Value Added Tax (VAT) was introduced in the UAE in 2018 and has been a game-changer for the country’s economy ever since. However, with great benefits come significant responsibilities, and businesses in the UAE must ensure they comply with VAT regulations to avoid facing fines and penalties. In this blog, we’ll be exploring everything you need to know about VAT fines and penalties in the UAE, including what actions can result in fines, the severity of the penalties, and how you can avoid them. We’ll also discuss real-life examples of businesses that have faced fines for VAT violations and what lessons can be learned from their experiences.

So, whether you’re a business owner, an accountant, or simply curious about VAT regulations in the UAE, this blog is for you. Join us as we delve into the world of VAT fines and penalties and discover what you need to do to stay compliant and avoid unnecessary costs.

How to Avoid Getting VAT Fines and Penalties?

• Ensure that the supplier correctly charges any goods or services subject to VAT and that the invoice includes all necessary details.
• Calculate the VAT rate correctly by applying it to the sale value and subtracting any input tax to arrive at the final amount owed.
• Pay the computed tax within the timeframe specified by the government to avoid any penalties or fines.
• Submit VAT returns with all required information to the government within the designated time frame to avoid potential fines.
• Maintain accurate records, including invoices, stock records, VAT returns, accounts, and any other relevant data, to justify any tax paid during purchases.

Actions that could lead to VAT fines and penalties in the UAE

• • Registration Failure

In the UAE, businesses must register for VAT and submit a Tax Registration application to the FTA within 30 days of exceeding the registration threshold. Failure to register within this timeframe will result in an administrative penalty of AED 20,000 for late registration, as well as additional penalties based on a percentage of the VAT late registration penalty and any outstanding VAT liabilities.

• • Delay in the Filing of VAT Return

At the close of each tax period, all taxable entities in the UAE are bound to file a VAT return to the FTA. Following the regulations, the deadline for submitting the VAT return to the FTA is the 28th day following the end of the tax period. If a VAT registrant fails to file their VAT return within the specified timeframe, they will be subject to VAT fines of AED 1,000. Furthermore, if the same offence is repeated within 24 months, the defaulter will be fined AED 2,000.

• • Failure in Maintaining the Books of Records

The Federal Tax Authority in the UAE mandates that businesses keep precise records of their transactions and supporting documents, which must be provided to the FTA during an audit or upon request. Failing to provide the required accounting documents may result in VAT penalties and fines, with a penalty of AED 10,000 for the first offence. If the same individual is found violating the law again, a penalty of AED 50,000 will be imposed.

• • VAT Payment Delay

In the UAE, businesses must pay their VAT by the deadline specified for the return or return filing. Failure to do so will result in VAT fines. If a payment is late, the registrant will be charged an immediate 2% penalty on the unpaid tax. Additionally, any amount that remains overdue after one calendar month from the payment deadline will incur a daily penalty of 1% of the outstanding amount, up to a maximum of 300%.

• • Failure to Display VAT-Inclusive Prices for Products or Services

In the UAE, certain situations require businesses to display the prices of goods or services in their shops or offices, including VAT. Failure to comply with this requirement will result in VAT fines and penalties of AED 15,000.

• • Incorrect Tax Return Filing

Submitting an incorrect tax return for the first time in the UAE will result in VAT fines of AED 3,000 while repeating the same mistake will incur fines of AED 5,000. Additionally, the proportion of the tax amount not paid due to the submission error may lead to VAT fines ranging from 5% to 50%, based on how soon the error is reported in relation to the Authority’s tax audit.

• • Failure to Issue a Tax Invoice or a Tax Credit Note

Suppliers are required to issue appropriate tax invoices or tax credit notes to the customer responsible for VAT payment. Failure to comply with this requirement when issuing electronic tax invoices or electronic tax credit notes will result in VAT fines and penalties of AED 5,000 for each inaccurate document.

• • Failure to De-Register

Individuals and businesses registered for VAT can deregister if their annual turnover or taxable expenses do not exceed the threshold amount within 13 months of registering. Failure to apply for de-registration within the specified period of 20 working business days after the qualifying event occurs will result in VAT fines of AED 10,000.

Instances that Invite VAT Penalty Waiver

The Federal Tax Authority may reduce or waive VAT penalties in the UAE if certain conditions are met. The conditions under which the Federal Tax Authority (FTA) may reduce or waive VAT penalties in the UAE include several requirements:

• A valid excuse for the violation must be presented and accepted by the authority.
• Evidence supporting the excuse and the offence must be provided.
• The reduction or exemption application must be submitted to the Authority within 10 business days of the end of the acceptable excuse using the means prescribed by the Authority.
• The person must not have been subject to any Administrative Penalties in the two years before the application.
• The person must demonstrate that the violation has been addressed.

Overall, while the FTA may offer a reduction or waiver of VAT penalties in certain circumstances, it is essential for businesses to take their VAT obligations seriously and strive to avoid violations in the first place. This not only helps to avoid costly penalties and fines but also ensures that the business is operating in compliance with the law and maintaining its reputation in the market.

Takeaway

Businesses in the UAE must ensure they comply with VAT regulations to avoid facing fines and penalties. The blog has explored the various actions that can result in fines, the severity of the penalties, and how to avoid them. It is essential to maintain accurate records, correctly charge VAT, calculate the VAT rate, pay tax on time, submit VAT returns, and comply with all necessary regulations to avoid penalties. However, in some cases, a VAT penalty waiver may be possible if certain conditions are met.

By following these guidelines, businesses can ensure they remain compliant and avoid unnecessary costs. It is better to get help from VAT consultants for better understanding and avoid penalties. HTIC Global provides VAT consultancy services in the UAE for all types of organizations. The team of FTA-approved tax advisors possesses extensive knowledge of UAE tax laws and provides personalized solutions to meet specific business needs. Their tax advisory services include tax preparation, analysis, return submission, and payment, helping businesses determine the taxability of transactions and comply with UAE VAT laws to avoid VAT fines and penalties. Additionally, they help businesses with tax and VAT pre-tax audits. So, if you want to take away the headache of VAT from your mind, consult HTIC today!