Such charges are predetermined amounts that parties to an agreement designate during the the formation of an agreement. The purpose of such payments is not provide consideration for provision of any supply of goods and services but to compensate other party hence these are out of scope of VAT.

While the FTA has specifically clarified that penalties should be Outside the Scope of the UAE VAT, it is relevant to examine whether there is any loss of revenue. The fee or interest charged in the present case could also be perceived as an administrative fee for allowing a person to make payment after the due date. Hence, in my view, VAT could be applicable on the same.