The Federal Decree-Law No. (8) of 2017 on Value-Added Tax, which came into effect on January 1, 2018, introduced VAT in UAE. Along with the law came several guidelines, executive regulations, and notifications to help the businesses to comply with all the requirements of the law. However, it is difficult for businesses to understand and fulfil all the requirements in the initial stages of implementation of the law. This leads to several violations and penalties that increase the costs for businesses.
Businesses, specifically VAT-registered persons, must be aware of all the various cases in which violations of UAE VAT Law are possible so that they can avoid those situations. In this article, we give you a brief idea of the various types of violations possible under the law and the relevant penalties imposed by FTA on the businesses contravening them.
VAT fines and penalties applicable on UAE VAT-registered person in the case of non-compliance with VAT requirements
A person, who is required to register for VAT pursuant to the provisions of the Decree Law, must file a Tax Registration application with the Authority within 30 days of reaching the mandatory registration threshold. In the case of contravention of this mandatory requirement by a VAT-eligible business, FTA imposes a fine of AED20,000.0.
A business in UAE is required to deregister from VAT if the taxable turnover or taxable expense in the last 12 consecutive months is less than the voluntary threshold or if the business does not expect to reach any of those numbers within the next 30 days. The application for deregistration must be sent to the FTA within 20 business working days of the occurrence of the event that calls for the business to de-register. If the business contravenes this requirement, a penalty amount of AED10,000.0 is imposed on the business.
Delay in VAT return filing
FTA mandates the UAE businesses to file their VAT returns by the 28th of the next month after the tax period. If the business fails to file the VAT returns by this deadline, then FTA imposes a fine of AED1,000.0 for the first violation of the law. In the case of a subsequent violation of this requirement, the fine amount increases to AED2,000.0.
Failure in record keeping
FTA makes it compulsory for businesses in UAE to maintain appropriate records of each transaction along with the relevant documents. These documents are required to be submitted at the time of tax audit or whenever the FTA requests them. In the case of failure of the businesses in UAE to maintain such records or provision of the requested information, FTA imposes a penalty of AED10,000.0 for the first violation and AED50,000.0 for the subsequent violations of the requirement. Furthermore, even though it is not mandatory to maintain these records in English or Arabic, FTA may request businesses to produce such information in Arabic. Failure of businesses to fulfil this request of the provision of records in Arabic leads to a contravention of the law and hence, invites a fine of AED20,000.0.
Delay in VAT payment
Businesses in UAE must make their VAT payments by the VAT return deadline or return filing due date. If not, the immediate penalty by FTA is 2% on the unpaid VAT while if it is unpaid even after a week, FTA imposes an additional 4%. If the payment does not happen until a month, FTA penalizes businesses 1% for each unpaid day until the amount reaches 300% of the unpaid VAT amount.
Failure in displaying the prices of goods inclusive of VAT
The UAE VAT law requires businesses to display the prices of goods in their shops or offices after including the VAT component. This means that the price displayed on the product must be inclusive of the VAT component so that customers get an idea about the maximum price they have to pay for a product. Failure of a business to do so will invite a penalty of AED15,000.0.
Voluntary disclosure form
In the case of any error in the filing of VAT returns or omission of an entry, businesses are required to submit a voluntary disclosure form (VDF). A fixed penalty of AED3,000.0 is imposed on the businesses while submitting the voluntary VAT disclosure for the first time and AED5,000.0 for all the subsequent times.
Furthermore, a percentage-based fine is imposed based on the type of error. If the taxpayer submits VDF before receiving any notification from FTA, 5% on the unpaid amount is imposed; if the taxpayer submits VDF after the FTA’s notification but before the audit starts, 30% is charged; and 50% is imposed if the audit process has started or information related to tax audit has been requested.
Failure to issue tax invoice and a tax credit note
Suppliers must submit the relevant tax invoice or tax credit note to the customer who will be finally responsible for VAT payment. If the supplier fails to do so, FTA imposes a fine of AED5,000.0 for each such failure. In the case of incorrect tax invoices, FTA imposes a fine of AED5,000.0.
In addition, there are many other penalty situations as follows:
- If a business fails to inform the FTA regarding any changes in tax records, fine is AED5,000.0 for the first violation and AED15,000.0 for the subsequent ones
- If a business fails to facilitate the work of a tax auditor from FTA, the penalty amount is AED20,000.0
- If a business fails to notify the FTA of the applicable tax based on the margin, the fine amount is AED2,500.0
- If a business does not comply with the relevant requirements of electronic tax invoices and tax credit notes, FTA imposes a fine of AED5,000.0 per contravention
- If a business has to transfer goods in designated zones and violates the mandatory compliance with the procedures, FTA imposes a penalty of the higher of AED50,000.0 or 50% of the tax amount, which is unpaid because of the violation
- A business failing to notify FTA of the legal representative appointed by the deadline date, the legal representative has to pay a fine of AED20,000.0
Businesses may violate VAT-related requirements and hence, invite fines and penalties in these various situations. Therefore, you must be careful of these situations and remain up-to-date with all the deadlines and submission requirements to save your business from the penalties. It will be a wise decision to hire an expert VAT consultant in UAE to comply with the requirements.
Our VAT consulting services
NR Doshi & Partners, a leading VAT consultancy services provider, can help you with any of the VAT-related requirements. Be it calculation of VAT liability, filing returns, registration, deregistration, compliance with the submissions, and any advisory services, we are there for you at every step of your company’s journey. We have an expert team of tax professionals, VAT consultants, and business advisors to provide you with result-oriented solutions that improve your business operations and achieve compliance with all regulatory requirements.