VAT Late Payment Penalty in UAE | Dubiz.

The UAE government introduced Value Added Tax (VAT) in 2018 to reduce the country’s dependence on oil revenues and broaden its economic horizons. However, the implementation of VAT comes with various rules and clarifications, which mandate businesses to comply with the guidelines of the FTA (Federal Tax Authority) to maintain a good standing and avoid legal consequences, including VAT late payment penalty UAE. Under the UAE VAT law, qualifying businesses are required to complete their VAT registration, file VAT returns, and pay the tax accurately and timely to prevent any non-compliance issues that may lead to substantial financial loss or even disrupt business operations. The concept of VAT penalties imposed by the FTA is to encourage businesses to comply with the rules, rather than just punishing them with substantial fines and penalties. Through the UAE VAT late payment penalty, FTA ensures that all businesses contribute fairly to the UAE’s economy.

1. IN UAE
VAT LATE PAYMENT PENALTY

2. The UAE government introduced Value Added Tax (VAT) in
2018 to reduce the country’s dependence on oil revenues
and broaden its economic horizons. However, the
implementation of VAT comes with various rules and
clarifications, which mandate businesses to comply with
the guidelines of the FTA (Federal Tax Authority) to
maintain a good standing and avoid legal consequences,
including VAT late payment penalty UAE.
Under the UAE VAT law, qualifying businesses are required
to complete their VAT registration, file VAT returns, and
pay the tax accurately and timely to prevent any non-
compliance issues that may lead to substantial financial
loss or even disrupt business operations.
In this blog, we will be discussing different aspects of the
FTA late payment penalty UAE, their applicability in
different circumstances, and how you can avoid them.

3. On January 1, 2018, the UAE introduced a consumption tax,
commonly known as VAT, at a standard rate of 5% on most
goods and services. However, it categorizes a few supplies
as zero-rated or exempt from VAT.
The overview of Value
Added Tax (VAT)
IN THE UAE
Here are some key points about UAE VAT:
The standard VAT rate is 5% applied to most goods and services.
Certain supplies, such as exports, international transportation, certain medical and educational
services, and the first sale of residential real estate, fall under the zero-rated category.
Goods and services like financial services, local passenger transport, and bare land are
completely exempt from VAT.
Businesses with taxable income exceeding AED 375,000 in the past 12 months or expected to
surpass that amount in the next 30 days are required to register for VAT with the relevant tax
authorities.
Businesses with taxable income exceeding AED 187,500 can opt for voluntary registration.
To monitor VAT and other federal taxes within the country, the government has appointed the
Federal Tax Authority, which ensures that businesses comply with VAT rules and imposes penalties in
cases of non-compliance.

4. VAT late payment
penalty UAE: Explained
The concept of VAT penalties imposed by the FTA is to encourage businesses to comply
with the rules, rather than just punishing them with substantial fines and penalties. Through
the UAE VAT late payment penalty, FTA ensures that all businesses contribute fairly to the
UAE’s economy.
In this section, we will explore the different types of penalty for late payment of VAT in UAE
and the conditions under which they are imposed. Businesses in the UAE that cross the mandatory registration limit must register for VAT
within 30 days. Failing to do so within the specified time may result in a penalty of AED
10,000, as per the Cabinet Decision No. (49) of 2021 issued on April 28, 2021. Previously, it
was AED 20,000.
The extended consequences of a delayed registration may include the following:

Disrupted Operations: Delays in obtaining a Tax Registration Number (TRN), which is
mandatory for tax invoice issuance and input tax credit claim, further impacting the
company’s ability to conduct business with other VAT-registered entities.
Missing Out on Savings: Inability to reclaim VAT paid on business purchases,
potentially increasing the overall tax burden of the business.
1.Late VAT Registration Penalty

5. When the company no longer meets the registration threshold, it must deregister for VAT to
avoid a penalty of AED 1,000 for delayed deregistration, capped at a maximum of AED 10,000.
Previously, the penalty was AED 10,000.
The possible effects of this situation, other than the VAT late payment penalty UAE may
include:
Continued Compliance Burden: VAT compliance is necessary even after the deadline,
until the deregistration is officially approved. Businesses that fail to file the VAT returns
within the approved timeline may invite penalties for non-compliance.
Administrative Requirements: Businesses must ensure to meet the administrative
requirements, such as filing VAT returns, maintaining accurate books of accounts, and
upholding communication with the FTA until the deregistration is officially approved.
The submission of the final tax return and the payment of pending tax should be made within
28 days from the date of deregistration to prevent any VAT late payment penalty in UAE. 2. Late VAT Deregistration Penalty
3. Late VAT Return Filing PenaltyThe UAE VAT law mandates businesses to submit their VAT returns within 28 days of the end
of the accounting period. Failing to fulfil this obligation within the timeframe specified by the
FTA may invite a penalty of AED 1,000 for the first offense, and AED 2,000 for repeated non-
compliance within 24 months.
Furthermore, if the business continues to fail to file the return as per the rules, the FTA has
every right to take legal action against them.
The other consequences of late filing of VAT return are as follows:
Delayed Refunds: Delays in receiving a VAT refund, potentially impacting the cash flow of
the company.
Tax Assessment: A comprehensive audit by the FTA, which may be a time-consuming
and stressful experience for the business.

6. 4. Late Payment Penalty VAT UAE Taxable entities in the UAE that fail to settle their VAT dues within
the specified timeframe may have to face a fine for late
payment of VAT in UAE. The penalty amount is calculated in the
following way:
2% of the unpaid tax, right after the deadline.
An additional 4% on the seventh day following the deadline.
If the company fails to pay the outstanding VAT within one
month after the deadline, 1% daily penalty will be imposed on the
pending amount, capped at a maximum of 300% of the original
tax amount. Beyond the VAT late payment penalty UAE, the
legal consequences may also include potential legal action by
the FTA.
5. Penalty for Submission of Incorrect Tax Return Submitting an incorrect tax return may cause a penalty of AED
3,000 for the first violation, and AED 5,000 for repeated violations
within 24 months.
The supplementary aspects beyond the initial penalty are:
Tax Shortfall: A liability of paying the difference and potential
interest charges.
FTA Audit: Tax audit by the tax authorities.
6. Penalty for Non-maintenance of Proper
Books of Accounts Maintaining proper books of accounts is an ethical business
practice and at the same time, a legal requirement in the UAE.
Businesses are required to maintain records of their transactions,
including invoices, receipts, bank statements, and other
documents.
Failing to keep the required documents and other information
may lead to a penalty of AED 10,000 for the first offence and AED
50,000 for repeated non-compliance within 24 months.
Beyond fines and penalties, the additional drawbacks of
neglecting bookkeeping may include:
Cash flow issues: Difficult to track finances effectively.
Delayed Refunds: Inability to claim input tax credits and get
VAT refunds.

7. Common reasons for
Several factors may lead to VAT penalty for late payment
UAE:
Cash flow issues – Due to slow sales, unexpected
expenses, or other financial challenges.
Accounting errors – Mistakes in calculating or
recording VAT.
Lack of awareness – No knowledge of VAT obligations
and deadlines.
System failures – Technical issues with the FTA e-
Services portal or a business’s internal accounting
software.
LATE PAYMENT OF VAT

8. 01 Meticulous record-keeping is the foundation of timely VAT
reporting and avoiding late payment penalties. Hence, to
ensure accuracy, businesses must do the following:
Detailed Transaction Recording: Record all transactions
with supporting documents like invoices and receipts for
accurate calculation of VAT.
Accounting Software Integration: Use accounting
software with built-in features to automate VAT
calculations and reporting and simplify compliance.
Businesses are required to settle their VAT payments with the
Federal Tax Authority (FTA) within 28 days after the end of the
tax period. Any delays or negligence can result in penalties or
other significant damages.
VAT PAYMENT
DEADLINE IN UAE
Essential tips to avoid FTA late payment penalty UAE

By following these tips, you can avoid UAE VAT penalty for late
payment:
Maintain Accurate Financial Records: Creating a dedicated VAT calendar with reminders can
help businesses stay systematized and avoid missed
deadlines for submissions of VAT returns. Implement a VAT Compliance Calendar:
02

9. Regular reconciling of accounts can ensure that
the financial statements and VAT records are
accurate and in sync. Reconciliation helps detect
and resolve any discrepancies in accounts. Reconcile Accounts Regularly
03
Plan VAT payments in advance to avoid VAT late
payment penalty UAE. Businesses must allocate
dedicated funds for covering VAT obligations in
order to prevent cash flow issues and potential late
fees
Plan for VAT Payments
04Submit VAT returns well before the deadline. This
will provide a buffer time in case of technical
issues or delays in filing.
Early VAT Retu Submission
05Businesses must conduct proactive internal
reviews and audits of their VAT procedures to
identify and address potential compliance issues
before they escalate. This will minimize the risk of
non-compliance and potential penalties.
Conduct Internal Reviews and Audits
06
The VAT regulations in the UAE are provisional.
Hence, to stay informed, businesses must do the
following:
Regularly check the FTA website: It is a reliable
source to stay updated on the latest VAT
regulations and announcements.
Seek updates from a Tax advisor: The tax
advisor of Dubiz can keep you informed about
any relevant changes to VAT regulations.
Stay Updated on VAT Regulations
07

10. Business owners who manage multiple businesses
under a single control can explore the option of
VAT grouping, where they can submit a single VAT
return and simplify the compliance process. Consider VAT Grouping
08
To streamline VAT management, businesses must
use modern technology solutions:
Cloud-Based VAT Tools: Cloud-based
platforms with in-built features can help with
automated record-keeping, reporting, and
payment processing.
E-Invoicing Systems: Automate invoice
generation by implementing e-invoicing
systems. This will ensure compliance with VAT
invoicing requirements.
Use the Technology
09
Partnering with a tax professional like Dubiz, who is
well-versed in UAE tax regulations, can offer
valuable support by:
Navigating VAT Compliance Complexities:
Guide businesses through the complexities of
VAT compliance and ensure timely submissions
of VAT applications.
Expert Advice: Help businesses navigate
complex transactions and ensure adherence to
VAT regulations.
Seek Expert Guidance
09

11. Thus, complying with the VAT regulations and adhering to the VAT system in the UAE is
crucial to maintain the financial health of the company and ensure smooth
operations. The aftermath of non-compliance can be substantial and significantly
impact the financial well-being of the business.
By prioritising accurate record-keeping, timely filing, and proactive planning,
businesses can effectively meet their VAT obligations and significantly reduce the risk
of VAT late payment penalty UAE. Conclusion
VAT LATE PAYMENT PENALTY UAE

12. STAY AHEAD OF VAT LATE PAYMENT PENALTY IN UAE
Dubiz has a team of experienced and qualified auditors and tax
advisors who offer comprehensive VAT solutions, including VAT
registration, VAT filing, tax consultations, dispute resolution, and more
to businesses across various industries.
WITH DUBIZ
They will help you understand your VAT responsibilities and improve
your VAT compliance to ensure the smooth and efficient functioning
of your business.

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