VAT Penalties in the UAE and How to Avoid Them

Since the implementation of value added tax in the United Arab Emirates on January 1, 2018, the Federal Tax Authority or FTA has been responsible for collecting and managing federal taxes, including VAT, and related fines. They have also been implementing tax-related procedures in the country. The agency conducts FTA audits, tax audits to check the compliance of organizations and individuals in accordance with the governing laws. During an FTA audit, the FTA determines if businesses and individuals pay their liabilities and dues within prescribed periods. They also check if the organization adheres to the obligations that apply to them based on the current tax laws.

Ensuring Your Business Is VAT-Compliant

If you own a business, having a VAT-compliant company ensures you avoid penalties that will affect your bottom line, operations, and reputation. But what are the specific VAT violations in the UAE you have to be aware of? Here are the top ones:

• Failing to pay VAT within the specified timeframe.
• Failing to file VAT returns within the given period.
• Failing to register your business for VAT within the stated time frame.
• Failing to display the tax-inclusive prices of your products or services.
• Failing to keep formal financial records, including tax invoices, books of accounts, and other documents required under the tax law.
• Failing to submit requested documents in Arabic.
• Failing to inform the FTA of changes in the tax records you have to submit.
• Failing to inform the FTA when applying tax based on the margin.
• Failing to provide tax invoices and tax credit notes or similar documents during relevant transactions.
• Failing to follow the correct tax invoice format.
• Issuing electronic tax invoices and tax credit notes that do not comply with the appropriate conditions and procedures.
• Filing the incorrect VAT return penalty.

These violations come with steep penalties that can reach as high as AED 50,000. Some violations also come with accrued daily penalties, which means the longer you take to pay them, the higher the overall fee will be.

Ways to Avoid These Violations and Getting Penalized

Although the list of violations may seem long, you can avoid all of them by following these tips:

1. Issue and keep records of all tax invoices.

Article (65) of VAT Decree-Law No. (8) of 2017 states that businesses making taxable supplies have to issue original tax invoices and give them to all the recipients of their goods and services. In case a recipient can’t receive the tax invoice, ‌keep it in your records. However, it is also important that your official tax invoice has the necessary details. It should include the following:

• Tax Invoice as the heading.
• Your official business name, address, and Tax Registration Number (TRN).
• The serial or relevant tax identification number (TIN) for the transaction.
• Issuance date and supply date, if different.
• Details of the sold products or services, including their sizes, quantity, unit prices, payable amounts, and VAT rates in AED.
• Provided discounts.
• The total payable sum and payable tax in AED.

2. Maintain and update all VAT records and documents.

According to the Executive Regulation on Tax Procedures, VAT-registered businesses need to maintain tax records and documents for a minimum of five years. These tax records and documents include:

• Records of all goods and services exported by your company.
• Records of all supplies and imports of goods and services.
• Records of goods and services your company used or disposed of that are not related to your business operations.
• Records of goods and services that were not deducted input taxes.
• Records of corrections and adjustments made on accounts or tax invoices.
• Paper and electronic tax invoices, credit notes, and similar documents received by your company.

You can implement your own system to maintain and update these records and documents. Also, the period of record-keeping may be shorter or longer depending on the nature of your business and the tax laws applicable to your company and operations. You can get help with creating and implementing an efficient VAT record-keeping system by working with consultants specializing in general and corporate tax in Dubai.

3. Pay your VAT on time.

Late VAT payments are automatically charged 2% of the unpaid tax. Delays in paying or more overdue tax get you another 4% monthly penalty. These penalties can accumulate and cause you to lose money that you can use to provide for the needs of your business. To avoid these steep penalties, always pay your VAT before the due date. Also, don’t wait to pay your taxes until the last day. Delays in bank transfers can cause your payment to be received late by the government authority.

4. Submit all tax returns before the deadline.

VAT-registered businesses in the UAE are given three months or quarterly tax periods to submit tax returns. Your company needs to file your VAT returns no later than the 28th day from the end of the tax period. But if this date falls on a weekend or holiday, you can submit them on the next working day. However, you may be asked to submit your VAT returns within a shorter or longer time frame based on government requirements. Make sure you follow the advice of the FTA to avoid paying any penalties. When you have a VAT-registered business, make sure you are aware of the violations you’re at risk of committing to avoid unpleasant and costly repercussions. Doing so ensures you continue managing a smooth-running business without wasting money on penalties you can avoid in the first place. Get help with any VAT-related concerns by speaking with one of our consultants today!