The Federal Tax Authority (FTA) is the regulatory body in the UAE in charge of the country’s VAT laws. It also must manage and collect federal taxes and penalties or fines. Any violation of the VAT Law in the UAE can result in fines and penalties. This is why foreigners must be aware of VAT penalties in the UAE.
In this article, you will learn everything about how you can avoid VAT penalties. There are some guidelines for UAE businesses to follow. This is in order to reduce and avoid financial penalties that may be imposed as a result of violations, errors, or incorrect record-keeping. Let us observe:
- VAT in the UAE
- What is the VAT rate in the UAE?
- What are the VAT fines and penalties in the UAE?
- Why are there VAT fines and penalties in the UAE?
- How to reduce VAT penalties?
- VAT fines and discounts in the UAE
- VAT penalty waiver in the UAE
- How can Connect Group help you?
1. VAT in the UAE
“Value Added Tax” (VT) is a type of Consumption Tax that is levied on a product at each stage of its production. That is, from the initial manufacturing to the point of sale. However, a consumer’s VAT payment is based on the actual cost of the product (minus the cost of materials that already have been taxed).
VAT is critical to a country’s economy because it increases government revenue without imposing an undue burden on the manufacturer or the consumer. Nevertheless, VAT fines are a completely different story and can be a major annoyance.
The complex VAT taxation structure in the UAE can be made simple and easy to understand with the assistance of Connect Group experts. They can assist you in avoiding hefty taxes.
2. What is the VAT rate in the UAE?
VAT was introduced in the UAE on January 1st, 2018, with the general VAT rate in the UAE set at 5%. This rate applies to the vast majority of goods and services, with some exceptions. This includes services such as:
- Healthcare and education
- Exportable goods and services sent outside of VAT-implementing GCC council member states
- International transportation
Each fine they impose is no less than 500 AED and no more than triple the amount of the tax on the transaction in question.
3. What are the VAT fines and penalties in the UAE?
The following is a list of VAT penalties in the UAE:
3.1 For procedure
- Failure to keep the required records as required by tax law and tax procedure law. You will have to pay AED 10,000 for the first time. For subsequent violations, the fine is set at AED 50,000.
- Failure to submit the required records in Arabic in response to a request from authorities. In this case, you must pay AED 20,000.
- When you do not submit a registration application within the time frame specified by law, you will have to pay AED 20,000.
- Failure to submit a deregistration application within the time frame specified by law. The fine is AED 10,000.
- When there is a failure to notify the authorities of a submittable amendment to a tax record/s. The fine is AED 5000 for the first time. For each subsequent violation, the fine is AED 15,000 per violation.
- Failure to notify the authorities of the appointment of a legal representative for the business within a specified time frame (charged to the legal representative). In this case, the fine will be AED 20,000.
- Failure of a legal representative to file a tax return within the time frame specified (charged to the legal representative). You will have to pay AED 1000 for the first time. For each subsequent violation (within 24-months): AED 2000.
- When you do not pay the tax stated on the tax return form within the period specified by law. The following late penalties will apply:
- They will levy a 2% tax immediately.
- 4% will be due immediately on the 7th day following the missed payment deadline.
- They will charge a daily penalty of 1% on any amount that remains unpaid one month after the payment deadline (300 percent maximum).
3.2 For violations
- Prices are not displayed inclusive of tax. In this case, the fine will be AED 15000.
- Failure to notify the authorities of the application of a margin tax. The VAT penalty will be AED 2500.
- Noncompliance with good transfer procedures/conditions in designated zones. You will have to pay over AED 50,000 or 50% of any unpaid tax on goods as a result of a violation.
- Failure to provide a tax invoice or other similar document. In this case, you will need to pay 5000 for each invoice/document that is missing.
- Failure to issue a tax credit note or another comparable document. Fine is the same as before.
- When there is a failure to follow procedures/conditions for the issuance of electronic credit notes or tax invoices. The procedure is the same as described above for each incorrect or missing documentation.
4. Why are there VAT fines and penalties in the UAE?
The Federal Tax Authority (FTA) imposes VAT fines and penalties on businesses that fail to follow the rules and regulations. To avoid VAT penalties in the UAE, businesses must ensure compliance with FTA’s VAT regulations. You can accomplish this by enlisting the assistance of tax professionals such as those Connect Group provides.
Additionally, Connect Group can help investors by providing them with great ideas for business in the country.
5. How to reduce VAT penalties?
5.1 Make a VAT registration
Each organization that sells taxable goods or services and has an annual income of AED 367,000 or more needs to register for VAT. In any case, those with a yearly income of AED 200,000 to AED 367,000 will be able to enroll.
The FTA has stated that organizations must register within the specified deadline. In addition, failure to comply may result in non-compliance penalties of up to AED 20,000. Furthermore, if any unregistered organizations are present, transactions must be halted until they obtain their TRC (Tax Registration Certificate).
On the other hand, if you want to establish a company in the country, you must be aware of the legal requirements. Contact us for more!
5.2 Keep track of all transactions
The UAE VAT law requires organizations:
- Meeting the minimum annual turnover, as demonstrated by monetary records.
- To register and track all business payments, costs, and other related VAT charges.
- Guaranteeing that all records are kept up to date.
You will need to submit these documents to the FTA in Arabic. It is preferable, however, for organizations that do not meet the minimum yearly turnover to keep track of all transactions. If you fail to keep such records, if an inspection occurs in the future, you will have no evidence to prove your transaction.
Thus, this will result in severe VAT penalties in the UAE. However, you can prevent all these penalties with our outstanding tax consultancy services.
5.3 Understand Zero Rates and Exempt Suppliers
The Federal Tax Authority has exempted a few organizations from priority sector taxation. Being a zero-rated supplier means that the goods being provided are still VAT taxable but at a 0% rate. As a result, your organization was still required to record and report all stocks.
Hospitals, clinics, real estate developers, schools, airlines, and jewelry are examples of such ventures. Additionally, we are specialists in real estate as well.
5.4 Fill out the VAT return
If your company has a yearly turnover of more than AED 150 million, you must file VAT returns on a monthly basis. Organizations should check and permit according to the tax periods referenced in their VAT certificate. This is in order to avoid any penalties or fines for late filing and payment.
5.5 Reserve charges
Reverse charges are the amount of Value Added Tax that would have been paid on goods or services purchased in the UAE. They levy these fees when goods or services are imported from countries other than the Gulf Cooperation Council.
5.6 Be aware of your fundamental rights
You must distribute the tax invoice within fourteen days of the supply date and must include the registrant’s name, address, and TRN. You must train your employees and be aware of your rights to avoid penalties or fines in your business.
It can be provided by giving employees with job training as well as plans to raise and explain VAT queries and rights.
6. VAT fines and discounts in the UAE
There are several conditions that you must meet in order to receive a discount on your outstanding administrative VAT penalties in the UAE:
- The VAT penalty must have been imposed under Cabinet Decision No. 40 of 2017 before June 28th, 2021. Moreover, some or all of it must still be owed.
- You must pay the entire amount due by the end of a predetermined tax period date.
- You must pay 30% of all administrative penalties by a predetermined tax period deadline.
Furthermore, the FTA continues to provide relief to taxpayers, with various packages announced for businesses with outstanding administrative VAT fines. This is in order to encourage the growth of commercial activities in the UAE.
7. VAT penalty waiver in the UAE
If you want the administrative VAT fines completely waived, you can do the following:
- Within 20 days of receiving notification of the FTA’s decision, file an application for reconsideration with the FTA. If the subject has fulfilled all of the legal obligations and requirements for this process, the request will be reviewed by the authorities for reconsideration. Following the submission of the application, the FTA will notify the taxpayer of its decision within five to ten days.
- As a taxpayer, if you are dissatisfied with FTA’s decision, you can file a complaint with the Tax Dispute Resolution Committee (TDRC). Hence, it will investigate the matter on the applicant’s behalf. However, you must submit the request to the TDRC within 20 days of receiving the FTA fines/penalties.
- If the VAT penalty exceeds AED 100,000, the taxpayer may file an appeal with the Federal Court. If TRDC has decided on a penalty of more than AED 100,000, you must file the request within 20 days of receiving notification.
8. How can Connect Group help you?
The UAE is a paradise for foreign investors, however, there are rules you must follow. One of them is VAT Law. Now you know that if you violate this Law, there will be VAT penalties in the UAE. Nevertheless, we know that it can be difficult for foreigners to know all the UAE regulations.
Hence, Connect Group can be by your side to assist you in all related to VAT penalties. Filling out VAT forms is a complicated process that necessitates careful management and recording of your invoices, stocks, bills, and so on. We are VAT consultants, thus, we are your best option.
Would you like to contact Connect Group to obtain more information on how you can avoid VAT penalties in the UAE? If you have any questions, email us at email@example.com. Then, you will talk to one of our representatives who will answer your questions.