UK: 
USA:
Reporting VAT in the UAE by emirate is a mandatory requirement under UAE VAT law, and it must be done based on the emirate where the supply of goods or services takes place.
Using the ‘Bill To’ location at the time of reporting is a common practice, but whether it is best (or even good) practice depends on several key considerations.
1) Legal requirements for VAT reporting by emirate
- According to UAE VAT regulations, businesses must report their VAT liabilities separately by emirate in the VAT return. This is due to the distribution of VAT revenues between the emirates.
- The place of supply rules generally determine which emirate’s VAT rate should apply. This is usually based on the location where the goods or services are provided.
2) Is the ‘Bill To’ location the best basis?
Using the ‘Bill To’ location to determine the emirate for VAT reporting can be convenient and aligns with how many systems handle invoicing. However, there are potential risks:
- Mismatch with place of supply: The ‘Bill To’ address might not always reflect the actual place of supply. For example:
- A company headquartered in Dubai might have services provided in Abu Dhabi, and the VAT should be reported in Abu Dhabi.
- Goods may be delivered to a different emirate from where the invoice is ‘billed’.
- Risk of incorrect reporting: Solely relying on the ‘Bill To’ location may result in incorrect VAT distribution between emirates, leading to compliance issues during a tax audit.
3) Best practice for UAE VAT reporting by emirate
A more accurate approach would be to:
- Base VAT reporting on the actual place of supply in accordance with UAE VAT law:
- For goods: Use the emirate where the goods are delivered or made available.
- For services: Use the emirate where the service is actually provided.
- Determine at the point of tax calculation using tax rules logic.
- The Innovate Tax solution has created separate tax rates for each of the Emirates which means that at the point the tax is determined, the logic identifies the correct emirate the VAT is to be charged.
- This approach enures 100% accuracy
- The report splits by the tax itself rather than on the bill-to location.
Conclusion
While using the ‘Bill To’ location may be convenient and a common practice, it is not always the most accurate method. The best practice is to report VAT based on the actual place of supply to ensure compliance with UAE VAT law.
If the ‘Bill To’ location aligns with the place of supply, it can work, but discrepancies should be corrected during reporting or even in a future audit.
