VAT Penalties in UAE

Written By Akshaya Ashok, Reviewed By Nouphal P C

Published on 31/05/2024

VAT Penalty

Value Added Tax (VAT), is like a small contribution we make when buying things in the UAE. VAT is similar to a small extra fee included in the price of items we buy. This fee goes towards funding the projects such as schools and hospitals. Businesses collect this fee from customers and give it to the government, which helps fund these important projects. By collecting VAT from customers and passing it on to the government, they play an important role in building a better community for everyone. When businesses don't add this extra fee correctly or forget to do it, they could face several problems in the UAE.

These problems might include getting fined, which means they have to pay money as a punishment. They might also have legal troubles, which means they have to deal with the law and may end up in court.

But if businesses learn and follow the VAT rules, it helps them avoid VAT Penalties in UAE. It shows that they know how things work and are following the right steps. Plus, it shows that they care about making sure the UAE can keep growing and doing well. So, following the rules not only keeps businesses out of trouble but also helps everyone in the country.

Common VAT Penalties in UAE

In the UAE, if businesses don't follow Value Added Tax (VAT) rules, they can get big fines and penalties. The Federal Tax Authority (FTA) makes sure that businesses do what they're supposed to with taxes. Let's look at some common VAT penalties that businesses should try to avoid.

Late VAT Return Penalty

When a business doesn't submit their VAT return on time, they can get a penalty. For the first time it happens, they might have to pay AED 1,000. If it happens again within 24 months, the penalty goes up to AED 2,000. Businesses need to send in their VAT returns by the deadline to avoid these penalties. They can do this by keeping good track of deadlines and maintaining organized records which can help prevent late filings.

Late VAT Payment Penalty Structure:

Apart from the penalty for late filing, businesses also face penalties for paying VAT late. Here's how it works:

• First, they get a penalty of 2% of the unpaid tax right after the payment due date.
• Then, for each day the payment is late, they get an extra penalty of 1% of the unpaid tax.

This means if they delay payment, the penalties keep adding up. So, businesses need to make paying VAT on time a priority to avoid these increasing penalties.

Other VAT Penalties 

• Not Showing VAT-inclusive Prices: Businesses must show prices that already include VAT so customers know exactly what they're paying. If they don't do this, they can get warnings, fines, or other penalties from the tax authorities.
• Keeping Incorrect Records: Businesses must keep accurate and complete records of all their VAT transactions. If they don't keep good records or can't show them during audits, they might get fined.
• Giving Wrong Tax Information: If businesses provide wrong information on their VAT forms or tax documents, they can face penalties or have to go through audits to fix the mistakes.
• Not Registering for VAT: Businesses that should be registered for VAT but don't undergo registration can also get penalties or face legal problems for not following the rules.

Businesses need to understand and follow VAT rules to avoid these penalties. They can do this by getting regular training, staying updated on the rules, and getting advice from professionals. This helps them stay compliant with tax laws in the UAE and avoid expensive penalties.

How to Avoid VAT Penalties in UAE?

Following these tips being aware of your VAT responsibilities helps your business stay organized and avoid getting in trouble with fines. 

• Register for VAT on Time: When your sales reach the VAT registration limit, make sure to register promptly. This means following the rules and signing up for VAT when you should. Registering on time ensures you're following the law and avoids penalties for not registering when you should.
• Submit VAT Returns Early: Prepare your VAT returns in advance so you can submit them on time. Use reminders or software to remember important dates. Sending your returns on time helps to avoid late fines. It also shows you're serious about sticking to VAT rules.
• Pay VAT Without Delay: When it's time to pay VAT, do it on schedule. Keep track of payment dates and make sure you have enough money to pay on time. Late payments can lead to penalties, so make payments on time to skip these extra charges.
• Keep Good Records: Keep organized records of all your VAT transactions. This includes keeping track of invoices, receipts, and other VAT-related documents. Good record-keeping helps you report VAT accurately and makes handling audits easier. Having tidy records helps avoid penalties for mistakes or missing information.
• Get Help When Needed: If you're unsure about VAT rules or have tricky situations, ask for help from professionals. Tax advisors or accountants can guide you through VAT requirements, check your filings, and help with any tough VAT problems. Getting expert advice can prevent costly errors and lower the risk of penalties.

Follow the Rules & Avoid VAT Payment

Penalties are unavoidable if businesses send their VAT forms late, pay their VAT after the deadline, or don't follow the rules of  VAT Fine Penalties in the UAE correctly. The penalties can be different depending on the mistake, like a fixed fee for filing late or extra charges for paying late. To avoid these penalties, businesses should follow VAT rules carefully. This means sending in their VAT forms on time, paying VAT when they should, and keeping good records of their business transactions.

Being aware of the rules of VAT Fines in the UAE helps businesses avoid problems and keep their operations running smoothly. To enquire about VAT Fines, penalties or Compliance, get in touch with Reyson Badger.

Written By

Akshaya Ashok

Akshaya Ashok is a content writer specializing in creating content focused on accounting and auditing. With over two years of experience, she has developed expertise in crafting professional content for the financial sector.