It has brought in new rules, new charges, and new documents that have to be maintained in the prescribed format for more than 5 years. But it has also defined a supply of goods or services, as well as a few particular types of supplies, including taxable supplies, non-taxable supplies, deemed supplies, exempt supplies and out of scope supplies.
Each sale will be designated as one of these types based on the sale conditions, so you will need an accounting system capable of applying the VAT rules to treat each case correctly.
Let’s look at the example of Hameed, who has a number of furniture outlets across different cities in the UAE. He buys finished furnitures from furniture distributors and carpenters and sells them through his outlets. His model is mostly B to C. He has implemented an integrated accounting software called Zoho Books to handle his finances and VAT. Let’s see how Hameed manages all his incoming and outgoing supplies in the UAE using Zoho Books.
Vendor and customer VAT treatments
To apply the correct VAT treatment to a vendor or customer, Hameed needs to know two things: the place of supply and the other party’s VAT registration status. The place of supply (the location from which he receives goods or to which he delivers goods) can be within UAE, within a GCC country or outside of the GCC region.
The vendor or customer can be either VAT-registered or not registered. Only by knowing the right VAT treatment can Hameed charge the right VAT rate for a transaction. For example, if he has a customer who is an end consumer living in the UAE and is not registered under VAT, then all sales made to this customer will attract 5% VAT.
If another customer is located in Tunisia, which is not a part of the GCC, sales to that customer would instead attract 0% VAT. Once Hameed has determined the right VAT treatment for each customer and vendor, Zoho Books will automatically associate the appropriate VAT rate to every transaction.
Hameed can enable inventory tracking within Zoho Books for all the pieces of furniture he sells. This will allow him to track the inventory asset value based on the FIFO logic. Since he has the need to manage his inventory across multiple outlets and possible warehouses, he can integrate his Zoho Books with an order management solution called Zoho Inventory to add warehouse managing capabilities to Zoho Books.
Purchases and imports
To make a purchase, Hameed drafts a purchase order in Zoho Books and emails it to the vendor. When the goods arrive, Hameed can record the invoice sent by the vendor as a bill in Zoho Books. If the purchase was made from a VAT-registered vendor in the UAE, then Hameed can even create a self-billed invoice on behalf of the vendor, as long as the vendor has agreed.
When it comes to vendor payments, Hameed can set up payment reminders that will alert him of his own payables. This will in turn help him clear all his bills before they become overdue and maintain a strong relationship with all of his suppliers.
Whenever Hameed imports furniture from a supplier located outside of the UAE, he will be required to pay import VAT according to the UAE VAT laws. However, vendors outside the UAE are often not registered for UAE VAT, so the invoices they issue, may not mention any VAT amounts. Instead, Hameed has to pay an import VAT of 5% to the customs office before collecting the item. So how can he record this import VAT if it’s not on the invoice?
In Zoho Books, it’s simple. He just has to record a bill of entry in Zoho Books, showing the import VAT along with any other charges or duties paid at customs. Then the import VAT he paid will be added to his current VAT return. If, instead of paying the import VAT upon pickup, he submitted a letter of undertaking to the customs office agreeing to pay the import VAT later, he can use an option within the Bill of Entry to add the amount owed to his VAT payable amount.
Sales and exports
Hameed’s typical sales cycle starts with a personalised estimate that he crafts using the Templates module of Zoho Books. Depending on the sale, he might add a custom price list for his client, or just give out an individual discount.
His client can then view the estimate through the client portal, add comments during the negotiation phase, and then accept or decline the estimate. Once the estimate is accepted, it can be converted into a VAT compliant invoice in English or Arabic, with a VAT rate based on the client’s VAT treatment and the place of supply.
The customer can pay Hameed online using one of the payment gateways that he has integrated with Zoho Books, which will automatically issue a thank-you note and a payment receipt to the client.
One thing to note here is that, all sales made to VAT registered customers who reside in other GCC states will be treated as out of scope supplies as according to the VAT laws of UAE. This is because, each of those states will charge their own import VAT and give credit only for the VAT amount paid within their country.
Post sale corrections
If something changes in a sale after the invoice has been generated, Hameed can use Credit and Debit Notes to keep everything straight in Zoho Books. Credit Notes can be used to record product returns and post-sale discounts. Debit Notes can be used to capture any extra billable expenses that come up after the sale, such as shipping expenses that Hameed needs to pay on the client’s behalf.
With Zoho Books, Hameed can generate more than 40 different accounting reports including P&L statements, journal reports, customer balances, FIFO cost lot tracking, and VAT returns. If he needs more reporting power, he can always enable Advanced Analytics by integrating Zoho Books with Zoho Reports. This will give him access to more than 70 pre-defined reports and the ability to create any custom report he needs.
Throughout the sales cycle, using Zoho Books allows Hameed to automate his process for greater accuracy and time savings. By capturing the place of supply and VAT treatment for his contacts, Hameed can use Zoho Books to automatically determine the right VAT rate for each particular invoice.
Depending on his sales scenario, he can issue self-billed invoices on behalf of his vendor, or record credit notes and debit notes for his customer or vendor to keep his accounts accurate. Whenever he imports goods, he can capture the import VAT paid or payable (in case of an undertaking) with the help of a bill of entry. And Zoho Books will automatically generate his VAT return and an FTA audit file based on the transaction data he’s recorded.