VAT Fines and Penalties in UAE

FTA has reduced VAT Fines and Penalties in UAE

The introduction of Value Added Tax (VAT) in the United Arab Emirates (UAE) marked a significant shift in the country’s taxation landscape. Since its implementation in January 2018, VAT has become a critical component of the UAE’s economy. However, with the benefits of VAT also come responsibilities for businesses to comply with the regulations set forth by the Federal Tax Authority (FTA). Failure to adhere to these regulations can result in severe fines and penalties, which can have significant financial implications. In this blog, we will highlighted the various VAT fines and penalties in the UAE, and how businesses can avoid them in 2024.

Understanding VAT in the UAE

Before diving into the specifics of fines and penalties, it’s essential to understand what VAT is and how it operates in the UAE. VAT is a consumption tax levied on most goods and services, and it is collected by businesses on behalf of the government. The standard VAT rate in the UAE is 5%, which is relatively low compared to global standards. However, this doesn’t mean businesses can afford to be complacent.

Check Out: Documents Required for VAT Registration

Common VAT Fines and Penalties in the UAE 2024

The FTA has established a structured penalty system to ensure compliance with VAT laws. Below are some of the most common VAT fines and penalties that businesses in the UAE should be aware of:

1. Late VAT Registration Penalty AED 10,000
2. Late VAT de-registration Penalty
   • if delayed AED 1,000 and on the same date monthly thereafter, up to maximum AED 10,000.
3. Late VAT Payment Penalty
   • 2% of the unpaid tax: Payable the day after the payment deadline. 
   • 4% monthly penalty: Levied on the outstanding balance, beginning one month after the due date.
   • 1% daily penalty: Accumulates starting the day after the due date, up to a maximum of 300% of the unpaid tax.
4. Late VAT Return filing penalty is AED 1,000 for the first occurrence. And AED 2000 if the violation repeated within 24 months.
5. Submitting inaccurate tax returns by the registrant will result in fine of AED 1,000 for the first time and AED 2,000 for repetition.
6. Failure to maintain financial records as mentioned by FTA in tax laws, such as accounting and bookkeeping, tax invoices and more, will results in penalty of:
   • AED 10,000 for the first time and AED 20,000 for repeated violation
7. Failure to provide Arabic documents when requested by the FTA is AED 20,000.
8. Failure to submit the revised data related to your TAX in case of any changes will result in a penalty of AED 5,000 for the first time and AED 10,000 for repetition.
9. If the legal representative of a Taxable person fails to notify the authority of their appointment within the specified timeframe, a penalty of AED 10,000 will be imposed. This penalty must be paid from the legal representative’s own funds.
10. Submitting a VAT voluntary disclosure by the taxpayer for errors in a tax return or refund application will incur a penalty of AED 1,000 for the first occurrence and AED 2,000 for any subsequent occurrences.
11. Failure by a business operator to cooperate with the tax auditor will result in a penalty of AED 20,000.
12. Failure to account for any tax that might be due on the import of goods as per tax law will result in 50% of unpaid or undeclared tax.
13. Failure to show prices on tax invoice inclusive of tax will result in AED 15000 penalty.
14. Failing to notify the FTA of the application of tax based on the margin will result in a penalty of AED 2,500.
15. Failure to adhere to the conditions and procedures for transferring goods in designated zones will lead to a penalty of AED 50,000 or 50% of the tax, whichever is higher, if any tax remains unpaid due to the violation.
16. Failure to issue a tax credit note or related document will result in a penalty of AED 5,000 for each missing tax credit note or alternative document.
17. Failure to issue a tax invoice or alternative document when making a supply will lead to a penalty of AED 5,000 for each missing invoice or document.
18. Not adhering to the conditions for issuing electronic tax invoices and tax credit notes will incur a penalty of AED 5,000 for each incorrect document.

FTA revised VAT fines and penalties after the approval from cabinet. The UAE cabinet allow FTA to reduce the VAT fines by 70% based on following conditions:

• Administrative penalties stated in Cabinet Resolution No. (40) of 2017 were imposed on taxpayers before 18 June 2021 and have not been paid in full by that date.
• The taxpayer, by 31 December 2021 pays all the outstanding tax along with 30% of the total administrative penalties due but has not paid before 28 June 2021.

To highlight the key changes in NEW VAT fines and penalties in UAE, we have summarized them in a table below:

Revised VAT Penalties	New	Old
Late VAT Registration Penalty	AED 10,000	AED 20,000
Late VAT De-registration Penalty	AED 1,000 (First instance)	AED 10,000
Submitting inaccurate tax returns	AED 1,000 (First instance)	AED 3,000 (First instance)
Submitting a VAT voluntary disclosure	AED 1,000 (First instance)	AED 3,000 (First instance)
Legal representative of a Taxable person fails to notify the authority of their appointment	AED 10,000	AED 20,000

VAT fine and Penalty waiver

In case FTA has imposed a fine or penalty on your business, get in touch with Alpha auditing Tax experts. Alpha auditing has experienced tax professionals who understand the tax laws and can help you reduce or completely waive the fines depending on the violation. As a reputed tax consultancy we offer comprehensive VAT services in Dubai. 

If you are looking for tax consultancy, get in touch with our tax experts.