How VAT works in Verasol

Verasol works out the VAT on every line of your sales and purchase documents and books it the moment a document is issued or approved. The VAT 201 return is then calculated from those posted entries, not typed in, so the return always agrees with your ledger. Drafts are not in your books, so they are never in the return.

This page explains the ideas behind it. For the screens themselves, see Prepare the VAT 201 return and Filed VAT returns.

The VAT rate on each line#

Every line of an invoice or bill carries its own VAT %: 5% (the UAE standard rate) or 0%. When you pick an item, its rate comes with it. On an item, the VAT Rate (%) is one of:

When a document is issued, Verasol records on each line how it was treated. If you change the item later, the documents already in your books, and the returns they were reported in, stay as they were.

A few rules Verasol applies for you:

• A line carries 5% or 0%, nothing else. A document with any other rate is flagged in the return and stops it from being filed until the document is corrected.
• Your company charges VAT only once it is registered. Verasol refuses to issue an invoice with VAT when no TRN Number is recorded in Settings › Tax & License Details, or when the invoice is dated before the VAT Registration Date.
• Excise tax is not supported: it is not calculated, booked or reported on the VAT return. Account for excise goods outside Verasol.

Invoice types and the place of supply#

On a sales invoice you choose the Invoice Type and the Place of Supply. When you pick the customer, Verasol fills both in for you:

The Place of Supply starts as the customer's emirate. It decides which emirate line of box 1 the sale is reported in, so check it when you supply in another emirate.

1 Invoice Type, 2 Place of Supply, 3 the line's VAT %.

Input VAT on purchase invoices#

The VAT a UAE supplier charges you is input VAT. When you approve the bill, Verasol books it to VAT Input (Recoverable) and counts it in the return as recoverable tax, but only when:

• your company was VAT-registered on the bill date, and
• the supplier's TRN is on the bill or on the supplier.

Without the supplier's TRN, or for a supplier that is not VAT-registered, the VAT becomes part of the cost of the purchase instead, and the bill tells you why.

On the bill, ITC Eligibility says how much of the VAT you can recover: Eligible for ITC, Partly recoverable (you enter the recoverable amount) or Not Eligible. Only the recoverable part is booked as input VAT; the rest is added to the line costs.

Reverse charge and imports#

When a supplier outside the UAE charges you no UAE VAT, you account for the VAT yourself. Choose the Bill Type on the bill:

• Reverse Charge for services and goods bought from abroad that fall under the reverse charge.
• Import for goods you import into the UAE. Verasol then asks for the Place of Supply (the emirate).

Verasol books the VAT twice in the same entry, as output VAT and as input VAT, and the supplier is owed only the net amount. The bill form reminds you of this as soon as you choose one of these types.

What Verasol books#

For example, for a bill of USD 6,200.00 for subcontracted services from a supplier in Saudi Arabia, at 3.6725 (AED 22,769.50), with the Bill Type Reverse Charge:

In the return, reverse-charge purchases are reported in box 3 and imported goods in box 6. The VAT you can recover on them is reported again on the expenses side, in box 10. If a bill from a UAE-registered supplier is marked as reverse charge, the return warns you, because a UAE supplier normally charges the VAT itself.

Zero-rated and exempt supplies#

Neither carries VAT on the invoice, but they are reported differently: zero-rated sales in box 4, exempt sales in box 5. On the purchase side, only standard-rated purchases are reported; purchases at 0% or exempt are not.

Whether a particular supply is standard-rated, zero-rated or exempt is a question of law. When you are not sure, ask your tax adviser. Vera can explain the rule and show you the article of the law it comes from.

The VAT accounts#

Verasol keeps VAT on four accounts and sets them up the first time it needs them. The codes below are Verasol's standard ones; yours may differ if your chart of accounts uses other codes.

When you mark a return as filed, Verasol moves the period's VAT from 2201 and 1201 into 2202 (or 1202) in one entry. Recording the payment to the FTA then clears 2202. See what is booked when a return is filed and VAT payments and refunds.

From your documents to the return#

The date of a document decides its VAT period. Every posted entry dated in the period that has VAT on it is in that period's return:

• Sales invoices and credit notes go to box 1 (by emirate), box 4 or box 5. A credit note reduces the return of the period it is dated in.
• Bills go to box 9. Reverse-charge bills go to box 3 and imports to box 6, with the VAT you recover on them in box 10.
• Fixed asset purchases, expense claims and bank charges with VAT go to box 9; the sale of a fixed asset goes to box 1.
• A journal entry made by hand on a VAT account is reported as it was booked, with a warning so you can check it.

The return must agree with the movement on the VAT accounts in the period. It shows this check under Reconciliation with the ledger, with the VAT of each kind of document, and a return that does not agree cannot be marked as filed.

1 Reconciliation with the ledger, 2 the VAT of each kind of document, as booked and as reported, 3 the return is Filed.

Why a filed period is locked#

Once a return is marked as filed, its period is closed for VAT:

• Verasol refuses a new invoice, credit note or bill dated in that period. Date the document after the period instead.
• An issued invoice dated in a filed period can no longer be edited. Correct it with a credit note dated in the open period.
• When a document from a filed period is cancelled, its reversal is dated today, in the open period, so the change is reported in your next return. That return lists it under Corrections of filed returns in this period.

This keeps every filed return exactly as you submitted it to the FTA. If a filed return contained an error of more than AED 10,000 of tax, the correction is made by a voluntary disclosure for that period on EmaraTax, not in a later return. Verasol does not file voluntary disclosures, so agree the treatment with your tax adviser before you file.

Return periods and due dates#

You file monthly or quarterly, as your FTA registration says. Tell Verasol in Settings › Tax & License Details, under VAT return period: choose VAT returns (Monthly or Quarterly) and, for quarters, the months they start in. Verasol then shows which return is due next.

A return, and the VAT it makes payable, is due on the 28th day of the month after the period ends. Verasol fills in that due date for you.

Related#

• Prepare the VAT 201 return
• Filed VAT returns
• VAT payments and refunds
• Sales invoices
• Purchase invoices (bills)
• Chart of accounts