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How to avoid VAT Fines and Penalties in UAE
February 3, 2022VAT in UAE
VAT or “Value Added Tax” is a type of Consumption Tax that is collected on a product at every stage, starting from the initial production to its point of sales. But the VAT paid by a consumer is based on the actual cost of the product (minus the cost of materials that already have been taxed). VAT is essential to a country’s economy as it increases the revenue of the government without placing an excessive burden on the manufacturer or the consumer. With that being said, VAT Fines are a completely different story and can be a big nuisance. The complex taxation structure for VAT in UAE can be made simple and easy to understand with the help of experts at Avyanco who can help you avoid hefty taxes.
VAT Rate in UAE
In UAE, VAT was introduced on 1st January 2018 with the general VAT rate in UAE being set at 5%. This rate applies to the majority of the goods and services with some being exempted. This includes services like healthcare and education, exportable goods/services that are sent outside the VAT implementing GCC council member states, oil/gas, international transportation, and several others. Each fine imposed is no less than 500 AED and never more than triple the value of the tax on the transaction that is under consideration.
Causes of VAT Fines and Penalties in UAE
VAT fines in UAE and penalties are imposed by the Federal Tax Authority (FTA) on businesses that fail to abide by the rules and regulations imposed. In order to prevent VAT penalties in UAE, the business must ensure compliance with FTA’s VAT regulations, and one way to ensure that is by taking the help of tax professionals such as offered by Avyanco.
List of VAT Fines and Penalties in UAE
Following comprise the list of VAT fines and penalties implementable in UAE:
For Procedure
| Type of violation | Penalty (AED) |
| Failing to retain the required records that are specified by the tax law and tax procedure law | For the first time: 10,000 For repeated violation each time afterward: 50,000 |
| Not submitting the required records in Arabic following the request of authorities | 20,000 |
| Not submitting registration application in the specified period as per the law | 20,000 |
| Not submitting a deregistration application in the specified period as per the law | 10,000 |
| Not informing the authorities of a submittable amendment to tax record/s | For the first time: 5000 For repeated violation each time afterward: 15,000 |
| Not notifying the authorities about the appointment of a legal representative for the business in a specified period (charged to the legal representative) | 20,000 |
| Legal representative failing to file a tax return in the specified time period (charged to the legal representative) | For the first time: 1000 For repeated violation each time afterward (within 24 months period): 2000 |
| Registrant failing to submit a tax return in the period specified by tax law | For the first time: 1000 For repeated violation each time afterward (within 24 months period): 2000 |
| Not paying the tax stated in the tax return form in the time period specified by the law | The following late penalties will be incurred: 2% tax will be immediately due 4% will be immediately due on the 7th day after the missed deadline for payment 1% daily penalty will be charged daily on any amount unpaid one month after the deadline for payment (300% maximum) |
| Submitting incorrect tax returns | Fixed penalty: first time (3000), for each repetition (5000) Percentage based penalty: applicable on the amount unpaid to authorities due to error/s as following 50%, if the registrant doesn’t make a voluntary disclosure or makes a voluntary disclosure after being pushed by the authorities or after the initiation of the tax audit 30% if the registrant makes a voluntary disclosure after being informed of the tax audit but before the audit is initiated 5% if the registrant makes voluntary disclosure even before being notified of tax audit |
| Business voluntarily disclosing errors in the tax return, tax assessment, or refund application | Fixed penalty: same as above Percentage based penalty: applicable on the amount unpaid to authorities due to error/s as following 50% if the disclosure is made by the taxpayer after one of the two – 1: they’re informed of the tax audit and the process has been initiated, 2: authorities have requested them of information pertaining to tax audit 30% if a voluntary disclosure is made by the taxpayer when notified of the process but before its initiation 5% if a voluntary disclosure is made by the taxpayer before they’re notified of a tax audit by authorities |
| Businesses failing to disclose errors in their tax return assessment, or apply for a refund before the process of audit | Fixed penalty: same as above Percentage based: 50% of the unpaid amount because of the error |
| Business/individual failing to facilitate the work of the auditor | 20,000 |
| Registrant failing to calculate tax on someone else’s behalf (as per law requirement) | A late payment as per will be incurred by the registrant: 2% of the unpaid tax immediately due upon the delay of payment 4% of the amount unpaid is due on the 7th day following the payment’s deadline 1% daily penalty will be charged on the unpaid amount one month after the deadline (maximum of 300%) |
| Not accounting for due tax on imports as required by law | 50% of unpaid/undeclared tax |
For Violations
| Type of violation | Penalty (AED) |
| Failing to display prices inclusive of tax | 15000 |
| Failing to inform the authorities of applying tax based on margin | 2500 |
| Not complying with procedures/conditions related to good transfer in designated zones | Over 50,000 or 50% of the tax, if any, that is unpaid on goods due to violation |
| Failure to issue a tax invoice or similar document while supplying | 5000 for each missing invoice/document |
| Failure to issue a tax credit note or similar document | Same as above |
| Failure to comply with procedures/conditions pertaining to the issuance of electronic credit notes or tax invoices | Same as above for each incorrect or missing document |
How to Avoid VAT Fines and Penalties?
There are seven proven ways you can avoid Vat fines in UAE and VAT penalties in UAE which includes:
- You must register your business for VAT if you are making an annual revenue of over 367,000 AED.
- On a monthly basis, file a VAT return if your business has an annual turnover of 150 million AED. Otherwise, be sure to file quarterly.
- For each supply, be sure to have the tax invoice issued within 14 days of the date of supply. Be sure that it contains the name, address, and TRN of the registrant that is making the supply.
- Keep a stringent record of each and every business transaction including income, cost, and other associated VAT charges while making sure all records are kept up-to-date.
- Collect VAT from your customers on the goods and services offered by your business.
- Understand how reverse charges work and be sure to compensate for them.
- Understand whether your business falls under the category of exempted suppliers and make compensations accordingly.
VAT Fines Reduction and Discount in UAE
In order to avail of discounts on your outstanding administrative VAT fines, there are several conditions that must be met:
- The fine must have been imposed under cabinet decision no. 40 of 2017 before June 28, 2021, while some or all of it remains outstanding
- All the payable amount must be settled by the end of a predetermined tax period date
- 30% of all administrative penalties must be settled by a predetermined tax period date
Additionally, FTA keeps providing relieves to taxpayers where different packages are announced for businesses with outstanding administrative VAT fines to encourage the growth of commercial activities in UAE.
Waiving Fines and Penalties in UAE
If you want to have the administrative VAT fines completely waived off, you can:
- File an application for reconsideration to FTA within 20 days of being notified of the FTA’s decision. The request will be reviewed by the authorities for reconsideration if the subject has fulfilled all the legal obligations and requirements for this process. The FTA will notify the taxpayer of its decision within five to ten days following the submission of the application.
- If you are unsatisfied with the decision of FTA as a taxpayer, you can forward your concerns to the Tax Dispute Resolution Committee (TDRC) that will look into this matter on behalf of the applicant. However, the request may be submitted to TDRC with 20 days of receiving the fines/penalties from FTA.
- The taxpayer can appeal to the Federal Court if the VAT penalty is over 100,000 AED. The request must be filed within 20 days after receiving notification from TRDC if they have decided on the amount of penalty to be over 100,000 AED.
Where to file VAT in UAE?
VAT in UAE can be filed electronically through the FTA online portal on this link. It is advised to make sure you have met all the taxation requirements beforehand.
Hiring VAT Consultant in UAE
Filling for VAT is a highly complex process that requires you to ensure proper management and recording of your invoices, stocks, bills, etc. Professionally trained VAT Consultants can help you in complying with UAEs VAT requirements. Failing to comply can result in hefty fines that can upset the balance of scales for businesses especially following the COVID-19.
How Avyanco VAT Consultants Help You?
Avyanco can help you in easy management of your VAT with the help of our team of certified tax agents and VAT Consultants that are trained to handle these situations. Moreover, we can help to reduce and even waive off your VAT fines and penalties wherever possible. It is best to have an expert deal with these matters instead of experimenting yourself. We have years of expertise and an array of satisfied clients who rely on us to handle their VAT taxation issues. Help your business grow free of worries related to VAT fines, contact us today.
