Rohitashva Singhvi

Tag: vat

US Accounting Process
Accounting is a vital function in every business, serving as the backbone for tracking financial activities and ensuring compliance with financial regulations. For US businesses, understanding the accounting process is essential for maintaining accurate records, evaluating financial health, and making informed decisions. This blog will walk you through the accounting cycle, a systematic method used to record, classify, summarize, and report a company’s financial transactions. Following this guide will help you manage your financial information efficiently and ensure it is consistent, accurate, and ready for decision-making.

What is the Accounting Cycle?

The accounting cycle refers to the sequence of steps followed to record, process, and report the financial activities of a business over a specific period. This cycle helps in transforming raw financial data into meaningful information through structured phases. The process typically involves recording each transaction, summarizing account balances, and preparing the financial statements. Understanding each phase ensures a company remains compliant with accounting standards, such as Generally Accepted Accounting Principles (GAAP), and facilitates better financial management.

US Accounting Process: Step-by-Step for Success

Let’s explore each step in the US accounting process in detail.

1. Transaction Analysis: The Starting Point

The accounting cycle begins with the analysis of business transactions. Identifying and understanding each transaction is crucial because it determines how the event affects the business’s financial standing.
- Identify Transactions: Every business activity that involves a financial exchange, whether it’s purchasing supplies, selling products, or paying salaries, is considered a transaction. The first step is to pinpoint these economic events.
- Analyze the Impact: Determine which accounts are affected by each transaction. Accounts may include assets (cash, inventory), liabilities (loans, accounts payable), equity, revenue (sales), and expenses (rent, utilities). Evaluating whether the transaction increases or decreases these accounts helps in maintaining accurate records.
Understanding these aspects is essential as it lays the groundwork for making accurate journal entries.

2. Recording Journal Entries: Documenting Transactions

Once the transactions are identified and analyzed, they are recorded in the journal, commonly known as the “book of original entry.”
- Record Transactions: Each transaction is recorded in the journal with a date, the accounts involved, and the amounts being debited and credited. This chronological record provides a detailed log of every financial event affecting the business.
- Debit and Credit System: The accounting process follows a double-entry system, where every transaction is represented with at least one debit and one credit. For example, if a business purchases equipment, the equipment account (an asset) will be debited, while the cash account (another asset) will be credited. This ensures the accounting equation (Assets = Liabilities + Equity) remains balanced.
3. Posting to the General Ledger: Organizing the Data

After journalizing, the next step is to post the recorded transactions to the general ledger, which organizes financial data by account. This process allows businesses to review all transactions associated with each account.
- Transfer Journal Entries to Ledger: Each journal entry is posted to its corresponding ledger account. The general ledger is a collection of all accounts, and it records the cumulative effect of all transactions for each account type.
- Ensure Organization: By transferring the entries into the general ledger, businesses can easily monitor the performance of specific accounts, such as tracking expenses, cash flow, or liabilities.
4. Unadjusted Trial Balance: Verifying Initial Accuracy

The unadjusted trial balance is prepared to ensure that the debits and credits are equal before making any adjustments. It involves listing all the accounts in the general ledger along with their balances.
- Prepare a Trial Balance: List every account from the general ledger with its balance, categorizing them as debit or credit balances. This serves as a preliminary check to verify that all the recorded transactions were entered correctly.
- Confirm Debit-Credit Equality: The primary purpose of the trial balance is to ensure that the total debits match the total credits. If they do not, it indicates an error in the recording process that must be corrected before proceeding.
5. Adjusting Entries: Fine-Tuning the Records

Adjusting entries are made to update the accounts for revenues and expenses that have not been recorded or for transactions that span multiple accounting periods. This step ensures that the financial statements reflect the true financial position of the business.
- Accrue or Defer Revenues and Expenses: Adjustments may include accruing revenues earned but not yet received, deferring prepaid expenses, recording depreciation, and adjusting for accrued expenses.
- Examples of Adjusting Entries:
  - Prepaid Expenses: If a business pays for insurance in advance, an adjusting entry is needed to record the expense as it is incurred over time.
  - Accrued Income: Income that has been earned but not yet received needs to be recorded as a receivable.
  - Depreciation: Adjust for the gradual reduction in value of fixed assets over their useful lives.
6. Adjusted Trial Balance: Ensuring Updated Accuracy

After making the necessary adjustments, a new trial balance is prepared. This adjusted trial balance serves as a final check before the preparation of financial statements.
- Prepare an Adjusted Trial Balance: List all accounts with their updated balances after the adjusting entries. This provides an accurate snapshot of the accounts that will be used to prepare the financial statements.
7. Preparing Financial Statements: Summarizing the Financial Data

The primary goal of the accounting cycle is to create financial statements that accurately reflect the company’s financial performance and position. Four key financial statements are prepared:
- Income Statement: This statement provides a summary of revenues, expenses, and profits or losses over a specific period, revealing how well the business is performing.
- Balance Sheet: It displays the company’s assets, liabilities, and equity at a specific point in time, offering insights into its financial health.
- Statement of Cash Flows: This statement tracks the inflow and outflow of cash related to operating, investing, and financing activities, indicating how the company manages its cash.
- Statement of Retained Earnings: It outlines the changes in retained earnings over the period, including net income and dividends paid.
8. Closing Entries: Preparing for the New Cycle

At the end of the accounting period, it is necessary to close temporary accounts, such as revenues, expenses, and dividends, to prepare for the next accounting period.
- Close Temporary Accounts: Transfer the balances of revenue, expense, and dividend accounts to the retained earnings account to reset their balances to zero for the next period.
- Prepare a Post-Closing Trial Balance: This trial balance includes only the permanent accounts (assets, liabilities, and equity), confirming that the accounting books are ready for the new cycle.
Additional Considerations for the US Accounting Process

While following the steps in the accounting cycle is essential, businesses must also keep a few other considerations in mind to maintain compliance and efficiency.
- Adherence to Generally Accepted Accounting Principles (GAAP): GAAP provides the framework for consistent and comparable financial reporting across industries. It guides businesses on how to recognize revenues, record expenses, and disclose financial information.
- Use of Accounting Software: Leveraging accounting software can automate many steps in the accounting cycle, reduce human errors, and improve the efficiency of the entire process. Software solutions can help with transaction recording, adjustments, and financial statement preparation.
- Implementing Internal Controls: To prevent errors and fraudulent activities, businesses should establish internal controls, such as segregation of duties, regular audits, and reconciliation procedures. These controls help ensure the accuracy and integrity of financial data.
Benefits of a Well-Executed Accounting Cycle

Following a structured accounting process provides several advantages for businesses:
- Accurate Financial Records: Ensures that all financial transactions are accurately recorded and classified, providing a clear picture of the company’s financial position.
- Informed Decision-Making: Reliable financial data allows business owners and managers to make better decisions regarding investments, budgeting, and strategic planning.
- Regulatory Compliance: Adhering to accounting standards, such as GAAP, ensures compliance with legal requirements and reduces the risk of penalties or fines.
- Efficient Financial Reporting: A systematic approach streamlines the preparation of financial statements, allowing businesses to meet deadlines and maintain stakeholder confidence.
Also Learn: UK Accounting Process – Rohitashva Singhvi

Conclusion

The accounting cycle is the cornerstone of financial management for any US business. By understanding and implementing the steps of the accounting process, from transaction analysis to closing entries, companies can ensure their financial records are accurate, complete, and compliant with regulations. This comprehensive guide serves as a roadmap for businesses to navigate the complexities of accounting, enabling them to achieve financial stability and long-term success.

With the right tools, knowledge, and practices, the accounting process becomes not just a regulatory requirement but a strategic asset that drives business growth and profitability. Make the accounting cycle work for your business and transform your financial data into a powerful decision-making tool.

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Business Startup
October 12, 2024
UK Accounting Process
Accounting plays a crucial role in every business, providing a structured way to track financial health and ensure compliance with legal requirements. The UK’s accounting process is no different, governed by distinct regulations and standards. In this comprehensive guide, we’ll walk you through each step of the UK accounting process, from understanding the relevant standards to preparing financial statements. Whether you’re a small business owner, a finance professional, or just someone looking to understand the basics, this guide will provide you with a thorough understanding of the UK’s accounting process.

UK Accounting Process: A Step-by-Step Approach

Understanding UK Accounting Standards

Before diving into the steps involved in the UK accounting process, it is essential to grasp the foundational standards that govern accounting practices. In the UK, accounting is regulated by the Companies Act 2006, which outlines the legal requirements for financial reporting. Additionally, the Financial Reporting Council (FRC) sets the guidelines for accounting practices by issuing Financial Reporting Standards (FRS), which are the UK equivalent of the International Financial Reporting Standards (IFRS).

Key UK Accounting Standards to Know:
- Companies Act 2006: Governs the legal framework for company accounts, including requirements for bookkeeping, auditing, and financial reporting.
- Financial Reporting Standards (FRS): Published by the FRC, these standards ensure consistency and transparency in financial reporting. They include standards like FRS 102 (The Financial Reporting Standard applicable in the UK and Republic of Ireland) and FRS 105 (The Financial Reporting Standard applicable to micro-entities).
Understanding these standards will help ensure that your accounting practices align with legal requirements and best practices.

Key Steps in the UK Accounting Process

The UK accounting process follows a systematic approach that ensures accuracy and completeness. Below is a detailed guide to each step.

1. Transaction Recording: The Foundation of Accounting

The first step in the accounting process is to record all financial transactions. This step ensures that every monetary movement within the business is documented.

Steps Involved:
- Source Documents: Begin by collecting all source documents such as invoices, receipts, bank statements, and purchase orders. These documents serve as the evidence for each financial transaction and are crucial for maintaining an audit trail.
- Journal Entries: Transactions are then recorded in a journal. This involves identifying the accounts affected by each transaction and determining whether they should be debited or credited.
- Double-Entry System: The double-entry bookkeeping method is employed to ensure accuracy, meaning every transaction is recorded twice: once as a debit and once as a credit. This system ensures that the accounting equation (Assets = Liabilities + Equity) remains balanced.
2. Posting to the General Ledger: Organizing the Accounts

Once transactions are recorded in the journal, the next step is to post these entries to the general ledger.

Key Aspects:
- General Ledger (GL): The general ledger is a comprehensive collection of all the accounts used in the company’s accounting system, including assets, liabilities, income, and expenses.
- Account Balancing: Each account in the GL must be balanced to ensure that the total debits equal the total credits. This step is crucial for maintaining accurate financial records.
3. Sub-Ledger Maintenance: Diving Deeper into Specific Accounts

Sub-ledgers offer more detailed insights into specific types of transactions, providing a more granular view of the company’s financial activities.

Common Sub-Ledgers Include:
- Customer Ledger: Tracks all transactions related to individual customers, including sales, payments, and outstanding balances.
- Supplier Ledger: Monitors transactions with suppliers, such as purchases and payments.
- Bank and Cash Ledger: Documents all bank-related transactions, including deposits, withdrawals, and bank charges.
Maintaining accurate sub-ledgers helps in managing accounts receivable, accounts payable, and cash flow effectively.

4. Trial Balance Preparation: Checking for Accuracy

After posting transactions to the general and sub-ledgers, a trial balance is prepared to check for any discrepancies in the accounting records.

Steps to Prepare a Trial Balance:
- List All General Ledger Accounts: Prepare a list of all the accounts along with their balances.
- Calculate Total Debits and Credits: The trial balance ensures that total debits equal total credits. If they do not match, it indicates an error in the previous steps.
This step serves as an internal check to identify mistakes before proceeding to the preparation of financial statements.

5. Adjusting Entries: Making Corrections for Accurate Reporting

Adjusting entries are made at the end of an accounting period to account for revenues and expenses that have not yet been recorded.

Common Types of Adjusting Entries:
- Accruals: Recognize revenues that have been earned but not yet received, and expenses that have been incurred but not yet paid.
- Deferrals: Account for payments that have been made in advance for future expenses (prepaid expenses) or revenues received in advance for future services (unearned revenue).
Making these adjustments ensures that the financial statements accurately reflect the company’s financial position.

6. Preparing the Adjusted Trial Balance: A Second Check

Once the adjusting entries are made, a new trial balance, known as the adjusted trial balance, is prepared. This step serves as a final check to ensure that all the adjustments have been properly recorded.

7. Financial Statements Preparation: Presenting the Company’s Financial Health

With the adjusted trial balance ready, the next step is to prepare the financial statements. These reports provide a snapshot of the company’s financial health and are used by stakeholders to make informed decisions.

Key Financial Statements Include:
- Income Statement: Also known as the profit and loss statement, it shows the company’s revenues, expenses, and net profit or loss over a specific period.
- Balance Sheet: Presents the company’s assets, liabilities, and equity as of a specific date, providing insights into its financial stability.
- Cash Flow Statement: Highlights the cash inflows and outflows from operating, investing, and financing activities, offering a clear view of the company’s liquidity.
8. Note Disclosure: Providing Additional Insights

Financial statements are often accompanied by notes that provide additional details and context to help stakeholders better understand the company’s financial situation.

Common Disclosures Include:
- Accounting Policies: Information about the accounting methods and assumptions used in preparing the financial statements.
- Contingent Liabilities: Potential obligations that may arise depending on the outcome of future events.
- Significant Transactions: Details about major transactions or changes in the company’s financial position during the reporting period.
Additional Considerations for UK Accounting

While following the steps outlined above will help you establish a strong accounting foundation, there are additional factors to consider when managing your financial records in the UK.

Tax Compliance: Navigating UK Tax Laws

Businesses in the UK must comply with various tax regulations, including Corporation Tax, Value Added Tax (VAT), and Pay As You Earn (PAYE) for employee income taxes. Staying updated on tax deadlines, filing requirements, and applicable rates is essential to avoid penalties.

Choosing Bookkeeping Software: Automate and Simplify

Using accounting software can significantly streamline the process by automating tasks such as transaction recording, bank reconciliation, and financial reporting. Popular options include Sage, QuickBooks, and Xero, which offer features tailored to different business needs.

Consulting a Professional Accountant: Expert Guidance

For complex accounting issues or business-specific requirements, seeking advice from a qualified accountant or tax advisor can help ensure compliance with UK standards and optimize your financial strategy.

Specific Requirements for Different Business Structures

The UK accounting process may vary depending on the type of business. Here’s a brief overview of what different structures should consider:

Sole Traders
- Simple Record-Keeping: Sole traders have fewer regulatory requirements and can use simpler bookkeeping methods.
- Personal and Business Finances: These businesses must still separate personal finances from business accounts for tax purposes.
Partnerships
- Partnership Agreement: Establish clear accounting practices in the partnership agreement to avoid disputes.
- Separate Accounts for Partners: Keep detailed records of each partner’s capital contributions, profit share, and withdrawals.
Limited Companies
- Statutory Accounts: Limited companies are required to file statutory accounts with Companies House and comply with stricter reporting standards.
- Annual Returns: Submit annual financial statements and a confirmation statement to maintain compliance.
Must Read: International Accounting: US vs. UK – Rohitashva Singhvi

Conclusion

The UK accounting process is a structured and essential part of running a business, ensuring financial accuracy and regulatory compliance. By following this step-by-step guide, understanding the relevant accounting standards, and utilizing the right tools, you can maintain reliable financial records that support informed decision-making.

Whether you’re a sole trader, a partnership, or a limited company, each step—from transaction recording to financial statement preparation—plays a vital role in the overall accounting process. Embrace these practices to stay on top of your business’s finances and ensure long-term success.
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Business Startup
October 12, 2024
A Deep Dive into the UAE Corporate Tax & Currency Conversion Guidelines
In June 2023, the United Arab Emirates (UAE) witnessed a significant shift in its economic landscape with the introduction of the Corporate Tax. For businesses operating in the region, understanding and adhering to the associated guidelines became paramount. In this blog post, we’ll unravel the intricacies of these guidelines, providing businesses with a comprehensive roadmap to navigate the UAE’s tax framework.
1. Calculate Taxable Income:
The journey begins with calculating your company’s taxable income—a fundamental step in the tax process. Businesses must meticulously determine their profits after factoring in allowable deductions and expenses. The guidelines offer clarity on which expenses are deductible and provide insights into handling unique situations, such as foreign income and free zone operations.
1. Apply the Tax Rate:
Once your taxable income is established, the next step is applying the tax rate. The standard corporate tax rate in the UAE stands at 9%. However, exemptions and reduced rates are applicable to certain entities. Understanding this is crucial, as it determines the percentage of your taxable income that will be allocated to tax obligations.
1. Convert Foreign Currency Transactions:
Operating in a global economy often involves dealing with multiple currencies. For tax purposes, the UAE dirham (AED) is the official currency, necessitating the conversion of foreign transactions into AED. This involves utilizing exchange rates set by the authorities to translate the value of income earned in other currencies into AED for accurate tax calculations.
1. Comply with Reporting and Payment Requirements:
Fulfilling reporting and payment obligations marks the final leg of this journey. The guidelines meticulously outline deadlines and procedures for electronically filing tax returns and making timely tax payments. Compliance at this stage ensures businesses meet their tax obligations accurately and within the stipulated time frames.

Additional Considerations:

Given the novelty of these guidelines, businesses should remain vigilant for any further clarifications or updates from the authorities. Staying informed is key, and consulting with qualified tax professionals is strongly advised to ensure continued compliance with the evolving tax landscape.

Remember:

It’s important to note that this information serves as a general guide and does not constitute financial or tax advice. Businesses are encouraged to seek professional guidance to address their specific circumstances and ensure compliance with the UAE Corporate Tax & Currency Conversion Guidelines.

Conclusion:

In conclusion, these guidelines serve as a compass for businesses navigating the complex terrain of the UAE Corporate Tax. By understanding and implementing these steps, companies can not only meet their tax obligations but also contribute to the economic stability and growth of the UAE. Stay informed, seek professional advice, and embark on this journey with confidence and compliance.
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Business Startup
January 31, 2024
UAE VAT Important FAQ
What is VAT?

VAT is a transaction-based indirect tax, which is charged and collected at each stage
of the supply chain by legal and natural persons (“persons”) which meet the
requirements to be registered for VAT.
Thus, persons which are either registered or are required to register for VAT (known
as “taxable persons”) charge VAT to their customers on taxable supplies of goods or
services. A taxable supply is defined in the VAT legislation as a “supply of goods or
services for a consideration by a person conducting business in the UAE, and does not
include an exempt supply”. As a consequence, for a supply to be a taxable supply,
the following conditions must be met:
• there needs to be a supply of goods or services;
• the supply has to be for consideration;
• the supply has to be made by a person who is conducting business in the UAE;
and
• the supply should not be an exempt supply.
Taxable supplies may either be subject to the standard rate of 5% or zero rate
(i.e. 0%). A supply cannot be a taxable supply if it is an exempt supply. Where a supply
is neither a taxable supply nor an exempt supply, it will be outside the scope of UAE
VAT. VAT which taxable persons charge to their customers is known as “output tax”. On a
periodic basis, taxable persons are required to account for output tax to the FTA. This
is done by submitting a periodic tax return (also known as a “VAT return”).
It should be noted that taxable persons will typically be charged VAT (known as “input
tax”) by their suppliers when they acquire goods and services. Taxable persons are
generally able to recover input tax, subject to certain conditions. Where the conditions
allowing recovery of input tax are met, taxable persons are able to deduct this input
tax from the value of output tax declared in the same VAT return.
The difference between the output tax and input tax reported by a taxable person in
their VAT returns is either the net VAT payable to the FTA (if the output tax exceeds
the input tax) or net VAT recoverable from the FTA (if the input tax exceeds the output
tax) for that specific tax return period.

What are VAT registration requirements?
VAT registration process as per below details:

As mentioned above, a person is only required to account for VAT in the UAE, if it is
a taxable person – that is, if the person is either registered for VAT or is obligated to
register for VAT. It is, therefore, necessary to determine when a person is required to
be registered for VAT.
VAT registration may be either mandatory or voluntary. It should be noted that
different registration requirements and conditions may apply to both mandatory and
voluntary registrations depending on whether a person has a place of residence in the
UAE. As a consequence, it is important for a person to know whether or not it is
resident in the UAE when considering which registration rules apply to it.
A person would have a place of residence in the UAE for the purposes of VAT
registration if the person has a place of establishment or fixed establishment in the
UAE. The terms are defined in the Decree-Law:4
• “Place of Establishment” is the place where a business is legally established in
a country pursuant to the decision of its establishment, in which significant
management decisions are taken or central management functions are
conducted.
• “Fixed Establishment” is any fixed place of business, other than the Place of
Establishment, in which the person conducts his business regularly or
permanently and where sufficient human and technology resources exist to
enable the person to supply or acquire goods or services, including the person’s
branches.

What are mandatory points for registration?
A person resident in the UAE is required to register for VAT if any of the following
apply:5
• the total value of their taxable supplies made within the UAE and imports into
the UAE exceeded AED 375,000 over the previous 12-month period; or
• the person anticipates that the total value of their taxable supplies made within
the UAE and imports into the UAE will exceed AED 375,000 in the next 30 days.
Supplies of goods or services made in the UAE in the course of business.
• Any goods or services that the person has imported into the UAE that would
have been subject to VAT had they been supplied in the UAE.
The person should not include in this calculation the value of any supplies which are
either exempt from VAT or are outside the scope of UAE VAT.

What does a business need to do to prepare for VAT?
Businesses will need to meet certain requirements to fulfil their tax obligations. To fully comply with VAT, businesses will need to consider the VAT impact on their core operations, financial management and book-keeping, technology, and perhaps even their human resource mix (e.g., accountants and tax advisors). It is essential that businesses try to understand the implications of VAT and make every effort to align their business model to government reporting and compliance requirements.

How will real estate be treated?

The VAT treatment of real estate will depend on whether it is a commercial or residential property.

Supplies (including sales or leases) of commercial properties will be taxable at the standard VAT rate (i.e 5%).

On the other hand, supplies of residential properties will generally be exempt from VAT. This will ensure that VAT would not constitute an irrecoverable cost to persons who buy their own properties. In order to ensure that real estate developers can recover VAT on construction of residential properties, the first supply of residential properties (through sale or lease) within 3 years from their completion will be zero-rated.

Will there be VAT grouping?
Businesses that satisfy certain requirements covered under the Legislation (such as being resident in the UAE and being related/associated parties) will be able to register as a VAT group. VAT grouping would generally simplify accounting for VAT.

How will insurance be treated?
Generally, insurance (vehicle, medical, etc) is taxable. Life insurance, however, is an exempt service.

How will financial services be treated?
Fee based financial services are subject to VAT while margin based products are exempt.

How will Islamic finance be treated?

Islamic finance products are consistent with the principles of sharia and therefore often operate differently from financial products that are common internationally.

To ensure that there are no inconsistencies between the VAT treatment of standard financial services and Islamic finance products, the treatment of Islamic finance products is aligned with the treatment of similar standard financial services.

How quickly will refunds be released?
Refunds will be made after the receipt of the application and subject to verification checks, with a particular focus on avoiding fraud.

Will VAT be paid on imports?

VAT is due on the goods and services purchased from abroad.

In case the recipient in the State is a registered person with the Federal Tax Authority for VAT purposes, VAT would be due on that import using a reverse charge mechanism.

In case the recipient in the State is a non-registered person for VAT purposes, VAT would need to be paid before the goods are released to the person.

Will the goods exempt from customs duties also be exempt from VAT?
No. Imported goods may be exempt from customs duties but still be subject to VAT.

Will there be a profit margin scheme?
To avoid double taxation where second hand goods are acquired by a registered person from an unregistered person for the purpose of resale, the VAT-registered person will be able to account for VAT on sales of second hand goods with reference to the difference between the purchase price of the goods and the sale price of the goods (that is, the profit margin). The VAT which must be accounted for by the registered person will be included in the profit margin. Further details of the conditions to be met in order to apply this mechanism can be found in the Executive Regulations of the Federal Decree-Law No.(8) of 2017 on Value Added Tax.

What sectors will be zero rated?

VAT will be charged at 0% in respect of the following main categories of supplies:

Exports of goods and services to outside the GCC;
International transportation, and related supplies;
Supplies of certain sea, air and land means of transport (such as aircraft and ships);
Certain investment grade precious metals (e.g. gold, silver, of 99% purity);
Newly constructed residential properties, that are supplied for the first time within 3 years of their construction;
Supply of certain education services, and supply of relevant goods and services;
Supply of certain healthcare services, and supply of relevant goods and services.

What are the categories of exempt supplies?

The following categories of supplies will be exempt from VAT:

The supply of some financial services;
Residential properties (excluding the first supply of newly constructed residential property which qualifies for the zero-rating treatment);
Bare land; and
Local passenger transport.

If you need to know more info then please refer FTA website.

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February 3, 2022
How to file UAE value added tax (‘VAT’) returns?
For submitting vat returns please read instructions below to simplify your work flow:

This user instructions guide will help you understand the key steps to file a VAT Return online through the eServices portal. For each Tax Period, a Taxable Person will be required to submit a VAT
Return which contains details regarding the supplies made or received by the Taxable Person.

Main Points to be noted while return preparation:
1. The standard Tax Period shall be a period of three calendar months ending on the
  date that the FTA determines.
2. The FTA may, at its discretion, assign a different Tax Period other than the standard one, to a certain group of Taxable Persons.
3. A Tax Return must be received by the FTA no later than the 28th day following the
  end of the Tax Period concerned or by such other date as directed by the FTA. Where
  a payment is due to the FTA, it must be received by the FTA by the same deadline.
Filing VAT Returns:

For each Tax Period, the Taxable Person shall report details in relation to sales and
other outputs as well as purchases and other inputs. For details please refer to the VAT
Returns full user guide. (You need to fill the details in prescribed format provided by FTA)

Steps to complete the process of submitting a VAT Return Form
> First step
Login to the FTA eServices portal and go to the ‘VAT’ tab whereby you will be able
to access your VAT Returns. From this screen you should click on the option to open
your VAT Return.
> Second step
Complete the Form: Fill in the following details: (These points are included in second step)
1. The sales and all other outputs as well as on expenses and all other inputs as
follows:
# the net amounts excluding VAT; and
#the VAT amount;

2. Based on your Payable Tax for the Tax Period proceed to a payment of any
payable tax to the FTA or request (if you wish) a VAT refund; and

3. Provide the additional reporting requirements in relation to the use of the Profit
Margin Scheme during the relevant Tax Period.

>Third Step
Submit the Form: Ensure all the details must be verified as per FTA Guidelines.
carefully review all of the information entered on the form after completing all mandatory
fields and confirming the declaration. Once you confirm that all of the information included
in the VAT Return is correct, click on the Submit button.

>Fourth Step
Pay the VAT Tax due (if applicable) through “My Payments” tab. Ensure payment
deadlines are met.

Here you go your, Your returns Filed.

If you have any doubt then refer FTA website for more details.

Hope this will help you to understand VAT submission in simple steps.

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February 3, 2022
What is Tax Group (VAT) & What are Implications – All Basic Info
Tax grouping for VAT purposes is an administrative easement available to businesses
and a revenue protection measure for government:
 Creating a tax group has the effect of registering a single taxable person.
 A tax group is issued one VAT Tax Registration Number (TRN) for use by all
group members, and only one tax return is required for all group members.
 Transactions taking place within a tax group are generally disregarded for VAT
purposes, meaning that cash-flow or absolute VAT costs that might otherwise
be suffered by the businesses concerned are eliminated. Moreover, revenue
risks that might otherwise arise on significant intra-group transactions are also
eliminated.
Strict qualifying criteria must be applied to limit the use of the measure to those for
which it is designed i.e. it is an administrative simplification measure, not one designed
to enable tax avoidance at any level.
Purpose of this document
This document contains more detailed guidance for businesses interested in forming
a tax group, adding members to or removing members from an existing tax group, and
disbanding a tax group.

Who should read this ?
This document should be read by all persons seeking to understand whether or not
they are eligible to form a tax group, how to amend a tax group, and how to disband a
tax group. It should also be read by those who are part of a tax group so as to
understand their associated obligations.

Implications of grouping for VAT purposes

The effect of a tax group registration is that the members of the tax group are treated
as a single taxable person for VAT purposes. This means that:
 Supplies made between members of the tax group will be disregarded for VAT
purposes and therefore no VAT is chargeable on intra-group transactions;
 Only one VAT Tax Registration Number is issued for use by the group;
 The tax group submits only one tax return which summarises all supplies and
purchases made by group members over the VAT period concerned; and
 One member of the tax group will be appointed as its ‘representative member’.
All of the VAT obligations of the tax group, and all supplies made and received
by it, are deemed to be carried out in the name of the representative member.

Important note to be considered: the members of a tax group are jointly and severally liable
for any and all VAT debts and other such obligations of the group for the period during which
they were members. That means that even when a business has left a tax group, it remains
liable for the period of membership.

Eligibility to form a tax group
Subject to certain criteria being fulfilled, two or more legal persons may apply to form
a tax group. Details of each of the criteria that must be fulfilled by each of the members
of a tax group are set out below.
Business criteria
Each member must be carrying on a business. Broadly, a business is defined as any
activity carried on in any place (i.e. in the UAE or elsewhere) regularly (i.e. the activity
is not a one-off event) and independently (i.e. by a business, not its employees).
Generally, this means that a person that is not in business cannot form or join a tax
group.
Legal person criteria
Each member of a tax group must be a legal person (i.e. they must be a company,
government entity, or similar).
A legal person is an entity that has legal personality formed under the relevant laws
that is capable of entering into contracts in its own name. Typically, for example, a
company would be a legal person, as it is formed under companies law and can enter
into contracts. However, it is also possible for other entities to be created which are
similar (e.g. the companies formed by Decree under local laws in the Emirates).
A natural person (i.e. an individual) cannot create or join a tax group.

Establishment criteria
Each member must be resident in the UAE, either by way of having its primary
business establishment or as a consequence of having a fixed establishment in the
country. A business establishment is usually the place where key management
decisions affecting a business are made. A fixed establishment is a place which
possesses the necessary human and technical resources sufficient to carry on a
business.
A foreign-owned subsidiary that has been established in the UAE can, under these
criteria, qualify to be included in a tax group. A branch of a foreign-owned company
can also qualify under the fixed establishment test.
Related parties (and control) criteria
Each member must be related to the other to a sufficient extent. In this context,
“related” is taken to mean they share economic, financial and organisational ties
(either in law, shareholding or voting rights). One person must be able to control the
members.

Economic ties are indicated where, for example, there is a common interest in the
proceeds of the business. Financial ties are indicated where, for example, one part of
the business benefits the other. Organisational ties are indicated where, for example,
you share common premises.

Noticeable Point: common sponsorship of two or more Legal Persons will, generally, give
rise to the possibility of tax grouping but only where the control criteria can also be met
in actuality. Where the sponsorship agreement is overridden by another agreement whereby
the control criteria cannot, in actuality, be satisfied, tax grouping will not be possible.

Government Entities
Additional criteria for Government Entities
There are certain additional criteria which apply to Government Entities in respect of
forming a tax group:
 Designated Government Bodies may only form or join a tax group with other
Designated Government Bodies;
 Designated Government Bodies may not form or join a tax group with other
Government Bodies (i.e. those Government Bodies which are not Designated);
and
 Government Bodies that are not Designated and are registerable in their own
right can form or join a tax group with other legal entities, subject to the usual
tax grouping rules.
Forming and amending a tax group
Forming a tax group
Once it has been determined that the prospective members are eligible to form or join
a tax group, it is also necessary to establish whether that group is required to or eligible
to register for VAT purposes. The VAT registration requirements can be satisfied
where either –
 one prospective member alone satisfies the relevant registration requirements;
or
 if taken together, the total value of supplies made by or expenses (which are
subject to VAT), incurred by the prospective members satisfy the relevant
registration requirements.
The flowchart in Appendix A will assist to determine whether the tax group eligibility
and registration tests have been met and an application can be submitted.
An application to form a tax group will, subject to the necessary checks being
satisfied, be treated as effective on either –
 the first day of the tax period following the tax period in which the application is
received; or
 any other date as determined by the Federal Tax Authority (FTA).
Applying to form a tax group
As part of the registration process it will be necessary for you to decide who you wish
to appoint as the representative member of the tax group. The representative member
can be any one of the members of the proposed group. The tax returns of the group
are submitted in the name of the representative member.
Important: notwithstanding the appointment of a representative member, the
members of a tax group are jointly and severally liable for all taxes and penalties due
from the representative member.

CREDIT: FTA WEBSITE

Citations: FTA Website.

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February 3, 2022
VAT(Identification of Designated Zones) – UAE
VAT treatment of Free Zones

VAT is a general consumption tax imposed on most supplies of goods and services in the UAE. By default, it is chargeable on supplies of goods and services throughout the territorial area of the UAE. This territorial area will also include those areas currently defined as both fenced and non-fenced Free Zones. For VAT purposes, both fenced and unfenced Free Zones are considered to be within the territorial scope of the UAE – and therefore subject to the normal UAE VAT rules – unless they fulfil the criteria to be treated as a Designated Zone as defined by the Federal Decree-Law on VAT1 and Executive Regulations2. Those Free Zones which are Designated Zones are treated as being outside of the territory of the UAE for VAT purposes for specific supplies of goods. In addition, there are special VAT rules in respect of VAT treatment of certain supplies made within Designated Zones. The effect of these rules is that certain supplies of goods made within Designated Zones are not be subject to UAE VAT. In contrast, supplies of services made within Designated Zones are treated in the same way as supplies of services in the rest of the UAE. Important: Free Zones meeting the criteria have been specifically identified by way of a Cabinet Decision as Designated Zones. Where a Free Zone is not a Designated Zone, it is treated like any other part of the UAE.

Identification of a Designated Zone A Designated Zone is an area specified by a Cabinet Decision as being a “Designated Zone” 3. Free Zones listed by the Cabinet Decision as being a Designated Zone can be found under the Legislation tab on the FTA website (www.tax.gov.ae). Although an area might be identified as a Designated Zone, it is not automatically treated as being outside the UAE for VAT purposes. There are several main criteria4

which must be met in order for a Designated Zone to be treated as outside the UAE for VAT purposes. These are as follows: 1. The Designated Zone must be a specific fenced geographic area. 2. The Designated Zone must have security measures and Customs controls in place to monitor the entry and exit of individuals and movement of goods to and from the Designated Zone. 3. The Designated Zone must have internal procedures regarding the method of keeping, storing and processing of goods within the Designated Zone. 4. The operator of the Designated Zone must comply with the procedures set out by the FTA. This means that where a Designated Zone has areas that meet the above requirements, and areas that do not meet the requirements, it will be treated as being outside the UAE only to the extent that the requirements are met. In addition, should a Designated Zone change the manner of its operation or no longer meet any of the conditions imposed on it which led to it being specified as a Designated Zone by way of the Cabinet Decision, it shall be treated as though it is located within the territory of the UAE5. Important: Only where a Designated Zone meets all the above tests it can be treated as outside the UAE for VAT purposes.

Entities within a Designated Zone Those businesses which are established, registered or which have a place of residence within the Designated Zone are deemed to have a place of residence in the UAE for VAT purposes6. The effect of this is that where a business is operating in a Designated Zone, it itself will be onshore for VAT purposes, even though some of its supplies of goods may be outside the scope of UAE VAT.

VAT registration Any person carrying on a business activity in the UAE and making taxable supplies in excess of the mandatory VAT registration threshold (i.e. a taxable person) must apply to be registered for VAT purposes.

Any other person that is making taxable supplies or incurring expenses (which are subject to VAT), in excess of the voluntary VAT registration threshold may apply to register for VAT purposes. Important: Designated Zone businesses are considered to be established ‘onshore’ in the UAE for VAT purposes. This means that they have the same obligations as non-Designated Zone businesses and have to register, report and account for VAT under the normal rules. It also means they can join a tax group (VAT group) provided they meet the required conditions.

————————————————————————————————————————-
1 Federal Decree-Law No. (8) of 2017 on Value Added Tax, hereafter ‘the Law’. 2 Cabinet Decision No. (52) on the Executive Regulations of Federal Decree-Law No.(8) of 2017 on Value Added Tax, hereafter the ‘Executive Regulations’. 3 Article 1, Executive Regulations: any area specified by a decision of the Cabinet upon the recommendation of the Minister, as a Designated Zone for the purpose of the Decree-Law. 4 Article 51(1), Executive Regulation.

Source: tax.gov.ae

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