The Federal Tax Authority (FTA) in the UAE will enforce fines and penalties for businesses that do not follow VAT rules. To avoid these strict penalties, businesses must comply with all FTA regulations. The FTA has released an official list of fines and penalties for businesses that break VAT laws in the UAE.
VAT Penalties UAE
UAE companies need to be cautious about VAT laws to avoid hefty fines imposed by the FTA. To prevent penalties, businesses should adhere to the FTA’s VAT regulations and seek advice from tax experts before implementing VAT. The FTA has revised VAT penalties in the UAE to assist businesses recovering from COVID-19, reducing fines to encourage compliance. These changes take effect on June 28, 2021.
Latest UAE VAT Penalties
The Federal Tax Authority (FTA) has introduced new fines and penalties to support UAE businesses affected by COVID-19. The FTA has adjusted VAT penalties, providing significant discounts to encourage businesses to comply with VAT regulations and avoid additional fines. These changes take effect on June 28, 2021, and eligible taxpayers may enjoy a 70% waiver on unpaid penalties as of that date, subject to specific conditions.
Updated FTA UAE VAT Penalties and Fines
OLD PENALTY SYSTEM vs. NEW PENALTY SYSTEM
Late VAT Registration Penalty
Old Penalty – AED 20,000
New Penalty – AED 10,000
Penalty for Late VAT De-registration
Old Penalty: AED 10,000
New Penalty: AED 1,000 for delayed de-registration, with a monthly charge of AED 1,000 thereafter, up to a maximum of AED 10,000.
Penalty for Late VAT Return Filing
Penalty: AED 1,000 for the first instance, and AED 2,000 for repeated violations within 24 months. (No change)
Late VAT Payment Penalties
Old Penalty:
2% of the unpaid tax is due right away.
4% is added on the seventh day after the payment deadline.
A daily penalty of 1% accrues for any remaining unpaid amount after one month, up to a maximum of 300%.
New Penalty:
2% of the unpaid tax is due immediately.
A 4% monthly penalty starts one month after the payment due date and continues monthly on the outstanding tax amount.
Filing a Wrong Tax Return
Old penalty: AED 3,000 first time, AED 5,000 if repeated.
New penalty: AED 1,000 first time, AED 2,000 if repeated.
Business Failure Due to Poor Record-Keeping (Accounting and Bookkeeping)
Old penalty: AED 10,000 first time, AED 50,000 if repeated.
New penalty: AED 10,000 first time, AED 20,000 if repeated.
Failure in submitting the data, records and documents related to Tax in Arabic to Authority when requested.
Penalty: AED 20,000 (Not change)
Notifying the Authority about any changes needed in the information on your tax record is crucial.
Old penalty: AED 5,000 initially and AED 15,000 if it happens again.
New penalty: AED 5,000 at first and AED 10,000 for a repeat offense.
If the person in charge of handling taxes doesn’t let the authorities know they’re the official representative within the given time, they’ll have to pay penalties from their own money.
Old penalty: AED 20,000
New penalty: AED 10,000
Filing a Voluntary Disclosure for VAT Correcting Errors in Your Tax Return or Refund Request
Old penalty: First-time offense: AED 3,000, and for subsequent occurrences AED 5,000.
New penalty: Initial occurrence incurs a fee of AED 1,000, and subsequent instances result in a charge of AED 2,000.
Businessperson’s Failure to Support Tax Auditor’s Work
Penalty – AED 20,000 (No change)
Individuals fail to consider potential import tax liabilities in accordance with tax laws.
penalty: 50% of taxes that haven’t been paid or reported. (No change)
Not displaying inclusive tax prices on the tax invoice results in a failure.
Penalty: AED 15,000 (No Change)
Not notifying FTA about applying margin-based taxes.
Penalty: AED 2,500 (No Change)
Not following rules and steps for moving goods in specific areas can lead to problems.
The fine for breaking the rules will be whichever is greater: AED 50,000 or 50% of the unpaid tax on the goods involved in the violation. (No change)
Not providing a tax invoice or a suitable document when making a transaction.
A penalty of AED 5,000 will be imposed for every tax invoice or alternate document that is not provided. (No change)
Not providing a tax credit note or another required document.
Penalty of AED 5,000 for every absent tax credit note or substitute document. (No change)
Not complying with the rules for creating digital tax invoices and tax credit notes.
Penalty of AED 5,000 for every incorrect document. (No change)
Revision of VAT Fines in UAE
The FTA now has the authority to decrease existing penalties by 70%, given the following conditions:
If a taxpayer received administrative penalties per Cabinet Resolution No. (40) of 2017 before June 28, 2021, and hasn’t fully paid them by that date.
If, by December 31, 2021, the taxpayer settles all outstanding taxes and pays 30% of the total administrative penalties due (which were unpaid before June 28, 2021).
The resolution doesn’t apply to taxpayers who have already cleared their penalties.
