• March 24, 2023


    The Federal Tax Authority will apply VAT fines and penalties in the UAE (FTA). To avoid significant VAT fines and penalties, businesses in the UAE must follow all FTA rules and regulations. The Federal Tax Authority (FTA) has officially revealed the full list of administrative VAT fines and penalties that will be imposed on firms in the UAE for non-compliance with VAT legislation.

    If companies violate VAT legislation in the UAE, they will be subject to substantial FTA VAT fines. Businesses must maintain VAT compliance in accordance with the FTA in order to avoid VAT fines and penalties. Before integrating VAT in the organization, they must confer with a tax specialist.

    In order to assist businesses in recovering from the impact of COVID-19, the FTA has amended new VAT penalties and fines in the UAE. The VAT penalties have been decreased by the FTA in order to encourage enterprises to avoid fines by guaranteeing VAT compliance. The changes will take effect on June 28, 2021.

    The modifications lessen the penalties for non-compliance with the value added tax (VAT). The most major change is that taxpayers will now have more time to settle their taxes before being subjected to late payment penalties. Variable fines have also been decreased for fixing filing errors by voluntary disclosure before the Federal Tax Authority (FTA) notifies the taxpayer of an audit. However, the consequences for failing to file a voluntary disclosure before an audit notification have increased. If certain circumstances are met, taxpayers may be eligible for a waiver of 70% of overdue penalties.

    The amendments create an incentive for businesses to review their historic filing positions and to voluntarily disclose any errors before they are notified of an audit.

    The changes in penalties are summarized below.

    Fixed penalties

    TriggerPrevious penaltyNew penalty
    First voluntary disclosureAED3,000AED1,000
    Subsequent voluntary disclosureAED5,000AED2,000

    Late payment penalty

    TriggerPrevious penaltyNew penalty
    From the due date of the original VAT return until day 62% of the underpaid taxN/A
    From day 7 until day 304% of the underpaid taxN/A
    From day 311% per day of the underpaid taxNil provided penalty is paid within 20 days of filing the voluntary disclosure/ receipt of tax assessment. Where this is not the case, the penalty will be 4% per month.
    CapThis is capped at 300%This is capped at 300%

    Under the current penalty rules, late payment penalties are calculated from the date when the tax return was required to be filed. This resulted in penalties of up to 300% of the primary VAT liability being imposed at the time VAT was assessed.

    Following the UAE Cabinet of Ministers issued Resolution No. 49/2021, FTA has reduced administrative penalties for tax violations. Effective date of the new Cabinet Resolution 28 June 2021.

    •Some Key amendments to the administrative penalties

    •Late Registration Application: reduced from AED 20,000 to AED 10,000 

    •Late Deregistration application: reduced from AED 10,000 to AED 1,000 monthly (Max AED 10,000) 

    •Late VAT Liability Payment: Reduced from 1% per Day to 4% per month

    •Voluntary Disclosure in case of errors or mistakes: Reduced to AED 1,000 & AED 2,000 in case of repetition, no penalty if filled before due date.

    According to new law, tax payers who currently have unpaid penalties can have it reduced to 30% of the total amount, provided all taxes and 30% of the penalties are settled before 31 December 2021.

    The takeaway

    Taxpayers should also evaluate the conditions stipulated in the new resolution to benefit from the reduction of previously imposed penalties, which will be applicable until 31 December 2021.

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