Provisions for VAT (Value Added Tax) Penalty system in UAE

vat penalty UAE

Overview of VAT Penalty in UAE:

The UAE government has updated its list of administrative penalties that apply to businesses for tax law violations.
The minimum VAT penalty in UAE starts from the amount of 500 AED, and it rises until the triple value of the tax on the transaction in question.

The UAE published Cabinet Decision No. (49) of 2021, amending the Cabinet Decision No. (40) of 2017 on the Administrative Penalties for the Violations of Tax Law in the UAE. Amendments came into effect on the 18th of June, 2021.

The amendment reduced the value-added tax penalties in case of non-compliance. Moreover, the VAT – Value-added Tax came into force in January 2018. Moreover, Tax Registration Business collects the amount in the form of tax on behalf of the government.

After that, these VAT-registered businesses submit their VAT return filing to the FTA at the end of the tax period.


VAT Penalties in UAE:

In case of non-compliance with VAT laws in the UAE, the following are the penalties:

1. Failure to keep the required financial records, for instance, the tax invoices and books of accounts specified in the tax law:

The amount imposed shall be AED 10,000 for the first time, but if continued, the amount imposed shall be AED 50,000 for each repeat violation in the subsequent case.

2. Failure to submit the documents in Arabic when requested by the FTA:

The amount imposed in case of failure shall be AED 20,000.

vat penalty uae

3. Delayed VAT registration fine:

In case of a delay while submitting the VAT registration, the authorities will impose a fine of AED 20,000.

4. Delayed VAT De-registration fine:

Any delays in submitting the VAT deregistration in the UAE will attract an AED 10,000 fine.

5. Failure to inform FTA of any changes in tax records that the company has to submit:

An AED 5,000 fine applies for the first time, while violations will attract an AED 15,000 fine (for each violation).

6. Delaying in the filing of tax return fine / VAT return fine or failure to file VAT return within a specified time:

The VAT penalty in the UAE for this offense is AED 1,000, while continued penalties will attract an AED 2,000 penalty. (for each repeat violation)

7. Late VAT payment penalty in UAE:

Provisions for VAT (Value Added Tax) Penalty system in UAE

Failure to pay the tax stated in the tax return form within the time frame specified by the tax law. In case of delay, the following penalties will apply:

Firstly, 2% of the unpaid tax is due immediately.
Secondly, 4% is due on the seventh day following the deadline for payment.

On top of that, the authorities will levy a 1% daily penalty on any amount that is still unpaid one calendar month after the deadline for payment, up to a maximum of 300%.

8. Filing of incorrect VAT return penalty:

Following are the categories of penalties :

a. Fixed penalty

b. Percentage based penalty

A. Fixed Penalty: For first-time offenses, the VAT penalty in the UAE is AED 3,000. Furthermore, for subsequent violations, the appropriate fine amount is $5,000 (for each repeat violation).

B. Percentage-based Penalty: The VAT penalty amount in UAE shall be applied to the amount unpaid to the authority due to the error as follows:

Firstly, (50%) After notification of the tax audit, if the Registrant does not make a voluntary disclosure or he made the voluntary disclosure, and the authority has started the tax audit process, or after being asked for information relating to the tax audit, whichever takes place first.

Secondly, (30%) if the Registrant makes a voluntary disclosure after being notified of the tax audit and before the authority starts the tax audit.

Secondly, (30%) if the Registrant makes a voluntary disclosure after being notified of the tax audit and before the authority starts the tax audit.

9. Failure to voluntarily disclose errors in a tax return or tax refund application before a tax audit:

The VAT penalty amount in UAE imposed shall be AED 3,000 for the first time, but if continued, the amount imposed shall be AED 5,000 for each repeat violation in the subsequent case. 50% of the amount was unpaid due to the error to the authority.

10. Failure to facilitate the work of FTA Tax auditor:

The amount imposed in case of failure shall be AED 20,000.

Provisions for VAT (Value Added Tax) Penalty system in UAE

11. Incorrect Tax invoice format:

a. Incorrect simplified tax invoice: AED 5,000 is the amount of penalty imposed for VAT penalty.

b. Incorrect full tax invoice: The VAT penalty amount in UAE imposed shall be AED 10,000.

12. Failure to account for tax due on import of goods as required under the tax law:

The amount imposed shall be 50% of unpaid or undeclared tax.

13. Failure to display prices on tax invoice inclusive tax:

The amount imposed shall be AED 15,000.

14. Failure to display prices on tax invoice inclusive of tax:

The amount imposed shall be AED 15,000.

15. Failure to notify the FTA of applying tax based on the margin:

The amount imposed shall be AED 25,000.

The penalty will be higher by AED 50,000 or 50% of the tax unpaid on the goods because of the violation.

17. Failure to issue a tax invoice or alternative document when making any supply:

The VAT penalty amount in UAE imposed shall be AED 5,000 for each missing tax invoice or alternative document.

18. Failure to issue a tax credit note or alternative document:

For any missing tax credit notes or alternative documents, the authorities will impose an AED 5.000 fine.

19. Failure to comply with conditions & procedures regarding the issuance of electronic tax invoices and electronic tax credit notes:

The amount imposed shall be AED 5,000 for each incorrect document.

Calculation of the late/ delayed VAT penalties in UAE:

A. 20 business days following the submission of voluntary disclosure.
B. 20 business days following the receipt of a Tax Assessment.


VAT Percentage in the UAE:

  1. Standard Rate VAT in UAE:
    The rate applied to most of the goods and services in the UAE is five percent.
  2. VAT rate as zero:
    Zero VAT rate is applied to exports of goods and services and on some specified goods and services, such as healthcare-related goods and services.  

Conclusion:

Although the VAT penalty UAE is extensive, the application and implementation are seen in the UAE. Moreover, in addition to exploring the best VAT software, businesses must understand the fundamentals of business implications for VAT Law in the UAE. 

Above all, here at NR Doshi and Partners, we understand the need for the hour. Moreover, one can find all one-stop solutions for accountants, financial, and business advisors. The UAE is thoroughly competent in delivering impeccable business setup services. Taking advantage of this positive business environment while capitalizing on our expertise in financial/business-related services, we have been successful in expanding our client base to hundreds of local and GCC marketplace clients.

If you are looking for somebody to take care of your finances and boost profits, look no further than us. Call us at +971 50 6591233 or simply write to us at enquiries@nrdoshi.ae; we will contact you shortly.

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