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Mistakes Businesses Can Make Related to VAT and their Penalties

Government authorities in UAE mandate businesses operating in the country to comply fully with tax regulations. Businesses that are struggling in matters related to VAT compliance in UAE are to seek the help of regulated tax agents in UAE to sort out all tax-related issues. If you don’t know already, the FTA, the country’s tax authority, imposes penalties to businesses when making errors.

A VAT penalty is an amount that’s to pay to the tax authority; not settling penalties can also further increase the amount due to the FTA. In this article, we will discuss the most common VAT penalties that are imposed on businesses. Let's start!

Failure to display the prices of products and services inclusive of Value Added Tax (for a tax-registered person)

All businesses that have registered for VAT are to display prices of goods and services if they are taxable, including the VAT with the exemption of the following cases:

  • The customer or client is also a tax-registered business;
  • Business supply is to be exported;
  • Import of products or goods

If a VAT registered business fails in displaying the price along with the VAT to be paid to every customer or client, then it will result to a Dh15,000 administrative penalty, of which is to be settled immediately.

You should know: VAT Returns Fines and VAT Penalties in the UAE For Noncompliance

Failure to notify the tax authorities recharge of tax that’s based on margins

A business registered for VAT is to calculate VAT based on the profit margin for supplies of certain goods such as coins, stamps, and secondhand goods among others. The profit margin can be calculated by subtracting the selling price of goods from the purchase price.

Failure to give the FTA notification, regardless of intentional or unintentional, with regards to tax charges that are based on margin is to result to the business imposed with Dh2,500 as administrative VAT penalty.

Failure in complying with procedures and conditions that are related to the storage of goods in designated zones or moving them onto other designated zones

Designated zones are VAT-free zones in the country, and they are considered as outside the jurisdiction of UAE for VAT purposes. With this, the transfer of goods from a designated zone to another won’t be levied any VAT. If you want to know regarding the specific procedures and conditions that are related to storage of goods within a particular designated zone or maybe moving the goods to a different designated zone, it is advised that you seek the counsel of regulated tax agents in UAE.

A VAT-registered person that doesn’t comply with procedures and conditions that are in related to designated zones will be given Dh50,000 as an administrative penalty. The penalty may also be fifty per cent of the tax that is chargeable because of violating the regulation, whichever would be higher.

Failure in issuing Tax invoices to clients and customers or any alternative document which signify the occurrence of Transactions

A tax invoice is an incredibly important document that is to be issued to a client or customer whenever a supply of taxable services or goods is made. When businesses fail in issuing tax invoices or alternative documents for taxable supplies, they invite the Dh5,000 administrative penalty to be imposed on them. Take note: the Dh5,000 of an administrative penalty is for every tax invoice that is not issued.

Failure by a VAT registered business in issuing tax credit notes or alternative documents to clients or customers

Tax credit notes are written or electronic documents that signify the occurrence of amendments to taxable supplies, reducing or cancelling the same which are recorded.

A failure by VAT-registered businesses in issuing tax credit notes or alternative documents can lead to Dh5,000 administrative penalty for every single tax credit note that is not issued by the businesses.

Failure by a VAT Registered business in complying with procedures and conditions in the issuance of e-tax credit notes as well as e-tax invoices

A taxable person or business in the UAE may issue tax invoices and tax credit notes electronically if:

  • The VAT registered business is capable of securing and storing copies of issued e-tax invoices as per FTA’s record-keeping requirements;
  • Integrity and authenticity of origin of contents of e-tax invoices and e-tax credit notes can be guaranteed

If a VAT registered business doesn’t comply with conditions for the issuance of e-tax credit notes and e-tax invoices, it’s going to invite the business Dh5,000 as an administrative penalty for every single tax credit note or tax invoice wherein conditions of the FTA were not met.

You should know How to appeal for VAT penalties in UAE

Taxpayers in the UAE are to take note of all these administrative penalties the FTA may impose. If you want to make sure that your business is fully compliant with all the regulations pertaining to Value Added Tax or VAT in UAE, then consult with a regulated tax agent in UAE prior to your business penalized or fined.

Ervee is a CPA with international experience in Tax and Accounting. He has over 12 years of experience in accounting and bookkeeping and over a year in VAT implementation, registration, and accounting in UAE. He regularly drives out inefficiencies in company operations and loves the challenge of helping clients find additional ways for an easier and improved compliance and verification of transactions.