The UAE cabinet has approved the list of administrative penalties that will be imposed on businesses for violations of the tax laws. It is important for every taxpayer to know what are the different circumstances that lead to the imposition of these penalties by the Federal Tax Authority (FTA) for violating the UAE VAT Law.
VAT Fines & Penalties related to Registration Requirement
A business must register for VAT if the taxable supplies and imports exceed the mandatory registration threshold of AED 375,000. Furthermore, a business may choose to register for VAT voluntarily where the total value of its taxable supplies and imports (or taxable expenses) is in excess of the voluntary registration threshold of AED 187,500.
If the taxable person fails to register the business within the time limit i.e. within 30 days from reaching the turnover limits, then he will be liable to pay the late registration penalty of AED 20,000/- as per the Law.
VAT Fines & Penalties related to VAT Deregistration
If a taxable person Cease making taxable supplies or still making taxable supplies but the value in the preceding 12 calendar months is less than the Registration Threshold Must apply for deregistration within 20 business days from the occurrence of the event. A penalty of AED 10,000/- shall be applicable to such a business failing to deregister within the time specified.
VAT Fines and Penalties related to Prices displayed exclusive of VAT
As per the provisions of the UAE VAT law, when goods are sold with display where prices are displayed, such displayed price must be inclusive of tax.
An administrative penalty of AED 15,000/- would be levied if the taxable person fails to display prices inclusive of VAT.
VAT Fines and Penalties when You Fail to Issue a Tax Invoice and Tax Credit Note
Burden of Value Added Tax at the end will be on customer’s pocket. Therefore it is important to provide proper documents to the customer who pays the VAT.
According to VAT in UAE, if the taxable person fails to issue a tax invoice or tax credit note, then they would be penalized with AED 5000/- for each tax invoice or tax credit note.
VAT Fines and Penalties Related to Late Filing of VAT Return
The taxable person must file VAT Return on a regular basis that is on or before 28th of the end of the tax period. VAT Return in UAE can be filed either quarterly or on a monthly basis based on the annual turnover of the company.
The last date to file VAT returns, for quarterly VAT returns, due date will be 28th of the subsequent month following the end of the quarter.
If in case the taxable person fails to submit the VAT Returns before due date, then AED 1,000/- will be charged as a penalty for the first time and AED 2,000/- in case of repetition within (24) months.
VAT Fines and Penalties for Delay in Payment of VAT
VAT registered person should make the payment to FTA within the return filing due date. If the due tax is not paid within the due date then 2% will be charged immediately on the unpaid VAT after the due date. An additional 4% will be charged if the VAT is unpaid even after 7days from the VAT return deadline. Further, 1% daily penalty charged on any amount that is still unpaid one calendar month following the deadline for payment until the penalty will reach 300% of the unpaid tax.
If a person is not accounting for tax due on import of goods then a penalty of 50% of the unpaid or undeclared tax will be imposed.
VAT Fines and Penalties for submission of an incorrect Tax Return by the Registrant
A Voluntary Disclosure is a form 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.
Two penalties are applied:
- 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
VAT Fines and Penalties in the UAE if You Fail to Keep the Records
It is responsibility of every VAT registered person to account and maintain proper records or documents to support all the transactions. It is also their responsibility to submit the documents or information’s whenever requested by FTA or during Tax Audit.
If VAT registered person fails to keep the required records or any such information, will be fined for AED 10,000/- for the first time and AED 50,000/- in case of repetition.
AED 20,000/- for Failure to submit the required records in Arabic when requested by the Authority.
Failure to comply with conditions and procedures related to the transfer of goods in designated zones.
The penalty will be the higher of AED 50,000 or 50% of the tax, if any, unpaid on the goods as the result of the violation.
Can the Federal Tax Authority (FTA) in the UAE Reduce or Remove VAT Fines and Penalties?
Yes, The Federal Tax Authority may reduce or remove the penalty which is imposed for not complying with the provision of the VAT Law. If the person can produce any evidence justifying the reason for such non-compliance,
When and How to Apply For VAT Reconsideration in the UAE?
Any person who has received penalties can apply to the Federal Tax Authority (FTA)’s for VAT reconsideration within 20 working days from the receipt of such penalty. The VAT Reconsideration application must be submitted online to the Federal Tax Authority This application must be prepared in Arabic only mentioning about the facts of the case. The authority has the timeframe of 20 business days to review the application and decide if to retain the penalty or to waive it off.
At RVG, our professionals will help you in avoiding these penalties. And will guide your company for any of the above mention requirements and compliances.