Manage RCM in UAE VAT with Tally.ERP 9
Reverse Charge also known as Self Assessed Tax or Offset Tax is a very common approach used across all VAT regimes worldwide.
Typically, in a business transaction, the supplier charges the buyer for purchase of goods and service, along with the applicable VAT amount. After collecting the tax, the buyer deposits the VAT amount for corresponding transactions with the government.
In reverse charges, the responsibility of paying tax shifts to the buyer, instead of the supplier. The buyer books a liability and claims Input Tax Credit. It helps governments to deal with tax evasion scenarios and avoid confusion regarding who owns the liability and who pays the tax.
Reverse Charges (RCM) in UAE VAT
Reverse charges are applied when you receive an item that has no tax on it but VAT is due.
If you are the buyer, it is imperative from a statutory perspective to track all reverse charge business transactions.
There are various scenarios when reverse charges are applicable to business transactions, few of which are -
- 1) When a taxable good or service is imported by a VAT-registered business from any other country
- 2) When a taxable person, receives services from a non-resident business entity
- 3) Purchases made from Designated Zone
- 4) Purchase of hydro carbons or gold for wholesale dealers
- 5) When the purchase occurs with a business in another GCC State
Let's understand this by way of an example. With respect to the first point mentioned above, let's assume that you are importing goods worth AED 5000 from abroad. In this case, you have to book a reverse charge liability as per the local rate (credit the VAT and debit the appropriate ledger).
Let's assume that the local rate of tax for the imported goods is 5%. Hence liability has to be booked for AED 250. Based on the eligibility, Input Tax Credit can be claimed for the liability booked. Typically, this amount gets nullified unless there is a difference in the eligibility amounts.
Similarly, reverse charges (RCM) could be applied to the other points.
Managing Reverse Charges (RCM) using Tally.ERP 9
You can manage reverse charges easily with Tally.ERP 9, especially in the background of VAT compliance and filing.
The Reverse Charge Mechanism (RCM) report in Tally.ERP 9 auto populates all transactions on which reverse charges are applicable. It points transactions for which liability has already been booked and for which liability needs to be raised. It helps you in booking liability and pass them through Journal Vouchers.
Reverse charges and VAT return filing using Tally.ERP 9
If you are in the UAE and if you make an import, the declaration of the goods is done at customs. The corresponding reverse charge gets automatically pre-filled in your VAT return. But in case of services or if the goods are not declared, then you will have to manually enter their details in the FTA e-Services portal while filing VAT return.
Before you file VAT return, you need to make sure that the reverse charges are accounted in correctly. You can view the Tax Computation Report to make sure that all the details are correct. This report gives a complete overview of all transactions and taxes. It shows how many transactions in the VAT return have been included or excluded and why. You can navigate further from each transaction to see the bills, amounts, etc. to learn how tax has been calculated.
You can save and retain your own digital copy of the VAT return which is used for filing. In case you make any changes in the masters and/or transactions, you can track them to the last detail.
For more information on how Tally helps manage reverse charges easily, please visit -https://help.tallysolutions.com/article/te9rel64/Tax_International/GCC_VAT/reverse_charge_summary_gcc_vat.htm&strProductRelease=6-4