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Subtle changes can help UAE businesses on cashflow

Even a day’s difference on when VAT is triggered could end up helping

The COVID-19 has had a significant impact on liquidity and cash positions – particularly for small and medium businesses. In the current economic scenario, most businesses are expecting cashflow issues to manifest within the next couple of months, if not already.

While there can be several issues from an indirect tax perspective during the current crisis, there are mechanics to help businesses optimize. Using these, the finance function can deliver tangible value to the organisation. Cashflow positions can be optimized by being aware of nuances in VAT laws and how they apply to commercial arrangements.

All in the timing

From an output perspective, organizations should look at the time gap between when they need to report and pay VAT on sales and income and when they receive payment from customers. It could be that this timing can be optimised.

In most situations, the tax point for reporting VAT is determined by the date of the issuing invoice. This is the time to re-examine commercial arrangements to see if any changes are possible to the current process. Sometimes an invoice is issued when the price is still under discussion because it needs to be accepted by the customer, quality needs to be validated, or quantity confirmed.

Such an invoice triggers the tax point and VAT has to then be reported and paid, although there is no certainty that the customer will accept the invoice and pay.

Read full article.

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