Amendments to Administrative Penalties Relating to UAE VAT
Similar to any other regulation, VAT law in UAE also consists of provisions for administrative penalties which will be levied against non-compliances of various specified natures. In the public clarification issued by FTA in April 2021, there were multiple changes introduced in terms of penalty amounts and the way in which such penalties can be imposed. At an overall level, the changes are intended for reducing the burden of penalties by encouraging the businesses to rectify any errors in the submitted VAT returns at the earliest through the available option of voluntary disclosure. If you are engaged in business activities in the region, it is important to know about the implications of these amendments to plan the VAT functions proactively as well as to ensure compliance.
What are the amendments with respect to penalties on voluntary disclosures?
First of all, the fixed penalty for an initial voluntary disclosure relating to an already submitted VAT return has been reduced from AED 3,000 to AED 1,000 and the fixed penalty for any subsequent voluntary disclosure for the same return has been reduced from AED 5,000 to AED 2,000. Variable penalty, when a voluntary disclosure is made before any event of notification from FTA, was earlier 5% of the VAT impact for which such disclosure is made, irrespective of the time period in which the voluntary disclosure is made. This has been changed to apply 5%, 10%, 20%, 30% or 40% of the Vat impact based on the time period in which the voluntary disclosure is made. More delay in making the disclosure, the more the penalty. For example, for a voluntary disclosure made in the immediate next year 5% rate will apply, for the one made in the second year 10% will apply and if disclosure is made in fifth year or any period later 40% will apply.
Again for the tax liabilities identified through a notification by FTA or an FTA audit, penalty calculation has been redefined to include a fixed portion which is 50% of the unpaid VAT along with a variable portion which is 4% of the unpaid VAT from the due date of respective VAT return.
Know more on VAT Impact on Company Cash Flow
What are the major changes relating to penalties on late VAT payments?
Penalties for late payments are being specified in the regulation for VAT liabilities due as per submitted VAT return, voluntary disclosure or due to a tax assessment by FTA. As per the earlier rules, penalties for all these late payments would have been incurred from the date of original tax return to which the unpaid tax relates. However, there is now a relaxation in the form of a grace period of 20 days to make the VAT payment resulting from a voluntary disclosure or a tax assessment and penalty will apply only for any delay in payment after the expiry of these 20 days. Also the rate of penalty is changed to 4% on a monthly basis which was earlier imposed at 1% daily accrual rate on delays after one month from the due date.
What are the other major reductions in the penalties relating to VAT as per the recent amendments?
Any case of late registration or VAT deregistration will attract penalties as per the regulation. As part of the amendments, the penalty for late registration has been reduced from AED 20,000 to AED 10,000 and the same for delay in de-registration has been reduced from AED 10,000 to a charge of AED 1,000 for every month with a maximum limit of AED 10,000. For not displaying prices inclusive of VAT, suppliers get a penalty and the amount of penalty is now reduced from AED 15,000 to AED 5,000. Non-compliance because of not issuing tax invoice or tax credit note as required will now incur a penalty of AED 2,500, which was AED 5,000 before.
What are the implications of these recent amendments on business enterprises in the UAE?
The amendments in the penalties shall be assessed by the businesses considering both the opportunities and risks which are attached to them. The grace period of 20 days for late payments in certain cases and decrease in the penalties on voluntary disclosure scenarios certainly give the VAT registrants an opportunity to avoid penalties by taking action in the earliest possible time period. It is always suggested to consult with tax experts to revisit the tax treatments and to perform a VAT health checkup, if required to ensure compliance with the regulation. Along with the reliefs, there are other aspects where the penalties can get doubled or further increase many folds based on the extent of delay in identifying the errors, which in turn may incur major financial losses to the applicable entities.
How can CDA assist you in light of the changes in the VAT administrative penalties?
CDA has extensive experience of serving various clients in UAE as VAT advisors and we are happy to help you in performing reviews and VAT check-ups to prevent the incurrence of penalties in any sort. We have certified VAT experts who can discuss with you and provide you clarifications on your queries regarding the VAT penalties or any other VAT services in UAE. Feel free to contact us to know more about the VAT procedures to comply with the relevant rules.