- October 27, 2022
- Posted by: Shuraa Tax Consultant
- Categories: Dubai Tax System, UAE Auditors & Accountants, UAE Taxation
Everyone knows that UAE used to follow a no-tax policy. However, the UAE government introduced Excise tax in 2017 and VAT in 2018. Ever since then, there has been a 5% VAT applicable to most goods and services. There are certain goods and services subject to a 0% rate or exemption from VAT. And just like any other country, you are entitled to pay the penalty if you delay the tax payment or violate any regulations.
Recently, the UAE government has made a few amendments to the Tax penalties. According to the new updates, each fine or penalty will be no less than AED 500 and can be no more than triple the tax value of the transaction in question. This blog will cover all the tax penalties with the latest updates and their benefits for taxpayers.
The UAE Tax Penalties With Latest Updates
Below mentioned is a detailed list of UAE tax penalties with the latest updates:
1. Fixed Penalties for Voluntary Disclosure
|Trigger||Old Amount||New Amount|
|First Voluntary Disclosure||AED 3,000||AED 1,000|
|Subsequent Voluntary Disclosure||AED 5,000||AED 2,000|
2. Late Payment Penalty for Under-Paid VAT as Per the Voluntary Disclosure or Tax Assessment
As per the new rules, taxpayers in the UAE will now be given up to 20 days to settle any unpaid or underpaid tax before any late payment tax penalties apply. The due dates for the calculation of the late payment penalty can be done this way:
1. 20 business days following the submission of a voluntary disclosure
2. 20 business days following the receipt of a Tax Assessment
|Taxpayers fail to pay within the 20 days||2%|
|One Month from the Due Date||4% per month|
3. Variable penalty where a voluntary disclosure is submitted before the taxpayer is notified of an audit by the Federal Tax Authority (FTA)
As per the update, the penalty now ranges from 5% to 40%. However, that totally depends on when taxpayers submit the voluntary disclosure.
|Year in which the error is disclosed||New Amount||Old Amount|
|Year 1||5% of the underpaid tax||5% of the underpaid tax|
|Year 2||10% of the underpaid tax|
|Year 3||20% of the underpaid tax|
|Year 4||30% of the underpaid tax|
|Year 5 or more||40% of the underpaid tax|
4. Late payment penalty for failure to settle the stated VAT in the submitted VAT return
|Trigger||Old Amount||New Amount|
|Day After Due Date||2%||2%|
|One Week After Due Date||4%||2%|
|One Month After Due Date||1% per day||4% per month|
5. Variable penalty where a voluntary disclosure is submitted/tax assessment is received after the taxpayer is notified of an audit by the FTA
Here, the government has declared a significant increase in the penalties if the error is corrected after the taxpayer is notified of an audit. The previous penalty was 30% and 50% of the underpaid tax upon error discovered during an FTA audit. However, as per the new penalty, the taxpayer will now be charged 50% of the underpaid tax. Moreover, they will have to pay 4% of the underpaid tax per month from the due date of the VAT return till the payment of tax liability.
Apart from these, the UAE government has extended the redetermination period of administrative penalties to 31st December 2022. Moreover, Non-UAE businesses can now claim a refund of VAT raised in the UAE under the business visitor refund scheme. This offers refunds to foreign businesses that do not have a place of establishment or a fixed establishment in the UAE, subject to the fulfillment of certain conditions. However, this refund is available only to foreign business visitors from an approved list of countries that provide the same reciprocal refunds. The minimum refund claim is AED 2,000 and can cover a period of twelve calendar months.
Other UAE Tax Penalties Reductions
In order to offer some relief to the taxpayers, the UAE government has imposed reductions in a few more tax penalties. They are as follows:
1. The penalty for late registration: reduced from AED 20,000 to AED 10,000.
2. The penalty for failing to submit a deregistration application on time: reduced from AED 10,000 to AED 1,000 per month (capped at AED10,000).
3. The penalty for failing to display prices inclusive of VAT: brought down to AED 5,000 from AED 15,000.
4. The penalty for failing to issue a tax invoice or tax credit note: reduced from AED 5,000 to AED 2,500
How Do These Tax Penalties’ Amendments Benefit Businesses in The UAE?
These amendments in the tax penalties offer an incentive to businesses to review their overall filling positions. Moreover, they get the time to reveal any errors before they are notified of an audit.
The best part is that now taxpayers who have been subject to penalties can request a waiver or installment of penalties. Furthermore, they can choose between either disputing tax penalties through the TDRC and the Federal Courts or appealing for installment.
Partner With Shuraa for Tax Compliances
Although we are optimistic that after reading this blog, you’ve got a fair idea of all the tax penalties, we understand that it might get overwhelming. Since you already have a lot on your plate as an entrepreneur, keeping up with the legal stuff too can be challenging. But you cannot ignore the fact how important it is to comply with the tax regime. Therefore, we suggest that you get in touch with a tax agency.
Legal experts at Shuraa Tax Consultants and Accountants can advise and assist you. We ensure that your company follows all its obligations by filing your return on time. Also, we efficiently communicate with the FTA and legally represent you wherever and whenever required.
We have cordial ties with the ministry that enable us to stay in step with many commercial legislation and tax regulations applicable to the UAE. Moreover, we guarantee that your company is ready for potential economic repercussions. We will take care of everything for you. All you need to do is reach out to us on firstname.lastname@example.org or call us on +971 508912062 and +971 508912403 and focus on other important business matters at hand.