Blog Details
You might be thinking that if the UAE is considered to be a tax-free country, then why is there VAT in UAE? Yes, the UAE is a tax-free country, but there are still some taxes here, and VAT is one of them. In the UAE, the Federal Tax Authority will levy VAT fines and penalties. To avoid significant VAT fines and penalties in UAE, businesses in the UAE must follow all the FTA's rules and regulations. Fines and penalties for violating the Value Added Tax (VAT) law in the UAE have been amended, allowing business owners to pay their dues without facing hefty fines. The UAE's Federal Tax Authority (FTA) has officially confirmed the full list of penalties for VAT in the UAE that will be applicable to enterprises who break VAT regulations.
The FTA has introduced new rules to protect businesses against heavy penalties if they fail to follow certain administrative procedures. The UAE Cabinet revised the laws of administrative penalties related to tax violations in Cabinet Decision No.49 of 2021, issued on April 28, 2021. This is to aid businesses in recovering from COVID-19's consequences. The various concessionary procedures put in place will lessen the severity of the fines levied against some taxpayers.
When taxes, such as VAT or excise tax, are not paid on time, late payment penalties apply. The penalty for this late payment has been increased to 4% per month; previously, it was a 1% daily accumulating charge that quickly accumulated into large fines. According to the voluntary disclosure or tax assessment, there is a late payment penalty for underpaid VAT. The new guidelines constitute a large change in the case of increased VAT liabilities arising from a voluntary disclosure or a tax assessment. As tax payers will now have 20 days to clear any unpaid tax before late payment penalties apply. The due date for calculating late payment penalties would be as follows:
>• 20 business days after submitting a voluntary disclosure
>• 20 business days after receiving a tax assessment
If a taxpayer does not pay within the 20-day time limit:
> A 2% fine will be charged after the 20-day duration has expired,
> Preceded by a 4% monthly penalty charged at monthly intervals one month from the given deadline.
> The penalty cap is still set at 300 percent.
The new Cabinet Decision authorizes the FTA to lower nonpayment fines by 70% under the following conditions:
> Administrative fines imposed by Cabinet Resolution No. (40) of 2017 were levied on a taxpayer prior to June 28, 2021, but have not been completely paid by that deadline.
> On or before December 31, 2021, the taxpayer should pay all outstanding tax liabilities as well as 30% of the total administrative fines. However, there is no need to pay before June 28, 2021.
If a taxpayer has already paid their penalties, the Cabinet Resolution does not apply to them.
Penalty Cuts In Other Areas
> The penalty for not registering for VAT by the deadline will be reduced from AED20,000 to AED10,000.
> The fine for not displaying inclusive prices will be reduced from AED15,000 to AED5,000.
> Failure to release a tax invoice or tax credit note fine has been reduced from AED5,000 to AED2,500.
> Those who fail to file a timely deregistration request have been reduced from AED10,000 to AED1,000 per month, with a cap of AED10,000.
If you're wondering what happens if I don't pay fines, then trust us, this will cost you more. That is, if companies violate UAE VAT laws, they will face severe FTA VAT fines. Businesses must ensure VAT compliance in accordance with the FTA to avoid VAT fines and penalties. Before implementing VAT in the organization, they must seek advice from a tax professional. As the leading TAX consultant in UAE, ARC Associates is here to help you to ensure your firm's 100% accuracy and consistency in every transaction, without leaving any chance of fault. We can provide you with specialist tax advice and auditing services that can help to protect you from the threat of non-compliance.