Questions:

1) What is Tracking of Out-of-Scope Sales and Purchase for?

2) Do these settings allow to enabling/disabling the Out-of-Scope taxation in documents?

Answer: 

Out of Scope VAT type is available in transaction documents regardless of whether Tracking of Out-of-Scope Purchases/Sales is enabled. Therefore, this feature does not enable the Out of Scope VAT treatment itself.

Instead, the purpose of this feature is to provide additional tracking and justification for transactions classified as Out of Scope.

When Tracking of Out-of-Scope Purchases/Sales is enabled, the system allows users to specify an Out-of-Scope VAT Reason for each applicable transaction. This information is stored together with the transaction and can be used for reporting, audit purposes, and internal documentation:

In the UAE, the Federal Tax Authority (FTA) expects businesses to be able to justify why a particular transaction has been treated as Out of Scope. During a VAT audit, it may not be sufficient to simply classify a transaction as Out of Scope—the company may also need to demonstrate the reason for that classification.

Enabling Tracking of Out-of-Scope Purchases/Sales helps businesses to:

  • Record the reason why a transaction is classified as Out of Scope.
  • Maintain supporting information for VAT compliance and audits.
  • Improve the transparency and consistency of VAT records.
  • Strengthen internal controls over non-VAT transactions.

Therefore, this feature does not affect the VAT calculation itself. Its purpose is to enhance record-keeping by capturing the Out-of-Scope VAT Reason, providing better documentation and supporting compliance with FTA requirements.


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