In 2018, the United Arab Emirates (UAE) introduced Value Added Tax (VAT) as a part of its approach to diversify its financial system and decrease its dependence on oil revenues. While VAT has become an important part of the UAE tax landscape, businesses operating in the country must ensure they’re fully compliant with the VAT legal guidelines to avoid significant UAE VAT penalties. These penalties can result in hefty fines, affecting a commercial business’s bottom line. This article will discuss the role of VAT consultants in Dubai in understanding how Federal Tax Authority (FTA) enforces strict VAT regulations, from registration and filing to reporting and payment.
This blog will offer an overview of the numerous VAT penalties in the UAE, ensuring businesses understand the consequences of non-compliance and how to avoid costly mistakes.
1. Failure to Register for VAT
UAE-resident businesses that make taxable supplies exceeding the required registration threshold of AED 375,000 in the previous 12 months must register for VAT. Non-resident businesses must also register, regardless of the value in their taxable supplies, if they’re liable to paying VAT within the UAE.
Under Cabinet Decision No. (49) of 2021, businesses are required to register for VAT within 30 days of exceeding the threshold. If a business fails to register on time, it’ll incur a UAE VAT penalty.
- Penalty: AED 10,000 (approx. USD 2,750) for late VAT registration.
2. Failure to Deregister for VAT
If a business, no longer meets the VAT registration requirements—which include when taxable supplies drop underneath AED 187,500 annually—it has to apply for VAT deregistration. Failure to deregister within 20 business days of the occasion results in UAE VAT compliance penalties.
- Penalty: AED 1,000 for the first offense, AED 1,000 per month for subsequent violations, as much as AED 10,000.
3. Late VAT Filings
VAT returns must be submitted within 28 days after the end of the relevant tax period. Late submissions can cause fines, and the UAE VAT fine structure escalates with repeated offenses.
- Penalty: AED 1,000 for the first offense, AED 2,000 for next violations inside 24 months.
4. Late VAT Payments
In addition to filing VAT returns on time, businesses are also required to make VAT payments within 28 days of the end of the applicable tax period. Late payment can result into extensive penalties primarily based on the outstanding amount.
Penalty:
- 2% of the unpaid tax immediately
- 4. Additional penalty if the payment isn’t made inside seven days.
- 1% penalty after one calendar month, as much as a most of 300% of the unpaid tax
5. Incorrect VAT Return Submission
Submitting incorrect VAT returns, which include under-reporting VAT due or failing to account for VAT correctly, can cause heavy fines. These VAT violations in the UAE can bring about extensive economic implications.
- Penalty: AED 3,000 for the first-time violation, growing to AED 5,000 for repeated non-compliance inside 24 months.
6. Failure to Maintain Proper Records
Businesses must hold financial-record associated with VAT for a minimum of 5 years. This record encompasses invoices, receipts, and bank- statements that support VAT calculations. If a business fails to hold such information, it’ll face penalties.
- Penalty: AED10,000 for the first offense, growing to AED50,000 for repeated violations inside 24 months.
7. Failure to Issue VAT Invoices
All VAT-registered businesses must issue valid VAT invoices for taxable supplies. If a business fails to issue those invoices according to the VAT legal guidelines, it is going to be penalized.
- Penalty: AED 5,000 per missing VAT invoice.
8. Failure to Comply with Transfer of Goods in Designated Zones
Businesses running in targeted zones have to comply with the VAT procedures and situations when transferring goods. Non-compliance with those guidelines ends in extensive penalties, as in keeping with the UAE VAT law.
- Penalty: The penalty will be the higher of AED 50,000 or 50% of the unpaid tax resulting from the violation.
9. Submission of Incorrect Information
Providing fake or wrong data at some stage in VAT registration or in VAT returns can attract fines. Businesses have to make sure that every piece of data submitted to the FTA is correct and sincere to avoid UAE VAT penalties.
- Penalty: AED 3,000 for the primary offense, escalating to AED 5,000 for repeated violations within 24 months.
10. Voluntary Disclosures
If a business discovers an error in its VAT return, it must file a voluntary disclosure to correct the mistake. If the error amount exceeds AED 10,000, the disclosure must be made within 20 operating days. Failure to voluntarily disclose the error may result in hefty penalties.
- Penalty:
- AED 1,000 for the first offense, increasing to AED 2,000 for the next offenses.
- If disclosed prior to FTA notification, the penalty is 5% of the underpaid tax in Year 1, escalating to 40% of the underpaid tax after 5 years.
- If disclosed after FTA notification, the penalty will be 50% of the underpaid tax, plus 4% per-month on the unpaid tax from the due date.
11. Late Penalty Payment
When a business fails to pay a VAT penalty within 20 days of receiving a tax assessment or filing a voluntary disclosure, extra fines are imposed at the super penalty quantity.
- Penalty: 4% per month, up to maximum 300% of the original fine.
Conclusion: Navigating UAE VAT Compliance
The UAE VAT in fine structure can cause significant economic burdens for businesses that fail to conform with VAT regulations. With VAT penalties in the UAE starting from fines for past-due registration to hefty fees for underreporting tax, businesses want to set up the right structures to make sure of well-timed VAT filings and bills.
To avoid from VAT penalties within the UAE, businesses must:
- Implement computerized structures to submit VAT and fee deadlines.
- Ensure proper record-keeping and trouble with VAT invoices for each taxable supply.
- Regularly assess VAT compliance to avoid mistakes in returns and submissions.
ebs chartered accountant can assist businesses in navigating the complexities of UAE VAT laws. With our expert guidance, businesses can ensure compliance and avoid costly VAT penalties.
FAQs
What triggers VAT penalties in the UAE?
Failing to register, file returns, or pay VAT on time can lead to penalties.
How much is the late VAT registration penalty in the UAE?
AED 10,000 is charged for late VAT registration.
Are there penalties for incorrect VAT returns?
Yes, errors in VAT returns can result in fixed and percentage-based penalties.
Can VAT penalties in the UAE be reduced or waived?
Yes, the FTA may allow reductions or waivers under specific conditions.