All about VAT Audit in Bahrain

Everything you need to know about VAT Refund Policies in Dubai

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What is VAT in Dubai?

A value-added tax (VAT) often called a consumption tax is a tax charged on a product whenever a value is added to the price of that product at each stage of the supply chain, right from production to the point of sale. The amount of VAT that the user pays is 5% of the cost of the product. VAT, unlike income tax, is the same for all kinds of earners and is not dependent on the taxpayer’s income.

 

Some terms related to VAT to understand Refund policies

  • Input Tax – It is the VAT by the taxpayer when he or she buys any goods.

 

  • Output Tax – It is the VAT charged by the taxpayer when he or she sells some goods.

 

  • Net VAT – It is the VAT paid by the taxpayer directly to the government and is calculated using a simple formula which is:

 

Net VAT = Output Tax – Input Tax

 

How VAT works in Dubai?

Following is an example that explains the exact flow of VAT and shows how it works.

Suppose that,

  1. A manufacturer buys raw materials at 1 AED and pays a VAT of 0.05 AED for purchase of raw materials and thus sells the manufactured goods at 1.05 AED to the retailer and charges the retailer a VAT of 0.0525 AED.
  2. Now the retailer buys goods from the manufacturer at 1.05 AED and pays a VAT of 0.0525 AED to the manufacturer for purchase of goods and thus sells it to consumers at 1.1025 AED and charges a VAT of 0.055125 AED from the consumer.
  3. Now the consumer buys goods from retailers at 1.1025 AED and pays a VAT of 0.055125 AED to retailers for purchase of goods.

All the VAT calculated above is at the rate of 5% of the cost of the good.

 

What is a VAT refund?

Whenever the taxpayer files his or her return, he or she finds the Net VAT according to the formula: Net VAT = Output Tax – Input Tax

Now two cases arise,

  1. If Net VAT comes out to be positive, then, in that case, the taxpayer needs to pay that much amount to the government.

 

  1. If Net VAT comes out to be negative, that is if Input Tax paid by the taxpayer is more than the Output Tax charged by him or her, then this taxpayer is liable to ask the government for a refund of that much amount and this particular refund is termed as VAT Return.

 

 

The process to claim the VAT refund      

Following is the procedure to claim for the VAT Refund from the government: –

  1. First, visit the site of the Federal Tax Authority (FTA) and log in there to the FTA’s e-Services portal.
  2. Then proceed to the VAT tab on the site, then the VAT Refunds tab, and then get access to the form by clicking VAT Refund Request.
  3. Complete the form with your accurate details and after filling the entire form, submit it by clicking ‘Submit.’
  4. After submitting the form, you will be receiving an email from FTA to notify you about your VAT Refund Request application. Once your claim is approved, the refund will be processed to your account within 5 business days.
  5. To verify the refund amount you again need to visit the site of the Federal Tax Authority (FTA) and log in there to the FTA’s e-Services portal and then check your balance from the My Payment tab under the Transaction History section in the portal.

 

Timeline for getting the refunds

After submitting the VAT Refund Request form at FTA’s portal, FTA will process the request and will review the application, and it takes a maximum of 20 business days for them to process the request and check for the claim. The taxpayer gets a notification through email regarding FTA’s decision to accept or reject the claim and then if the claim is accepted, the refund is transferred within 5 business days, and if the process of reviewing takes more than 20 days, then FTA notifies the taxpayer regarding extension of the deadline.

 

VAT refund form

Below mentioned are fields that are included in the VAT Return Form: – 

 

  • TRN (Tax Registration Number): This field is filled based on the information provided in the taxpayer’s account in the User Profile tab in FTA’s e-services portal. It’s always advisable to verify that the correct TRN is listed or not.

 

  • Total amount of Excess Refundable Tax to be claimed (in AED): This field is filled based on the formula, Output Tax – Input Tax = Excess Refundable Tax. This includes refunds reported in all previously submitted VAT returns while selling or buying of any goods and all administration penalties due except for the late registration penalty.

 

  • The amount you wish to have refunded (in AED): The amount you enter must be equal to or less than the amount displayed in the Total amount of Excess Refundable Tax field.

 

  • Remaining amount of eligible Excess Refundable Tax: This field is filled with the amount of refundable tax that you can apply for in the future.

 

  • Late registration penalty amount (in AED): This field is filled based on the penalties imposed on you and whether you have settled the penalty amount or not:
    • If you are free from penalties, then the field will be displaying Zero.
    •  If you have been charged a penalty, which you have already paid, then the field will be displaying Zero. 
    • If you have been charged a penalty for either late payment or due to some other issue and you are yet to pay the amount at the time of claiming this refund, then the field will be displaying the penalty amount (in AED)
  • Authorized Signatory and Declaration: The authorized signatory is filled by the system in both English and Arabic and finally click YES to submit.

 

Now that you have a better understanding of the VAT refund policies in the Dubai planning your business activities will be somewhat easier for you. 

 

 

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