Introduction to VAT Reconsideration in the UAE

Value Added Tax (VAT) was launched in the UAE on January 1, 2018. It requires most goods and services traded in the country to charge an additional 5% tax. However, businesses may sometimes charge incorrect VAT by mistake or realize later that certain transactions should have been treated differently.

In such cases, companies can request a re-evaluation of past VAT treatment by applying for VAT reconsideration. This allows them to:

• Recover any extra taxes paid previously
• Correct earlier VAT errors or miscalculations

What is VAT Reconsideration?

VAT reconsideration refers to the formal process where a VAT-registered business asks the Federal Tax Authority (FTA) to review a previous VAT treatment and submission. The FTA then decides if the original way VAT was calculated or charged was wrong.

If the FTA rules in favour of the reconsideration request, the business can amend earlier tax returns. This may lead to:

• Getting back overpaid input or output VAT
• Making needed corrections in VAT treatment

Who is Eligible for VAT Reconsideration?

To qualify for reconsideration in the UAE, an organization must:

• Be registered for VAT with the FTA
• Have incorrectly applied VAT rates or rules on certain transactions
• Provide valid reasons and documents showing why reconsideration is needed

When Can Businesses Request VAT Reconsideration?

Some common situations where VAT registered companies may seek reconsideration include:

Wrongly Treated Exempt or Zero-Rated Supplies as Taxable

Problem: Supplies were assumed to be standard or zero-rated but were actually fully exempt from VAT. This led to charging 5% tax unnecessarily.

Solution: Seek reconsideration to correct treatment and get back excess taxes charged and paid.

Wrongly Treated Taxable Supplies as Exempt

Problem: Certain goods or services were considered exempt by mistake earlier. Actually, they should have been treated as taxable supplies.

 Solution: Apply for reconsideration to change status to taxable supplies and make good shortfall by paying uncollected VAT.

Denial of Recoverable Input VAT

Problem: Input VAT on business expenses was denied incorrectly earlier. These expenses relate to making taxable supplies which allow recovering input tax.

Solution: Request reconsideration for restoring rightful input tax claims. This will lead to higher VAT refunds or lower net VAT to pay.

VAT Calculation Errors

Problem: Mathematical errors or misinterpreted tax rules led to wrong VAT amounts on invoices or tax returns.

Solution: Seek reconsideration for correcting errors and revising past VAT calculations and liability accurately.

Step-by-Step VAT Reconsideration Process

Submitting a formal reconsideration request involves these key steps:

Step 1: Prepare Required Documents

Businesses must gather all documents needed to justify reasons for reconsideration, including:

• Original VAT returns and calculations in question
• Contracts, invoices and accounting records as proof
• Written statement explaining the initial VAT error

Step 2: Submit Online Reconsideration Application

Next, businesses file an e-form via the FTA portal clearly detailing:

• Reasons for requesting reconsideration
• Original and corrected VAT treatment
• Tax periods and returns to be amended
• Changed VAT liability – payable or refund due

Step 3: FTA Reviews Reconsideration Request

FTA tax auditors now verify if all documents and reasons provided are satisfactory to support the reconsideration case as valid.

Step 4: FTA Decision on VAT Reconsideration

Finally, the FTA decides whether to accept/reject the reconsideration request fully/partially. The applicant is informed accordingly.

The entire VAT reconsideration process usually concludes within a few months.

UAE VAT Rules Governing Reconsiderations

Strict regulations apply when submitting VAT reconsideration applications:

Time Limit – Requests must be made within 5 years from the end of the relevant tax period.

Penalties – If reconsideration leads to additional taxes, penalties and fines will apply as per UAE tax law.

Refund Mechanism – Any VAT refund amount due will first be adjusted against future VAT payable before cash payouts are made.

Support Documents – All reconsideration reasons and proof documents must fully satisfy FTA auditors as valid and acceptable.

Common Mistakes to Avoid

Many businesses make small but costly errors when filing VAT reconsiderations, often leading to rejections. Here are some key pitfalls to avoid:

• Not explaining reconsideration reasons clearly or in enough detail
• Submitting inadequate documentation as proof to justify VAT errors
• Failing to maintain accurate tax records as per UAE VAT law
• Providing false, misleading or fake documents to try and wrongly claim VAT refunds

By avoiding these issues and submitting air-tight justification, the chances of getting a positive ruling are very high.

Conclusion

In summary, VAT reconsideration gives businesses a way to correct past VAT errors and reclaim wrongly paid taxes. By meeting eligibility criteria and following the proper reconsideration process with valid documents, companies registered for VAT in the UAE can submit requests to revise earlier tax returns and get back overpaid VAT.

Professional help can be sought from accounting firms to prepare strong reconsideration applications. With diligent record keeping, truthful declarations and clearly explained reasoning, businesses can expect high approval rates for their reconsideration requests from the FTA.

FAQs