Consequences of Businesses for Late Filing or Non-Filing of VAT in UAE

Although some penalties for violations related to VAT in UAE are becoming less severe, there's still a very alarming array of VAT enforcement powers that can trap unwary registered businesses. Through proper awareness of all the problem areas, as well as careful planning, it’s possible to avoid being an unwitting victim.

Filing of Tax Returns for VAT-Registered Businesses

The following violations and penalties are applicable for VAT-registered businesses in UAE:

• Failure of a business or its legal representative in filing VAT return within the timeframe specified by the FTA - the penalty is going to be charged onto the company's legal representative. Penalty is at AED 1,000 for the first offense and AED 2,000 for a repeated offense within twenty-four months from committing the first offense.
• Failure of a VAT-registered business to submit VAT return before the deadline as specified by the VAT legislation - penalty of AED 1,000 will be imposed for the first offense and AED 2,000 for a repetitive case in the next twenty-four months following the first offense.
• Failure in paying VAT stated in a tax assessment or tax return form before the deadline that is specified by the VAT legislation - a taxable person will be incurring a penalty for late payment. Two percent of the tax that's unpaid will be due to the FTA by the business immediately. Four percent will be due a week following deadline of tax payment. One percent will be the penalty for every day VAT is left unpaid a calendar month following the VAT payment deadline. The maximum penalty for late payment of VAT is three hundred percent.
• Submission of erroneous tax returns - penalty is fixed which is at AED 3,000 for the first offense. For any repeated offense, it will come with an AED 5,000 penalty. There will also be a percentage-based penalty imposed on a business aside from the fixed penalty. Fifty percent of the amount that's unpaid will be the penalty if the VAT-registered business doesn't make a VAT voluntary disclosure or a business has made a voluntary disclosure only after it is being notified and the FTA has already started the audit process. Thirty percent of the amount unpaid to the authority will be the penalty if the VAT-registered business discloses the error voluntarily following the notification sent by the FTA for a tax audit and the tax audit hasn't started yet. Five percent of the amount unpaid to the tax authority is the penalty if the business makes a disclosure voluntarily prior to being sent a notification of a tax audit by UAE tax authorities.

Late registration

The Federal Tax Authority (FTA) must be notified of your liability in undergoing VAT registration when your taxable turnover exceeds the mandatory registration threshold for the past twelve months. The mandatory registration threshold in UAE is AED 375,000. If you believe you’ll be exceeding the threshold soon, you may begin the registration process.

When notification regarding VAT registration in UAE is late and you've failed to notify the tax authority, you’ll be charged regardless of the reason or excuse you have for the delay. A penalty of AED 20,000 will be imposed onto your business.

Take note: the penalty may be mitigated at the discretion of the FTA with levels of mitigation greatly dependent on the unique circumstances of every single case.

Following the registration for VAT in UAE

Every business in UAE that is registered for VAT needs to make sure that it’s organized in dealing with taxation on-time and correctly:

• Is there someone within the organization who controls the VAT accounting and make sure new offerings are dealt with properly for the purpose of VAT?
• Is your business system capable of ensuring all input tax and output tax are recorded properly?
• Is there a system in place that can make sure proper evidence can be obtained in supporting claims for VAT input tax?
• Where VAT isn’t charged for supplies made, would there be proper evidence retained and is it correct in law?
• Is there a system in force that can make sure input tax that’s non-deductible isn’t reclaimed including most VAT for business entertaining, motor cars or exempt supplies?
• Are VAT charges always considered prior to contracts being made?

Appeals

Appeals against penalties, assessments, and amount of interest that’s charged by the FTA may be made by a VAT-registered business or its legal representative. The first appeal will be local and independent done by the FTA. The FTA has powers of mitigation for appropriate circumstances. When an appeal is against an imposition of penalties or interest, tax must be paid prior to an appeal being heard. This is unless a business is capable of demonstrating the fact that it’s unable to pay due to financial hardship.

For further information and assistance on VAT legislation in UAE, call Farahat & Co. in VAT Registration UAE today!   

 

Disclaimer: Content posted is for informational & knowledge sharing purposes only, and is not intended to be a substitute for professional advice related to tax, finance or accounting. The view/interpretation of the publisher is based on the available Law, guidelines and information. Each reader should take due professional care before you act after reading the contents of that article/post. No warranty whatsoever is made that any of the articles are accurate and is not intended to provide, and should not be relied on for tax or accounting advice.

You can access Law including Guidelines, Cabinet & FTA Decisions, Public Clarifications, Forms, Business Bulletins for all taxes (Vat, Excise, Customs, Corporate Tax, Transfer Pricing) for all GCC Countries in the Law Section of GCC FinTax