The Federal Decree-Law No. (8) of 2017 on Value-Added Tax, which came into effect on January 1, 2018, introduced VAT in the UAE. Along with the law came several guidelines, executive regulations, and notifications to help the businesses comply with all the law requirements.
However, it is difficult for businesses to understand and fulfill all the requirements in the initial stages of implementation of the law.
This confusion also leads to several violations and VAT penalties that increase business costs.
Businesses, specifically VAT-registered persons, must be aware of various violations of the UAE VAT Law and how to avoid them.
This blog will shed light on the various violations possible under the VAT law and the relevant penalties imposed by FTA on the businesses contravening them.
VAT fines and penalties applicable on UAE VAT-registered individuals in the case of non-compliance with VAT requirements
An individual, who is required to register for VAT under the provisions of the Decree-Law, must file a Tax Registration application with the Authority within 30 days of reaching the mandatory registration threshold. In the case of infringement of this mandatory requirement by a VAT-eligible business, FTA imposes a fine of AED20,000.0.
A business in the UAE must deregister from VAT if the taxable turnover or taxable expense in the last 12 consecutive months is less than the voluntary threshold or if the business does not expect to reach any of those numbers within the next 30 days.
Moreover, the FTA must receive the deregistration application within 20 business days of the event that calls for the business to deregister. If the business breaches this requirement, the FTA imposes a penalty amount of AED10,000.0.
Delay in VAT return filing
FTA mandates the UAE businesses to file their VAT returns by the 28th of the following month after the tax period.
If the business fails to file the VAT returns by this deadline, FTA imposes a fine of AED1,000.0 for the first violation of the law.
In the case of a subsequent violation of this requirement, the penalty amount increases to AED2,000.0.
Failure in record keeping
FTA makes it compulsory for businesses in UAE to maintain appropriate records of each transaction and the relevant documents. Companies must submit these documents at the time of tax audit or whenever the FTA requests them.
If any business in the UAE fails to maintain accurate transaction records, the FTA imposes an AED10,000.0 penalty for the first violation.
It will fine AED50,000.0 for the subsequent violations of the requirement. Furthermore, even though it is not mandatory to maintain these records in English or Arabic, FTA may request businesses to produce such information in Arabic.
If a business fails to comply with the request to maintain records in Arabic, it would be considered a breach of the law, resulting in an AED20,000.0 fine.
Delay in VAT payment
Businesses in UAE must make their VAT payments by the VAT return deadline or return filing due date. If not, the FTA imposes an immediate penalty of 2% on the unpaid VAT.
On top of that, if a business fails to pay the penalty within a week, the FTA imposes an additional 4% penalty. Even after a month, if the company does not pay the penalty, the FTA penalizes businesses 1% for each unpaid day until the amount reaches 300% of the unpaid VAT amount.
Failure to display the prices of goods inclusive of VAT
As per the UAE’s VAT laws, businesses must display the prices of goods at their shops/businesses while including the VAT component. Additionally, the product MRP should also include the VAT amount.
Understand that the failure of a business to comply with these laws will invite an AED15,000.0. penalty.
Voluntary disclosure form
In the event of any error in the filing of VAT returns or omission of an entry, businesses must submit a voluntary disclosure form (VDF).
The FTA imposes a fixed penalty of AED3,000.0 on the business while submitting the voluntary VAT disclosure for the first time and AED5,000.0 for subsequent submissions.
The business will have to pay a percentage-based fine depending on the error. If the taxpayer submits the VDF before receiving the FTA notification, he will have to pay a 5% fine on the unpaid amount.
When a taxpayer submits the VDF after the FTA’s notification but before the audit starts, a 30% fine applies. A VDF submission after the start of the audit process or the request for tax audit-related information will attract a 50% penalty.
Failure to issue tax invoice and a tax credit note
Suppliers must also submit the relevant tax invoice or tax credit note to the customer while taking accountability for VAT payment. Moreover, if the supplier fails to do so, FTA imposes a fine of AED5,000.0 for each such failure. For incorrect tax invoices, the FTA also imposes an AED5,000.0 fine.
In addition, there are many other penalty situations as follows:
- For example, if a business fails to inform the FTA regarding any changes in tax records. The fine is AED5,000.0 for the first violation and AED15,000.0 for the subsequent ones.
- If a business fails to facilitate the work of a tax auditor from FTA, the penalty amount is AED20,000.0.
- Assume that a business fails to notify the FTA of the applicable tax based on the margin. In this case, the penalty amount is AED2,500.0.
- Businesses that do not comply with the relevant requirements related to electronic tax invoices and tax credit notes will have to pay an AED5,000.0 fine for each violation.
- Consider a business that has to transfer goods in designated zones. For any violation of the mandatory compliance procedures, the FTA imposes an AED50,000.0 penalty or 50% of the tax amount, whichever is higher.
- A business that fails to notify the FTA of the appointed legal representative by the deadline date will result in the representative paying an AED20,000.0 fine.
Businesses may also violate VAT-related requirements and invite fines and penalties in these various situations. Therefore, you must be careful of these situations and remain up-to-date with all the deadlines and submission requirements. Moreover, it saves your business from the penalties. Thus, hiring an expert VAT consultant in UAE is wise to comply with the requirements.
Our VAT consulting services
NR Doshi & Partners, a leading VAT consultancy services provider, can help you with any of the VAT-related requirements. We do it all, be it VAT liability calculations, filing returns, registration, deregistration, compliance with the submissions, along with any advisory services.
Additionally, we have an expert team of tax professionals, VAT consultants, and business advisors. They also provide you with result-oriented solutions that improve your business operations. Most importantly, we help you achieve compliance with all regulatory requirements.