Trading, import & export
Landed cost: why your gross margin might be wrong
The price on the supplier's invoice is not what the stock cost you.
What goes into landed cost
- Purchase price, net of trade discounts
- Freight and insurance to bring the goods to the UAE
- Customs duty
- Clearing, handling and port charges directly attributable to the purchase
- Exchange differences on the purchase, depending on your accounting policy
What happens when it is expensed instead
If freight and duty are expensed the month they are paid, gross margin is too high in some months and too low in others, and the stock on your balance sheet is understated. Pricing decisions are made on the wrong numbers, and the profit reported for Corporate Tax shifts between periods.
Allocating costs across products
When one shipment contains several products, shared costs such as freight are allocated by a consistent basis, typically value, weight or volume. Pick a basis that reflects how the cost actually arises and apply it every time.
Import VAT is not part of cost
Import VAT that you are entitled to recover through your VAT return is not part of the cost of the goods. If you are not registered, or the VAT is irrecoverable, it is.
Recent result
AED 36,000
of AED 40,000 in penalties waived for an IFZA free-zone company. We prepared the waiver request; the investor paid AED 4,000.
Not sure where you stand?
Send us your last VAT return or your trade licence. A chartered accountant will tell you what is in order and what needs attention. No obligation.