VAT made easy for Freight Forwarders 20th January 2018 Flair Software Solutions Falcon International Consulting & Auditing

Introduction to VAT What is VAT? What is Output VAT? What is Input VAT? What is Input VAT credit/Recoverable Input?

Direct Tax Indirect Tax Is a Tax, where the person is paying the tax directly to the Government. Example Income Tax Indirect Tax Is a Tax where the person or a company collects the Tax on behalf of the Government and then pays to the Government. In this type of Tax, the person or the company acts as a Tax Collection Agent on behalf of the Government. Example Customs Duty, Excise Tax, Value Added Tax

Standard VAT Categories Zero Rated Out of Scope Exempt Category 5% - Local Taxable Services E.g Local Service Charge Container Washing, Line Demurrage, Warehousing, Storage, Packing & House Shifting (Where Cargo is NOT exported) Zero Rated 0% - Services directly related to International Transport. E.g Ocean/Air Freight, B/L-AWB, Delivery Order, Container Transport, etc. Out of Scope Not Applicable, since the Service happens Out of State (Out of UAE Jurisdiction), it is considered Out of Scope. E.g Cross Trade Shipments Exempt Category This Category includes Hospitals, Passenger Transport, etc.

Input Tax Output Tax Tax paid by a person/company, when service is given to him. The Input Tax can be either Recoverable or Non-Recoverable Tax charged by a person/company to his customer on those services which are Taxable (Not zero rated)

Tax Payable to Government Due Tax payable to the Government for a Tax period Output Tax Collected on Taxable service Input Tax Paid (Recoverable) Tax Payable to Government Note: The Input Tax Paid (Non-Recoverable) will be taken in your books as your expense, it cannot be claimed back from the Government

Vendor/Service Providers who are not liable to charge you Tax (i) A Local Non-Registered Service Provider or Supplier (ii) A Local Registered Service Provider issuing an Invoice without his TRN In order to charge you VAT, the Service Provider must provide you with a Tax Invoice with his TRN You CAN take the services of a regular Non-Registered local Service Provider as you have been doing before, provided, he will give you an invoice (since it will not have the TRN, he cannot apply tax), but, it is advisable, to take an Undertaking on company letter head, stating that he is not required to get himself registered as per the provision of VAT Law. Example are resident freelance 3 ton pickup drivers, resident Truck Drivers doing GCC Transport   Also, you can take the services of a non-regular or non-resident Truck Drivers, who are returning and taking goods from UAE to KSA, Oman, Jordan, etc. You can continue to pay Sales Commission to Intermediaries and Brokers for facilitating business, as you had been doing before.

Invoicing – Tax Invoice You can issue an Invoice to your Customer, even if he does not provide you his TRN, but it is advisable that you should have his TRN in your records, as this is required at the time of filing Tax Returns One single invoice can include both 0% and 5% Line Items One single invoice can include Cost to Cost, Margin and Profit Line Items It can also include, the inclusive tax Line Item, paid on behalf of the Consignee, provided, the Tax amount is small and the Consignee is not keen to take the tax amount in his Input Tax credit E.g of such Line Items is Gate Pass, Seal Charges where the tax amount is less than AED 5/- But if the Tax amount paid on behalf of the Consignee is substantial, then, first discuss with your Customer and explain him the procedure of booking this Tax in his Accounts. Only after mutual discussion and understanding, raise a SEPARATE invoice for such amounts (of course, this invoice will also be inclusive of the Tax paid) Raising Debit Note is NOT allowed, so the software Admins should block this menu, even for their login Id

There is no differentiation between invoice raised on a Local Customer or an Overseas Customer (Agent-Vendor), if a Taxable Services are given within the UAE, VAT must be charged to both. It is advisable not to give an All Inclusive Charges invoice because then it becomes questionable that it may contain Taxable Services. So save the invoice with detailed Line Items, but at the time of printing, you can print a ‘All Inclusive Charges’ invoice Try not to edit an Invoice, but if it is un-avoidable, it can be edited, provided, you have not filed your returns. Please be aware that, editing of all financial transactions will be recorded in the Audit Trail within the software and once the feature of generating FAFF files is added in the software, the Tax Authority will have the entire history of the Audit Trail. You will have to co-ordinate with your Auditors to advise you with the account data entry controls to be exercised, in order to become VAT Compliant Billing should be done within 14 days of the job completion, viz. Container/Shipment delivered to Consignee, Container deposited back to Port As a standard practice of being VAT Compliant, once the Audit is completed, you or your Auditor must make the Audited months INACTIVE. Once the Tax Return filing is done and accepted by the FTA, you or your Auditor must CLOSE the months for which the Returns have been filed

Tax Credit Note If you are issuing a Tax Credit Note against an Invoice for (say) Ocean/Air Freight which is 0% in the Invoice, obviously, in the Tax Credit Note, there will be no reversal of the Output VAT, since it was NOT charged at all in the original Invoice. But, if you are issuing a Tax Credit Note against an Invoice for (say) Service Charges (which was VAT-able in the invoice), then the Output VAT amount in the Tax Credit note will be reversed against the original VAT-able amount in the original Invoice Obviously, reference of the original Invoice must be given and detailed reason for issuing the Credit Note should be provided

Books of Accounts/Records If you have multiple branches in various Emirates, the Tax Returns should have separate references of Output Tax Emirate (Branch) wise Books of Accounts/Tax Records are mandatory to be maintained for 5 years and wrong filing of Returns attracts a penalty It is advisable to file your Tax Returns under the supervision of a Tax Consultant Although, not mandatory, obviously there are advantages if your books are audited by Auditors • Data Entry controls and VAT compliancy can be advised by your Auditors • Cross verification of Input VAT Recoverable and Non-Recoverable • Any data entry mistakes can be rectified before filing the Tax Returns • Queries raised by FTA Auditors can be directly handled by your appointed Legal Representative

Thank You For any follow-up queries please write to: hsthakur@falconauditing.com admin@falconauditing.com info@flairsoft.org Flair Software Solutions Falcon International Consulting & Auditing