- February 1, 2024
- Posted by: Shuraa Tax Consultant
- Category: VAT - Value Added Tax in UAE
In recent years, the United Arab Emirates has implemented a value-added tax (VAT) system to diversify its revenue sources and further strengthen its economy. This system requires businesses to register for VAT, charge VAT on their goods and services, and submit regular VAT returns to the authorities.
The introduction of VAT in the UAE is a significant step towards achieving economic stability and sustainable growth. Additionally, VAT ensures a fair and balanced distribution of the tax burden among businesses and consumers.
However, businesses must understand the seriousness of complying with VAT regulations, especially when it comes to VAT late payment penalty in UAE. Late payment of VAT can result in severe penalties and consequences that can negatively impact a business’s financial health and reputation.
Here we will discuss VAT fine for late payment, other specific penalties imposed by the authorities, the reasons behind these penalties, and the steps businesses can take to avoid them.
Understanding VAT in UAE
Value Added Tax (VAT) was introduced in the UAE in 2018. It acts as a consumption tax levied on most goods and services within the country. Businesses registered for VAT collect the tax at a rate of 5% on their taxable supplies and account for it to the Federal Tax Authority (FTA).
Consumers ultimately bear the cost of VAT as a 5% increase in the price of goods and services they purchase.
Here are some key points about VAT in UAE:
- The general VAT rate is 5% on most goods and services.
- A 0% VAT rate applies to exports, international transportation, certain medical and educational services, and the first supply of residential real estate.
- Some goods and services are completely exempt from VAT, such as financial services, local passenger transport, and bare land.
- Businesses with taxable supplies exceeding AED 375,000 in the past 12 months or expected to exceed that amount in the next 30 days must register for VAT.
- Voluntary registration is possible for businesses exceeding AED 187,500.
Applicability of VAT to Businesses:
- VAT registration is mandatory for businesses exceeding the registration threshold.
- Registered businesses must collect, record, and report VAT on their taxable supplies.
- They can claim input VAT on their purchases of goods and services used for taxable purposes.
- Failure to comply with VAT regulations can lead to penalties.
Late Payment of VAT in UAE
Late payment of VAT in the UAE occurs when a registered business fails to pay their due VAT amount to the Federal Tax Authority (FTA) within the specified timeframe. This timeframe is typically 29 days from the end of the tax period.
Late payment of VAT in the UAE can have several negative consequences for businesses, including:
The FTA imposes steep VAT late payment penalty in UAE. These penalties are calculated as follows:
- 2% of the unpaid VAT amount due immediately after the deadline.
- 4% of the remaining unpaid amount on the seventh day after the deadline.
- 1% daily penalty on any remaining unpaid amount after one month, up to a maximum of 300% of the original VAT liability.
2. Administrative Fines
In addition to penalties, the FTA may impose administrative fines for non-compliance, such as late submission of tax returns or failure to maintain proper records.
3. Reputational Damage
Repeated late payments can damage a business’s reputation and relationships with clients and suppliers.
4. Legal Action
In extreme cases, the FTA may take legal action against businesses with significant outstanding VAT amounts.
Timeline for VAT Payment in UAE
VAT returns must be filed electronically through the FTA e-Services portal within 28 days after the end of the tax period. The due date for VAT payment is 15 days after the filing deadline, usually falling around the 15th of the following month.
Common Reasons for Late VAT Payment in UAE
Several reasons may contribute to the late payment of VAT in the UAE. Some common factors include:
1. Cash flow issues
Businesses may struggle to pay their VAT on time if they are experiencing cash flow difficulties due to slow sales, unexpected expenses, or other financial challenges.
2. Accounting errors
Mistakes in calculating or recording VAT can lead to late payments.
3. Lack of awareness
Some businesses may not be fully aware of their VAT obligations and deadlines, resulting in unintentional late payments.
4. System failures
Technical issues with the FTA e-Services portal or a business’s internal accounting software can sometimes delay VAT payments.
VAT Violations and Penalties in UAE
The penalties for VAT violations in the UAE can be severe, depending on the nature of the violation and the frequency of offenses. Here are some of the common violations along with their penalties:
|Description of Violation
|Administrative Penalty (AED)
|Registration and Deregistration:
|Failure to register for VAT when required
|Late submission of registration application
|Failure to notify FTA of change requiring deregistration
|10,000 (first offense), 15,000 (repeat)
|Late submission of deregistration application
|Record Keeping and Reporting:
|Failure to maintain proper records for tax purposes
|10,000 (first offense), 50,000 (repeat)
|Failure to submit required records upon FTA request
|Late filing of VAT returns
|1,000 (first offense), 2,000 (repeat)
|Failure to file VAT returns
|10% of unpaid tax, minimum of 20,000
|Tax Payment and Invoicing:
|Late payment of VAT
|2% of unpaid tax immediately, 4% after 7 days, 1% daily after 1 month (capped at 300%)
|Failure to issue or keep proper tax invoices
|10,000 (first offense), 20,000 (repeat)
|Incorrect tax calculation or application
|10% of incorrect tax amount, minimum of 5,000
|Failure to display prices inclusive of VAT (except for exempt/zero-rated supplies)
|5,000 (first offense), 10,000 (repeat)
|Failure to comply with designated zone requirements for goods
|50,000 or 50% of unpaid tax (whichever is higher)
|Obstruction of FTA inspection
|Up to 200,000
Please note VAT late payment penalty in UAE may vary depending on the specific nature and severity of the violation. It is recommended to consult with a tax professional such as Shuraa Tax for accurate and up-to-date information.
VAT Fines Discount in UAE
VAT Fines Discount in the UAE refers to various incentives offered by the Federal Tax Authority (FTA) to encourage timely VAT compliance and reduce the financial burden on businesses facing penalties. These discounts apply specifically to administrative penalties, not the actual VAT liability you owe.
There are currently two main ways to access VAT Fines Discounts:
1. Penalty Redetermination Scheme
This scheme allows for a significant reduction of previously imposed administrative penalties. You can get 70% of your past fines waived by paying only 30% of the original amount. The business must have a clean record of VAT compliance.
2. Early Payment Discount
The FTA offers a 5% discount on late payment penalties if the outstanding VAT amount is paid within 15 days of the due date. This discount can be combined with the penalty redetermination scheme for potentially significant savings.
How to Avoid VAT Fine for Late Payment
Avoiding late VAT payments in the UAE can save you from unnecessary penalties and maintain good standing with the Federal Tax Authority (FTA).
Here are some key strategies to keep in mind:
- Familiarize yourself with the VAT registration threshold, filing deadlines, and record-keeping requirements.
- Maintain accurate records of your taxable supplies and input VAT to accurately calculate your VAT liability each month.
- Mark your calendar with important deadlines for filing and payment to avoid missing them.
- Utilize accounting software or platforms to automate VAT calculations, filing, and payment wherever possible.
- Take advantage of the 5% discount offered by the FTA for early VAT payments.
- Ensure your accounting system accurately reflects all VAT transactions and calculations.
- Before submitting your VAT return, carefully review your calculations and ensure they are correct.
And most importantly, seek professional advice!
Choose Smart Compliance with Shuraa Tax
Timely VAT payments are crucial for businesses in the UAE to maintain compliance and ensure their financial well-being. Failing to pay VAT on time can result in penalties and fines that can significantly impact a company’s bottom line.
Therefore, it is highly beneficial to seek assistance from a leading tax consultant like Shuraa Tax. With our team of knowledgeable and qualified accountants, auditors, and tax advisors in Dubai, we offer comprehensive VAT solutions to businesses of all sizes.
From registration and filing to consultations and dispute resolution, we guide you through every step with expertise. We help you understand your obligations, minimize risks, and optimize your VAT compliance to ensure your business operate seamlessly and efficiently.