Guide to Voluntary Disclosures for VAT and Excise Tax

VAT and Excise Tax have practically become a norm for some businesses in the UAE. The latter — Excise Tax — often raises eyebrows more because it applies only to specified products (tobacco, energy, or carbonated drinks) that the government deems unhealthy for the public or the environment.

It’s simply a means of discouraging consumption and generating revenue from them.

A Voluntary Disclosure comes into play because businesses operating within the bounds of VAT and Excise Tax are usually self-reported. These businesses calculate and file their returns themselves, so mistakes, incorrect figures, and missed invoices can occur.

When these errors do occur, and there’s disparity, the Federal Tax Authority (FTA) expects entities to come clean about mistakes through the Voluntary Disclosure process.Here’s a thorough and in-depth guide on how voluntary disclosures work and what the UAE expects of businesses.

What is A Voluntary Disclosure?

To put it in easy words: A business discovers an error in its previously submitted VAT or Excise Tax return and notifies the FTA of the mistake.

The error may have been a result of:

• Paying less than expected,
• Claiming more credits or deductions than allowed, or
• Any other reported inaccuracies.

The idea behind this process is to allow businesses to come clean before an audit or investigation flags the issue. A practical way to also help entities stay compliant with requirements.

What are the Benefits of Voluntary Disclosure?

A couple of reasons businesses would want to voluntarily disclose errors, whether or not beneficial to them, are:

• Lower penalties

If a business comes forward, on its own accord, before the FTA discovers the discrepancy, such entities avoid any heavy fines that may apply.

• Reduced interest charges

Suppose an error in the filing occurred months ago and would have accumulated interest; if a business corrects it early enough, it helps to minimize what could have been paid.

• Preserving credibility

Reputation is everything when running a business in the UAE. Regular compliance signals transparency to the FTA and protects from potential concerns that may arise.

Also Read: Excise Tax Consultation in Dubai

 

Guide to Making a Voluntary Disclosure in the UAE

There’s a structured approach for businesses that may have noticed an error in their tax returns. 

Here’s how to go about it:

Step #1: Identify the error

Usually, to spot this, businesses should review past returns or reconcile accounts. Only then can they detect inconsistencies, such as an incorrect input claim or miscalculated excise tax on stocks.

Step #2: Collect all supporting documents

Check all company papers that may explain how and when the error occurred. Look for credit notes, invoices, paperwork, and inventory records to determine the accurate figure.

Step #3: Recalculate the correct tax amount

Using the actual figures found, determine the exact difference, whether unpaid or overpaid credits for the business to claim.

Step #4: Complete the voluntary disclosure form

When filing this form for the FTA, ensure it documents:

• the nature of the mistake,
• the exact figures,
• Any supporting documents to explain the claim?

Step #5: Submit to the FTA

Once submitted and under review by the FTA, additional documents come in as a request to finalize the correction.

Who Can Make a Voluntary Disclosure?

Any business registered under the UAE authority for VAT or Excise Tax can file a voluntary disclosure once it discovers mistakes, misreporting, or errors due to oversight.

However, voluntary disclosures aren’t routes for businesses that intentionally hide relevant information, engage in evasion, or commit fraud.

Why Work With a Tax Consultant?

A simple misinterpretation of VAT and Excise Tax laws is a common occurrence among businesses. These laws are technical and well-detailed to avoid errors and heavy penalties. Having a consultant is usually the best policy to ensure full compliance with FTA standards.

Contact Us Today for assistance in receiving past submissions and submitting a voluntary disclosure. Our team is available to help you through the process.