Since the introduction of the UAE VAT Law in 2018, businesses across the UAE have been required to comply with stringent VAT regulations. These regulations are enforced by the Federal Tax Authority (FTA), and penalties for non-compliance can be costly. This guide covers the key VAT penalties businesses may face under UAE VAT law and provides practical steps to ensure compliance.
1. Failure to Register for VAT in the UAE
Businesses in the UAE must register for VAT if their taxable supplies and imports exceed AED 375,000 over a 12-month period, or are expected to in the coming month. Non-UAE-resident businesses are also required to register, regardless of their taxable amount, if there’s no local party accountable for VAT.
The penalty for missing the VAT registration deadline is set under Cabinet Decision No. (49) of 2021, mandating registration within 30 days of exceeding the threshold.
Penalty: AED 10,000 for late VAT registration.
2. Failure to Deregister for VAT
If a business no longer meets the mandatory VAT threshold (falling below AED 187,500), it must apply for VAT deregistration within 20 business days. Failing to deregister can incur ongoing monthly penalties.
Penalty: AED 1,000 for the initial offence, plus AED 1,000 monthly for each delay, capped at AED 10,000.
3. Late VAT Filing in the UAE
VAT returns must be filed within 28 days of the end of the VAT period. Failure to file on time results in fines, impacting the business’s compliance record with the FTA.
Penalty: AED 1,000 for the first offence, AED 2,000 for subsequent offences within a 24-month period.
4. Late VAT Payment Penalties
VAT payments are also due within 28 days after the quarter ends. Delayed payments accrue penalties based on the unpaid amount, increasing progressively if not resolved promptly.
Penalty:
2% of unpaid tax immediately
Additional 4% if payment is overdue by seven days
Daily 1% penalty after one month, up to a maximum of 300% of the tax owed
5. Incorrect VAT Return Submission
Submitting incorrect VAT returns, such as failing to report VAT accurately, leads to substantial penalties.
Penalty: AED 3,000 for the first error, AED 5,000 if repeated within 24 months.
6. Failure to Maintain Proper VAT Records
The FTA requires businesses to keep VAT-related records, including invoices and receipts, for at least five years. Non-compliance with this VAT record-keeping obligation results in steep fines.
Penalty: AED 10,000 for the first offence; repeated offences within 24 months lead to a penalty of AED 50,000.
7. Missing VAT Invoices
Businesses must issue compliant VAT invoices for every taxable transaction. Failing to follow the VAT invoice guidelines or neglecting to issue an invoice incurs penalties.
Penalty: AED 5,000 per missing invoice.
8. Transfer of Goods in Designated Zones
Businesses operating in Designated Zones must comply with specific VAT rules for goods transfer. Breaches of these procedures result in significant penalties.
Penalty: Higher of AED 50,000 or 50% of the tax owed on the goods.
9. Incorrect Information Submission
Submitting inaccurate information during VAT registration or in VAT returns can lead to penalties, emphasizing the need for precise reporting.
Penalty: AED 3,000 for the first violation; AED 5,000 for repeated offences within two years.
10. Voluntary Disclosures for VAT Errors
Businesses are encouraged to submit a voluntary disclosure if they find errors in VAT returns. If the error exceeds AED 10,000, a voluntary disclosure must be submitted to the FTA within 20 days to avoid penalties.
Penalty: AED 1,000 for the first disclosure and AED 2,000 for subsequent instances. If the disclosure is submitted before FTA detection, penalties increase annually, ranging from 5% to 40% over five years. If discovered by the FTA, the penalty can reach 50%, with an additional 4% monthly.
11. Penalties for Late Payments of Fines
If a business does not pay penalties within 20 days after receiving a tax assessment or submitting a voluntary disclosure, additional monthly fines are imposed.
Penalty: 4% per month, capped at 300% of the original penalty.
Avoiding VAT Penalties: Essential Compliance Tips for UAE Businesses
Navigating VAT compliance is critical to prevent these penalties. To maintain compliance and avoid VAT fines, businesses in the UAE can follow these key steps:
Establish automated systems: Automated VAT reminder systems help businesses stay on top of filing and payment deadlines.
Maintain VAT records: Keep all VAT-related documents, including invoices and bank statements, for the required period.
Allocate funds for VAT payments: Ensure your cash flow supports timely VAT payments.
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