ITC Accounting and Tax Consultancy

VAT Late Payment Penalties in UAE

The UAE Value Added Tax contributes significantly to the local economy by broadening the country’s revenue sources. In essence, VAT reporting is a critical requirement for enterprises. Noncompliance with VAT filing results in heavy fines from the Federal Tax Authority. As a result, it is critical for businesses to obtain competent VAT Consultants in UAE to effectively combat the intricacies of tax filing procedures and fully enforce compliance with Value Added Tax legislation and standards.

What are the Conditions for Imposing VAT Penalties on the Companies in the UAE?

Federal Tax fines are imposed for violations of the Value Added Tax regulations. The following omissions and violations of Value Added Tax legislation can result in the imposition of fines and penalties, as detailed below:

1. Failing to Register for Value Added Tax

Companies in the UAE must register for VAT and must apply to the Federal Tax Authority within 30 days of reaching the mandatory threshold limit. Noncompliance with timely registration allows for the imposition of a fine of AED 10,000 on the companies.

2.Failing to File for the Value Added Tax on Time

According to UAE tax legislation, every business must file a VAT return with the Federal Tax Authority by the 28th day of each tax period. At the end of each tax period, every taxable organization in the UAE is required to file a VAT return with the Federal Tax Authority. VAT registrants who fail to file their VAT returns within the time stipulated by the Federal Revenue Administration will face a VAT penalty of AED 1,000. Furthermore, if the defaulter commits the same infraction again within 24 months, they will be fined AED 2,000.

3.Failing to Maintain a Record

The Federal Tax Authority requires businesses to keep accurate transaction records and accompanying relevant documents. Whenever a corporation is audited, the FTA requires that key documentation for the tax audit be turned in. If a person running a business fails to submit certain records and documentation, VAT fines and penalties of AED 10,000 will be applied for the first time. In the event of a repeat offense, a fine of AED 20,000 will be imposed.

4.Failing to Identify VAT Inclusive Rates of the Goods and Services

Some conditions under the UAE Value Added Tax require that the prices of goods and services sold in their stores or offices include VAT. VAT fines and penalties in the UAE are AED 5,000 if the pricing of products or services is not stated as inclusive of tax.

5.Failing to Issue a Tax Credit Invoice

The customer who is responsible for paying the VAT must obtain a valid tax invoice from the provider. Failing to conduct this procedure, the supplier would face VAT fines and penalties of AED 2,500 for each inaccurate document.

What is the VAT Late Payment Penalty in the UAE?

Businesses in the UAE must meet the VAT payment or return filing criteria. When a payment is past due, 2% of the unpaid tax must be paid immediately, and a 4% monthly penalty is payable after one month from the due date of payment, up to a maximum of 300%, will be added to any sum that is still outstanding by each cycle month after the payment deadline.

How can businesses in the UAE avoid VAT Penalties?

Through maintaining the following conduct, VAT penalties can be avoided:

  1. When purchasing goods or receiving services, it is critical to ensure that the provider charges taxable goods correctly and that this information is reflected on the invoice.
  2. Pay the tax invoiced accurately within the time frame specified by the government.
  3. Ensure correct claim of input tax against the expenses/ purchases incurred by the tax recipient and retain the documents related to it.
  4. To avoid incurring a VAT late payment or VAT late filing penalty, VAT returns must be filed within the time frame specified and include all required information.

This article was published on  27 March 2023

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