Ever since the introduction of Value Added Tax (VAT) on 1 January 2018 at a rate of 5% in UAE, companies need to mandatorily comply with stipulated guidelines and regulations to abide by the VAT law. The mandates are related to VAT registration, erroneous submissions, returns filing and other compliances.

Businesses that fail to understand understand and comply with the requirements would be subject to heavy penalties. VAT-registered businesses must be aware of all the scope of violations of UAE VAT Law in order to avoid non-compliance issues and hefty fines.

We give you a brief orientation on the types of violations possible under the VAT law and the associated penalties imposed by FTA for non-adherence.

Failure to register

• Businesses that are required to register for VAT in UAE must file a Tax Registration application with the FTA within 30 days of reaching the mandatory registration threshold.
• Businesses that fail to register on time will be charged with a late registration administrative penalty of AED 20,000 and additional penalties based on late filing and non-payment of previous VAT liabilities on a percentage basis.

VAT return filing delays

• Every taxable person is required to file a VAT return in the UAE to the FTA at the end of each Tax period. As per the regulations FTA must receive the VAT Return no later than the 28th day following the end of the Tax Period.
• A penalty of AED 1,000 will be slapped on the VAT registrant who fails to file VAT Return on the stipulated timeframe set by the FTA. Further, the defaulter will be liable to pay a penalty of AED 2,000 in case of repeating the offense within 24 months.

Failure to maintain books of records

• FTA has made it mandatory for businesses in UAE to maintain proper records of transactions along with substantiating documents. Relevant documents need to be submitted at the time of tax audit or whenever the FTA requests them.
• If a person running a business fails to provide the necessary accounting records of their business, a fine of AED 10,000 will be imposed for the first time. If the same person is found in violation of the law for a second time, a fine of AED 50,000 will be imposed according to the law.

Delay in VAT payment

• Businesses in UAE are obliged to make their VAT payments by the VAT return deadline or return filing due date.
• The registrant shall incur a late payment penalty as follows: 2% of the unpaid tax is due immediately once the payment is late, 1% daily penalty will be charged on any amount that is still unpaid one calendar month after the deadline for payment, up to a maximum of 300%.

Failure to display the prices of goods inclusive of VAT

• Under UAE VAT, in certain scenarios it is mandatory that the displayed price of goods or services in their shops or offices is inclusive of VAT.
• In cases of failure to display the prices of goods or services as inclusive of tax will attract an administrative penalty of AED 15,000.

Incorrect tax returns submission

• In case of erroneous tax return submission a penalty of AED 3,000 will be levied for the first time whereas AED 5,000 will be applied for repetition of error.
• There may be penalties applied based on the percentage of the tax amount unpaid to the tax authorities due to the submission error, which can be either 5%, 30% or 50%, depending upon how early the submitter notifies the error with respect to the tax audit by the Authority.

Failure to issue tax invoice and a tax credit note

• A supplier must submit a relevant tax invoice or tax credit note to the customer who is responsible for VAT payment.
• A failure by the supplier to comply with this procedure regarding the issuance of electronic tax invoices and electronic tax credit notes would attract an administrative penalty of AED 5,000 for each incorrect document.

Failure to de-register

• Individuals/companies registered for VAT can deregister if their yearly turnover or taxable expense did not surpass the threshold amount in 13 months after registering for VAT.
• The penalty for failing to apply for a mandatory de-registration within the specified timeframe i.e. within 20 working business days (from the occurrence of the event causing the tax payer entity to get eligible for de-registration) is AED 10,000.

Companies that do not strictly follow the VAT regulations invite fines and penalties. Hence, finance managers must be vigilant of the norms and adhere to set deadlines and submission dates to salvage the businesses from being penalized. It is prudent to hire a professional VAT advisor in UAE who can offer guidance on the documents requirements, filing procedure and any revisions in guidelines or submission dates.

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