Brought into practice on 1st of January 2018, VAT was introduced in United Arab Emirates as a new source of income for the economy’s benefit with a notable aim to provide quality services to the residents of UAE. Another reason for bringing VAT into the country’s economic cycle was to minimize the reliance of country’s revenue through oil and other natural resources. The current rate for VAT in United Arab Emirates is 5 per cent.
How does VAT accounting and VAT filing affect businesses?
VAT accounting is a very thorough and intricate process for any business in UAE. In case of breach of VAT laws, businesses are subject to face heavy penalties and fines by the Federal Tax Authority of UAE. Therefore companies must stay in compliance with Federal Tax Authority in regard with VAT filing. It is also best to consult with a tax expert in UAE or partner with a tax consultancy firm for the ongoing tax accounting matters in the business.
VAT Penalties in UAE
To regulate the VAT flow cycle, the Federal Tax Authority has a list of circumstances where businesses have to comply. In the case of non-compliance they can bring themselves in a situation where they will have to pay serious penalties and fines leading towards a financial jeopardy.
After the COVID 19 hit he world with its ruthless impacts, Federal Tax Authority of UAE revised its penalty policies and amended the penalties by reducing them to encourage businesses do the VAT filing timely and avoid VAT late filing penalty in UAE. The amended policies are in effect from June 2021 till date in UAE.
What are the circumstances that can lead businesses to VAT penalties?
The circumstances which denote violations of VAT accounting in UAE are listed as below:
- Late registration of VAT
- Late De-registration of VAT
- Not keeping the financial records such as tax invoices and account books as instructed by the tax law
- Not submitting documents in Arabic when required by Federal Tax Authority
- Filing incorrect VAT return
- Late VAT payment
- Late filing of tax return
- In case of any errors in a tax refund or tax return by a business, submitting the VAT Voluntary disclosure
- Failing to issue tax credit note or alternative document
- Incorrect VAT returns penalty filing
- Failing to facilitate tasks carried out by FTA tax auditor
- Following incorrect format of tax
- Failing to voluntarily disclose errors in a tax return or tax refund application before tax audit happens
- Failing to account for tax due on import of goods as per the tax law
- Failing to notify Federal Tax Authority for applying tax based on the margin
- Failing to comply with conditions & procedures relevant to the transfer of goods in designated zones
- When making a supply, failing to issue a tax invoice or an alternative document
- Failing to comply with the conditions & procedures relevant with the issuance of electronic tax invoices and electronic tax credit notes
- Not displaying tax inclusive prices on tax invoice
How to file for VAT return?
As a taxable business you must assure that you have met all requirements and guidelines for VAT return filing given by the Federal Tax Authority. VAT return can be filed online through the official portal of Federal Tax Authority. (eservices.tax.gov.ae)
When shall the businesses file for VAT returns?
VAT returns must be filed with FTA on a regular basis, usually within 28 days of the end of the ‘tax period’ that is designated for each type of business. A ‘tax period’ is a set of dates for which the applicable tax must be computed and paid. The typical tax year is as follows:
Companies with an annual turnover of less than AED150 million must report quarterly while businesses with an annual turnover of AED150 million or more must report monthly.
What is the VAT late filing penalty for businesses in UAE?
At the end of each fiscal year of every business in UAE, all tax subjected businesses must submit a VAT return to Federal Tax Authority. This is known as VAT filing. A VAT return outlines the value of a taxable person’s supplies and purchases over the course of the tax period and displays the taxable person’s VAT liability.
The VAT late filing penalty in UAE has not changed in the new policy. It remains as:
- a fine of AED 1000 for the first time
- In the case of repetition within 24 months, the fine is increased to AED 2000.
Failing to pay the tax as defined in the tax return form within the time period specified by the tax laws results in the consequences of late VAT payment penalty. The fines for late VAT payment penalty will be:
- The outstanding tax will be due immediately in the amount of 2%.
- On the unpaid Tax amount to date, a 4% monthly penalty will be due after one month from the due date of payment, and on the same date monthly afterwards.