This section is mostly addressed the company owners and accountants, the most important thing to remember is that the TAX is real and you will be dealing with the government including all implications in the case of any false declarations.
In fact, this procedure is not by any means a one-way operation (i.e. you declare the taxes and pay it), the FTA has the right to visit your premises and check your books to determine that what you have submitted is the actual figures and it is correctly declared, they even can shut down your business for a limited amount of time in order to carry on their inspection works.
Government inspectors never visit companies in a “Good Faith”; obviously they are paid to find irregularities. Having the proper registers will make the unfriendly visit as smooth as possible and will not be of any financial or emotional stress on the owners.
The focus of the inspector is the company’s records, the accounting records, and related files. Accounting records should clearly show how the VAT was calculated and on which basis. Additionally, historical records should be preserved for up to 5 years in the UAE & 10 years in KSA. Silly answers similar to“system is down” or “IT records are lost” can be heavily penalized; hence, proper records should be physically kept in a safe storage.
The other records that should be stored are the suppliers’ VAT registration numbers and the clients’ proof of delivery. On the supplier side, the inspectors will check the authenticity of the invoices raised/recorded, the VAT incurred and suppliers’ location. This is crucial for them to visit any given supplier and check his records the same way they are doing in your company. Clients side, they will check your invoices sequence, your clients’ details, the accuracy of the VAT calculations and the proof you have once you invoice clients with Zero Vat or issue invoices with no VAT (export) and the related export proof. Authorities can claim your sales & expenses ledgers to cross check the total input and output VAT declared.
Please refer to VAT Accounting TIPS to have an in-depth idea about the things you must watch out for.
The importance of keeping business records
You must keep records that will enable you to prepare complete and accurate VAT returns. You may choose a system of record-keeping that is suited to the purpose and nature of your business. These records must clearly reflect your income and expenditure in addition to any VAT implications. This means that, in addition to your permanent books of account or records, you must maintain all other information that may be required to support the entries in your records and VAT.
The role of records keeping differs between different entities. Companies within the distribution network follow different bookkeeping procedures. In other words, wholesalers who break the bulk are more concerned with warehousing than selling directly to consumers. Thus, their VAT records are based mainly on invoices from the manufacturer. Retailers, on the contrary, carry out keeping the majority of vouchers and accounting documentation. This is because they are the last entity in the distribution network before the good and service reach the consumer.
The records should include amongst others:
- Detailed daily records of cash receipts and payments reflecting the nature of the transactions and the names of the parties to the transactions.
- Detailed records of credit purchases (goods and services) and sales reflecting the nature of the transactions and the names of the parties to the transactions
- Statements of annual stocktaking
- Supporting vouchers and invoices