A Voluntary Disclosure is a form (VAT Form 211) provided by the Federal Tax Authority (FTA) which enables the taxpayers to voluntarily notify the FTA about the error or omission in a previous Tax Return, Tax Assessment or Tax Refund application.
This is applicable only if the differential amount (Tax paid minus Actual Tax payable) is higher than AED 10,000, if the underpaid tax amount is AED 10,000/- or less. It can be corrected through the Tax Return for the tax period in which the error has been discovered. If the unpaid tax liability is more than AED 10,000/- it can be rectified using voluntary disclosure form 211.
Time Limits for Voluntary Disclosures
In case of errors or omissions a Voluntary Disclosure can be submitted to the FTA within 20 business days from the date when the Taxable Person became aware of the error.
For example, M/S Akshay LCC had filed VAT Return Form 201 for April, 2019 by declaring standard rated sales as AED 18, 00,000 with output VAT AED 90,000. Later, in the month of May, 2019, they discovered that the actual standard rated sales were AED 22, 00,000 and the output VAT was AED 1, 10,000.
This implies that M/S Akshay LCC have underpaid the tax by AED 20,000 for April, 2019 VAT Returns. Now that it is discovered, they have to voluntarily notify FTA about the error/omission using the Voluntary disclosure form.
Penalties levied on Voluntary Disclosure
While the Voluntary disclosure mechanism allows the taxpayers to notify the error to FTA, it is also important for businesses to take a note that penalties will be levied on case to case basis.
There are two types of Voluntary Disclosure penalties which will be jointly levied, one which is fixed penalty and other being percentage based depending upon the situations or timing of the disclosure.
- Fixed penalty of:
- (3,000) for the first time.
- (5,000) in case of repetition
- Percentage based penalty shall be applied on the amount unpaid to the Authority due to the error and resulting in a tax benefit as follows:
- (50%) if the Registrant does not make a- voluntary disclosure or he made the voluntary disclosure after being notified of the tax audit and the Authority has started the tax audit process, or after being asked for information relating to the tax audit, whichever takes place first.
- (30%) if the Registrant makes the- voluntary disclosure after being notified of the tax audit and before the Authority starts the tax audit.
- (5%) if the Registrant makes a voluntary- disclosure before being notified of the tax audit by the Authority.