, it is optional for the company to be registered under UAE VAT law. Further, if it is less than AED 187,500/, the company need not register under this law.
• However, for the ease of the business, supplier may not be registered if the business does not make any supplies which are eligible for 5% tax. %. If exception from registration is granted, then you will not submit regular tax returns and you will not be able to recover input tax incurred.

What is Input Tax under VAT Calculation

• In simple terms, it means tax paid on raw material for the purpose of making the finished goods. You can reduce the tax that has been already paid on the inputs and pay the balance taxable amount. Thus, entire taxes paid are set off against the output tax liability and there is no cascading impact of taxes.

Example:

Mr.X ‘s company is a manufacturer of mango juice. Raw materials required are mangoes, sugar, acidity regulators and packaging materials.

Once the final product is made let the tax on output be AED500

Tax to be paid by the manufacturer =AED500 – AED275=AED225

                                  Input Credit=AED275

Input Credit in VAT Calculation : A company can avail input tax credit only if it is registered with Federal Law.

This applies to manufacturer, supplier, agent, e-commerce operator, aggregator or any of the persons mentioned who are registered. You are eligible to claim INPUT CREDIT for tax paid by you on your PURCHASES.

Claim of Input Tax Credit

A entity can claim input tax credit on furnishing the below mentioned

A tax invoice or debit note issued by the registered dealer.

If the goods have been received in the lots or installment, credit will be available for the lst installment on producing the appropriate tax invoice

Possession of Goods and Services

The tax charged on your purchases has been deposited/paid to the government by the supplier in cash or via claiming input credit

Supplier has filed VAT returns

Therefore every input tax credit claimed is matched and validated before the reimbursement.

Exceptions on Input Credit

• It is possible to have unclaimed input credit. Being tax on purchases higher than tax on sale. In such a case, you are allowed to carry forward or claim a refund.

If tax on inputs is greater than tax on output –> carry forward input tax or claim refund

If tax on output is greater than tax on inputs –> pay balance

No interest is paid on input tax balance by the government

• Input tax can be claimed on taxable and zero rated supplies.
• You must be registered as a taxable person under VAT
• If the entity of registered taxable person changes due to sale, merger or transfer of business, then unused ITC shall be transferred to the sold, merged or transferred business
• Since VAT is charged on both goods and services, input credit can be availed on both goods and services (except those which are on the exempted/negative list).
• Input tax credit is allowed on capital goods.

Non Availability of Input Tax Credit for the following cases

• Input tax is not allowed for goods and services for personal use.
• No input tax credit shall be allowed after VAT return has been filed following the end of the financial year to which such invoice pertains or filing of relevant annual return, whichever is earlier.
• Input tax credit cannot be taken on purchase invoices which are more than one year old. Period is calculated from the date of the tax invoice.
• If depreciation has been claimed on the cost of capital goods, then they are not eligible for Input Tax credit.

Matching Mechanism for ITC Monitoring

• A matching mechanism has been developed to make sure there is no duplication in claiming ITC.
• It ensures that inward supplies returns filed by receiver matches outward supplies returns filed by supplier.
• Matching mechanism also helps in matching ITC claims with customs paid where goods are imported by registered taxable person.
• Any discrepancy which arises post verification is intimated to both parties so that they can make necessary corrections within the prescribed time frame.

Understanding VAT Calculation with the formula:

VAT=Output TAX – Input Tax

Output tax: VAT collected on sales of goods and services.

Input Tax:Tax paid on purchase of raw materials.

Understanding Calculation Of VAT with a scenario:

Mr. Y  a has a textile industry, with annual turnover being more than AED375000.He spends AED 200,000  for procurement of raw materials like yarn, dye etc.

Prevailing VAT rate of 5% is applied on 200,000 which is AED10, 000

Tax on the raw materials is that is Input Tax=AED10, 000

Assuming the finished product is sold for AED 400,000

Output Tax is 5% of AED 400,000 =AED20, 000

Therefore final VAT payable to Government is Output tax – Input Tax

That is AED 20,000 – AED10, 000 = AED 10,000

VAT Calculation

VAT is charged at 5% on total value of the final goods. As vat is collected at every channel of production and distribution Government will not collect the tax upfront on the final good only. The difference amount resulting from VAT recovered on sale of final good and VAT paid at the procurement of raw material is the Taxable amount that is paid to the government.

Procedure to file VAT Returns in UAE:

With the inception VAT form of taxation returns should be filed every quarter that is at a period of every three months. In some cases monthly. The registered entities can file the returns using online services of the Federal Tax portal. Timely submission of the e-returns keeps the company away from being black listed and also helps for expansion of business. A registered company should file returns even if the tax paid by them is NIL.As the returns should be filed every three months record keeping should be prompt and accurate. The e-services section of the Federal tax portal provides online assistance for filing VAT returns. The website available for registration www.tax.gov.ae

Importance of VAT returns:

It is mandatory to file returns as government has to generate revenues for country’s betterment. It also has a check on the black money as returns are filed every quarterly. The possibility of money laundering is handicapped by periodical checks.

No manual returns are accepted on the desk. It is mandatory that all the companies registering under VAT should go through online process of registration. This is basically adopted to avoid any kind of manual manipulation. Delay in filing tax return will be penalized by the tax authority.

Details required for registration:

• Description of business activity
• Last 12 months turnover figure
• Projected future turnover figures
• Expected Import and export values
• Whether company is interested in dealing with GCC suppliers or customers.
• Details of custom authority registration.
• Trade License
• Emirates ID Authorized signatory can be a person who has the power of Attorney to sign on behalf of the business.
• Certificate of Incorporation
• Articles of Association
• Bank Details.

Upon Successful registration TRN Tax Registration Number will be issued within 20 days

Reach VAT Software:

With the introduction of VAT in UAE there is the probability of un-stability in business operation for a period of time. We at Reach will provide you with best software supports for a smooth run of business operations.

Technology Used: Our products are hosted on the Cloud and delivered to customers on a subscription model. It allows business applications integrate seamlessly. It can have all your employees working on business data at the same time and allows you to check how your business is doing at the comfort of your home, or on the go during a holiday!

Key Features OF Reach VAT Software:

Accounting: It covers the broad head under the computation, from Trading a/c,Journal entries  to ledgers ,Income and expense a/c  and Balance  Sheet, Cash flow Management, Budgeting and forecasting, accounts payable and account receivables .It also helps maintain the Bank Transactions-Contra entries ,Taxation  and Audit

Auditor View: Full-fledged Financial reports, Tax reports, VAT reports, read process by auditor, with e-filing options, PF & ESI Reports, Tax Consulting Modules

Security: Reach VAT software ensures security of all the confidential business information avoiding any kind off  loss to the business.

User Friendly: Software’s are designed is such a way that the user will find it easy to operate.

API: The client can integrate the existing software with Reach accounting application, seamlessly.

Other Features are:

• Preparing VAT Returns
• Making VAT Payments
• Reconciling VAT Supplies
• Extracting General Audit Files Compliant with VAT Calculation
• VAT Calculation  Accounting
• Inventory Management
• Branch Management
• Purchase Management
• Point of Sales
• Job work management
• Manufacturing Management
• Project Management
• Bar-coding

CONCLUSION

No upfront investment, Low monthly rentals ,free servers, free routers, LAN ,Network cabling not required, Anti Virus not required, free data backup.

Watch our Free  Demo