VAT Fines and Penalties in UAE: Late Payment Penalty Overview

VAT penalties and fines

When it comes to VAT compliance in the UAE, it's crucial to understand that failing to adhere to regulations can result in a variety of VAT fines and penalties. These are designed to ensure that businesses fulfill their obligations timely and accurately. Here’s a breakdown of the most common penalties in UAE you might encounter.

Late payment

If you miss the deadline for your UAE VAT payment, the consequences can be significant, as a late payment penalty will be applied immediately and continue to accumulate until the outstanding amount is settled.

• Immediate VAT penalty. 2% of the unpaid tax kicks in right after the due date. 
• The seventh day after the deadline. If you still haven’t settled the amount by this time, an additional 4% penalty is added.
• After one month. A daily penalty of 1% is applied to any outstanding amount. That said, the daily penalty won’t exceed 300% of the original tax amount, but the longer the delay, the more the costs will accumulate.

Late registration and de-registration

If your turnover crosses the registration limit, you have only 30 days to complete the procedure for registration. Failing to do so results in a considerable fine of 10,000 AED. 

On the flip side, if you need to cancel your registration — for example, because your turnover falls below the mandatory limit — but miss the deadline for this application (within 20 working days), you’ll face a VAT deregistration penalty of 1,000 AED. In case of repeated violations the fine will be 1,000 AED per month, but no more than 10,000 AED.

Late return filing

Filing your VAT return on time is critical. You have a window of 28 days from the end of each tax period to submit your return. If you miss this deadline, the first violation will incur a fine of 1,000 AED. If you continue to file late within a 24-month period, that penalty from the FTA can double to 2,000 AED. 

Incorrect tax return

If you file your tax return with errors in it this can also lead to penalties in the UAE. If it’s your first occurrence, expect to pay a fine of 3,000 AED. Subsequent violations within 24 months can raise that fine to 5,000 AED. Accuracy in your returns is important not just for compliance, but to avoid these escalating costs.

Disclosures of errors

Mistakes happen, and if you find a mistake in your VAT return, you need to take action. 

• For errors under 10,000 AED, you can correct it directly in your next VAT return for the period in which you discovered the mistake. 
• However, for errors exceeding that amount, a voluntary disclosure must be filed with the FTA within 20 working days. If the FTA identifies the error before you do, they will impose a fine. The penalties vary based on the timing of your disclosure. 
• A fixed penalty of 1,000 AED applies for the first offense, increasing to 2,000 AED for subsequent offenses. 
• If you disclose the error before the FTA’s notification, you’ll face a penalty based on the underpaid tax, starting at 5% in the first year and increasing in subsequent years.
• However, if you disclose after the FTA has already flagged the issue, the penalty jumps to 50% of the underpaid tax, plus a monthly charge of 4% from the due date of the VAT return.

Failure to keep records properly

Businesses operating in the UAE, irrespective of the registering authority (mainland or free zones), must keep detailed financial records of all transactions. This includes everything from sales and purchases to payroll and taxes. 

Records must be retained for five years after the end of the tax period or financial year. If you fail to comply with these record-keeping requirements, the first offense will set you back 10,000 AED.

If you repeat this offense within 24 months, the fine can escalate to a staggering 50,000 AED.

Moreover, severe failures to maintain records can result in fines ranging from 50,000 AED to 500,000 AED.

Late penalty payment

If you find yourself facing penalties, it’s crucial to pay them promptly. Failing to do so within 20 days of filing a voluntary disclosure or receiving a tax assessment can lead to additional fines on the outstanding penalty amount. The additional penalty is 4% per month, accumulating up to a maximum of 300% of the original fine. Therefore, addressing penalties quickly can save you from significant additional costs.

By staying compliant with registration, payment, and filing requirements, you can avoid costly mistakes and keep your business on the right track. If you need assistance navigating these regulations, don't hesitate to reach out for help.

How to avoid FTA fines

1. First and foremost, maintaining accurate and thorough accounting practices is essential. Ensuring that your financial records are meticulously kept can significantly reduce the likelihood of errors that could lead to fines. This involves regularly updating your records, reconciling accounts, cost accounting, and keeping detailed documentation of all transactions.
2. Another crucial step is to stay informed about any changes in the FTA's regulations. Tax laws can evolve, and being proactive about these changes allows you to adjust your practices accordingly. 
3. Timely reporting and payments are non-negotiable in VAT compliance. Establishing a systematic approach for meeting deadlines can help you avoid late penalties. Creating reminders for filing dates and payment deadlines can be invaluable in ensuring that you remain compliant.
4. Finally, using accounting software can simplify and optimize your financial workflows. Using a reliable accounting system can automate many of the tedious tasks associated with VAT compliance, minimizing human error and keeping your financial data accurate.

By implementing these practices, you can greatly reduce your chances of facing fines from the FTA. If you find the process overwhelming, consider seeking professional assistance to help you navigate these VAT requirements and ensure your business stays on the right side of compliance.

Outsourced accounting services with Emirabiz

When it comes to managing your business finances, outsourcing your accounting services can make a huge difference. At Emirabiz, we specialize in taking the burden of accounting and bookkeeping off your shoulders. Our expert team ensures that VAT and corporate tax reporting and payments of your business in the UAE are handled accurately and on time. We take pride in filing tax returns and optimizing your tax obligations while maintaining records.
By choosing Emirabiz, you eliminate the need to hire an in-house accountant. Our comprehensive outsourced accounting services are provided by skilled professionals who utilize accounting software, providing you with top-notch service at a reasonable price. This means you can dedicate your valuable time and resources to growing your business, confident that your financial compliance is in expert hands.