Understanding Key VAT Penalties in the UAE

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Introduction

The UAE VAT law mandates that businesses comply with VAT registration, filing, and payment regulations to avoid penalties. Failure to meet these requirements can result in significant fines, affecting business operations and financial health. 

This article outlines the key VAT penalties under the UAE VAT law.

Failure to Register & Deregister for VAT

Businesses making taxable supplies exceeding AED 375,000 annually must register for VAT within 30 days of crossing this threshold. Non-UAE-resident businesses, regardless of the threshold, must also register if they make taxable supplies in the UAE. Non-compliance results in a penalty of AED 10,000 for late registration. 

If a business’s taxable supplies drop below AED 187,500 or if it ceases making taxable supplies, it must apply for VAT deregistration within 20 business days. Failing to deregister in time leads to a penalty of AED 1,000 for the first violation, with AED 1,000 added monthly, up to a maximum of AED 10,000.

Failure to Issue VAT Invoices

VAT-registered businesses must issue tax invoices for every taxable supply. E-invoicing may also be applicable for large taxpayers. Non-compliance leads to a penalty of AED 5,000 per missing invoice.

Similar penalties also apply for non-issue of debit notes and credit notes. 

Late or Incorrect Filing of VAT Returns 

VAT returns must be submitted within 28 days of the end of the relevant tax period. Failure to do so results in a penalty of AED 1,000 for the first offence and AED 2,000 for subsequent offences within 24 months.

Submitting incorrect VAT returns, whether by under-reporting VAT or making calculation errors, leads to a penalty of AED 3,000 for the first offence, rising to AED 5,000 for repeated violations within 24 months. These penalties also apply for submitting incorrect information. 

Late VAT Payments

VAT payments must be made within the same 28-day window. Penalties on late payments are as follows:

• 2% of the unpaid tax penalty payable immediately,
  
  
• Additional 4% of the unpaid tax if tax remains unpaid after seven days,
  
  
• 1% daily penalty if tax remains unpaid after one month, capping at 300% of the unpaid tax.

Failure to Maintain Proper Records

Businesses must maintain VAT-related records for at least five years. Failing to do so results in a penalty of AED 10,000 for the first violation, with the penalty increasing to AED 50,000 for repeated non-compliance within 24 months.

Collateral Damage

Failing to comply with VAT regulations can lead to severe financial and reputational risks. Late registration, incorrect VAT submissions, or failure to maintain proper records may result in penalties, blocked accounts, and missed input VAT recovery. Additionally, businesses may face increased scrutiny from tax authorities, triggering audits or assessments. Non-compliance also risks damaging relationships with clients and partners, affecting trust and future transactions. 

Conclusion

VAT compliance is inevitable. Hence, businesses in the UAE must establish robust VAT compliance systems to ensure accurate reporting and timely payments. This keeps penalties and operational disruptions at bay. 

Disclaimer: Content posted is for informational and knowledge sharing purposes only, and is not intended to be a substitute for professional advice related to tax, finance or accounting. The view/interpretation of the publisher is based on the available Law, guidelines and information. Each reader should take due professional care before you act after reading the contents of that article/post. No warranty whatsoever is made that any of the articles are accurate and is not intended to provide, and should not be relied on for tax or accounting advice