Business in UAE will be another lifetime revolution when the VAT introduces it. In fact, this is the most essential and promising line in the aspect of the UAE’s economy, besides which it also constitutes a great requirement for understanding and avoiding penalties regarding VAT in businesses. Non-compliance with VAT laws renders a severe penalty on businesses alongside loss of reputation and possibly a financial toll. This blog, therefore, becomes one of the good sources through which one could understand VAT penalties as applied to businesses in the UAE, more so on the aspect of VAT fines in Dubai and VAT penalties across the UAE.

What is VAT, and Why Should One Comply?

Value-Added Tax is the tax levied for consumption purposes. This tax has been imposed on goods and services taken through various stages of production and distribution. It came into existence in the UAE as of January 1 of this year at the first standard rate of 5%. Only a few goods and services are exempted and defined by the law under zero-rating. Such taxes will be collected from businesses for the purposes of the government and thereafter required to remit the same to the country, the UAE Federal Tax Authority (FTA), within the specified deadlines as prescribed under the appropriate laws.

It is an offense not to follow the applicable VAT provisions. In fact, such a misdeed may even lead to VAT penalties in the UAE, both of which can be financial as well as legal. Business units would have to file their VAT returns at specified intervals and also maintain accurate records. Therefore, the importance of complying with VAT rules has increased manifold.

Top VAT Penalties Common in Business

The Federal Tax Authority of the UAE provides a lot of penalties followed by VAT. Penalties can be realized in the market by businesses as part of exercising the laws focused on ensuring timely and accurate payment of VAT. Here are some of the common VAT penalties that businesses should observe:

1. Penalties for Late Registration

Typical of the mistakes that businesses make is failing to register in time for a particular tax hence; the UAE VAT regulations state that the businesses shall register for VAT where the amount of their annual taxable supply exceeds AED 375,000. In such cases, any late registration is liable to penalties.

Late Registration Penalty: AED 1,000 during the first month of delay followed by AED 2,000 for each additional month.

To preclude such penalties, businesses should keep a close monitoring of their revenue and early apply for registration if they believe it nears the threshold.

2. Late Filing and Late Payment Penalty

A business must file its VAT return on a regular basis, typically quarterly. Non- Non-submission of VAT returns as well as VAT payments can draw huge penalties.

Late Filing Penalty: AED 1,000 for the first event of not filing a return and AED 2,000 for the second and any subsequent events.
Late Payment Penalty: Due date VAT has not been paid; the taxable amount not paid attracts a penalty of two percent on the unpaid tax. Should there be a delay of more than 7 days, it attracts a further fee of 4% & followed by continued penalties if the delay is prolonged.

These types of penalties may easily accumulate. So, it is essential for businesses to ensure filing VAT is done on time and payment also is made in due time without any hassles.

3. Wrong Penalty of VAT Return

This is one of the biggest mistakes a business could make, submitting incorrect VAT returns, either not accounting for the correct VAT on taxable supplies or input tax; there are penalties incurred in that mistake VAT return.

Penalties for wrong VAT returns: Up to 50% of the tax amount concerned can be subjected to a penalty if a business is proven to have filed a wrong return.

Companies should always ensure that all the data in their VAT return is completely accurate and corroborated by proper documentation in order to fall into this penalty category.

4. Failure to Keep Proper Records

Every business is required to maintain proper records of VAT transactions and therefore all invoices, receipts, etc., would fall within the realm of supporting documentation. Failure of record keeping can lead to huge penalties.

Record Keeping Noncompliance Penalty: Any business that does not maintain proper records or submit necessary evidential papers will be fined from AED 10,000 up to AED 50,000, depending on how grave the breach is.

Keeping proper records is enough to save penalties from being imposed on businesses; more than that, it gives them the ability to defend themselves totally in the case of tax audits.

5. Penalties for Tax Evasion

Tax evasion has been considered a very serious crime in the UAE, and businesses found guilty or suspected of intending to avoid VAT payment by any means will incur severe penalties.

As penalty for Tax Evasion: 300% of the unpaid tax can be the penalty for fraudulent activities including misrepresenting VAT obligations or reporting lesser amount for taxable obligations.

Tax evasion must rank among the most serious offenses for which a person could ever be charged, possibly bringing monetary penalties and many more nonmonetary consequences.

This failure in issuing the correct VAT invoices and provision of requisite tax documents has to chip in for businesses in making compliance regarding the VAT. If such instances happen, the penalty is imposed due to failed compliance with VAT in Dubai and across the UAE.

How to Avoid VAT Penalties in Dubai

Due to high traffic in VAT transactions around the UAE, Dubai has chords matched to the entire UAE in penalties concerning VAT non-compliance. But then, with the rapid rise of the city in terms of economic growth, as well as increasing scrutiny from the FTA, businesses in Dubai must take extra caution.

Here are several tips worth noting for businesses in Dubai to escape VAT penalties:

Prompt Registration: Ensure that the company is VAT registered when it reaches the threshold.
Timely Filing of Returns: File return dates on which VAT returns are due to avoid penalties for late filing.
Consistency in Record Keeping: Properly keep and maintain records of transactions about VAT to show that the contributing documents are compliant with audit provisions.
Hire a VAT Expert. This is advisable to anyone who feels they would not pass a self-examination. They would hire a VAT expert or a consultancy firm like Rewind Consultancy to help them with VAT registration, filing, and documentation.

Conclusion:

In all cases, it is appropriate for businesses in the UAE to be aware of penalties for VAT as pertaining to fines and legal issues. Penalties in full include late registration, incorrect VAT returns, tax evasion, non-maintenance of proper records, and so forth companies need to hold to compliance in every aspect of the VAT rules within the region. With new information and a diligent approach, businesses could certainly escape VAT fines in Dubai and around the UAE, thereby protecting their operations and reputation.

Rewind Consultancy will always be there to assist you with your VAT compliance and to know more about VAT penalties. The expert team from Rewind Consultancy will steer your business through all the complexities of VAT registration, filing, and audits so that you remain compliant and penalty-free.