Penalties and Fines on Violation of Taxes in UAE

Like any other tax system around the world, VAT in UAE will also follow certain rules on penalties and fines to ensure proper compliance.

Failure to file a tax return within the specified time frame will make the violator liable for fines as per the provisions of Cabinet Resolution No. 40 of 2017 on Administrative Penalties for Violations of Tax Laws in the UAE.

The decision was made by the cabinet according to which a minimum penalty of Dh500, but not more than triple of the tax value in question, will be levied on any kind of tax violation.

1. Penalty on Non-maintenance of Accounting Records:

After the launch of excise tax in UAE, it has been made mandatory for businesses to keep the full accounting of their business stock and maintain other records properly.

If a business fails to keep and maintain proper tax records and related information as

described in the laws, it will have to pay a fine of AED 10,000 for the first offence and AED 50,000 for each repetitive violation.

If a taxpayer fails to submit proper tax data, records and documents in Arabic when asked by the authority, he will have to pay AED 20,000 in the penalty.

2. Failure to submit the records in Arabic when requested by the tax authorities:

AED 20,000

3. VAT Fines for Non-Registration:

If a VAT eligible business in the UAE fails to register on the FTA portal within the specified timeline, they will be required to pay a penalty of AED 20,000.

4. A penalty of AED 10,000 shall be applicable to those registrants who fail to submit deregistration applications within the specified timeframe.

5. Failure to inform the Authority of an amendment to tax records that needs to be submitted AED 5,000 for the first time, AED 15,000 in case of repetition.

6. Appointment of legal representative by business:

If a legal representative of a taxable person does not inform the FTA of his appointment within the specified timeframe, he shall pay a fine of AED 20,000.

If a legal representative fails to file a tax return on behalf of his taxable employer within the specified timeframe, he will be charged Dh1,000 for the first time and Dh2,000 for repetition within 24 months.

7. Penalty on Late Filing of Return/Tax:

If a VAT registrant fails to file a tax return within the specified timeline, he will pay AED 1,000 in fine for the first offence and AED 2,000 for repetition within 24 months.

If a taxable person fails to pay taxes within the timeframe, he shall pay a penalty of:

• (2%) of the unpaid tax if the payment of Payable Tax is made within seven days after the deadline;
• (4%) of the unpaid tax on the seventh day or beyond following the deadline for payment;
• (1%) daily penalty (not more than 300%) on due tax amount if the tax is still unpaid one month following the payment deadline.

8. Submission of incorrect tax return:

Two penalties will be applied:

a) Fixed Penalty:

If a taxpayer fails to voluntary disclose errors in the returns filed by him, he will incur a fine of AED 3,000 the first time and AED 5,000 for repeated offence.

If a taxpayer voluntary discloses errors but provides incorrect information, they will be liable to pay a penalty of AED 3,000 the first time and AED 5,000 on repetition.

b) Percentage-based penalty

• (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 a 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.

9. Voluntary disclosure by a business of errors in a tax return, tax assessment, or refund application.

Two penalties are applied:

a) Fixed penalty of:

• AED 3,000 for the first time.
• AED 5,000 in case of repetition

b) Percentage-based penalty shall be applied on the amount unpaid to the Authority due to the error as follows:

1. (50%) if the Person/Taxpayer makes the disclosure after either of the following conditions applies: a) they have been notified of the tax audit and the Authority has started the audit process, or b) they have been asked for information relating to the tax audit.”
2. (30%) if the Person/Taxpayer makes a voluntary disclosure after being notified of the tax audit but before the start of the tax audit.
3. (5%) if the Person/Taxpayer makes a voluntary disclosure before being notified of the tax audit by the Authority.

10. Failure of the person/business to facilitate the work of the tax auditor:

AED 20,000

11. Penalty on Non-disclosure of Tax due on Imports:

If a taxpayer fails to account for any due tax on import of goods as per the law, he will have to pay a penalty of 50% of the unpaid/undeclared tax.

12. Failure by the taxable person/business to display prices inclusive of tax.

AED 15,000

13. Failure by the taxable person/business to notify the Authority of applying tax based on the margin.

AED 2,500

14. 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.

15. Failure by the taxable person/business to issue a tax invoice or alternative document when making any supply.

AED 5,000 for each missing tax invoice or alternative document.

16. Failure by the taxable person/business to issue a tax credit note or alternative document.
AED5,000 for each missing tax credit note or alternative document.

17. Failure by the taxable person to comply with the conditions and procedures regarding the issuance of electronic tax invoices and electronic tax credit notes.

AED 5,000 for each incorrect document.

As it is clear from the above article that violation of UAE VAT law can attract penalty as high as AED 50,000, it is imperative for the business owners to be aware of the law and comply with the regulations in order to avoid stiff penalties.

Here are a few tips to avoid them:

• Register for VAT if the revenue exceeds the threshold limit.
• Maintain proper records of business transactions.
• Collect VAT on the supplies made.
• File VAT return within the due date and deposit the VAT collected
• Understand zero rated and exempt supplies clearly; zero rated supplied are taxable at the rate of 0%
• Understand the basics right.

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