What are the new VAT Administrative Penalties?
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What are the new VAT Administrative Penalties?

The Federal Tax Authority (FTA) shared a public clarification on 28th April 2021 about the amendments for provisions under the Cabinet Decision No 40 of 2017 for administrative penalties. VAT penalties include administrative penalties, which mean the monetary fines imposed on a person or an entity by the FTA for breaching the provisions in the Tax Law of UAE. Penalties can easily be avoided by taking the necessary precautions for non-compliance while filing the VAT report. Businesses have more time to review their data and submit an accurate VAT filing and can benefit from up to 70% waiver for their unpaid penalties if they meet the criteria.

Changes in the submission of Voluntary Disclosure 

Depending on the time of submission of the Voluntary Disclosure Penalties range from 5% to 40%. 

Previously there was a uniform 5% penalty for the underpaid tax amount. However, now a yearly penalty is introduced.

Year 1- 5% of the underpaid tax

Year 2- 10% of the underpaid tax

Year 3- 20% of the underpaid tax

Year 4- 30% of the underpaid tax

Year 5 and further – 40% of the underpaid tax.

The sharp increase in penalty percentage over the consecutive years ensures that it doesn’t get violated, as VAT registered companies need to verify their historical filings and avoid the same mistakes again. Some companies find it challenging to locate an error when the VAT report is submitted and payment has been made. Even though they are within the deadline, there will be a penalty for underpayment.

It is always beneficial to get a third eye view of your UAE VAT Report from an accounting services company to avoid any error. 

Late Payment Penalty 

The Late Payment Penaltyis levied if there is no voluntary disclosure or a tax assessment. The new rules provide a window of 20 days to settle any underpaid amount. 

  • 20 working days from the date of submission of Voluntary disclosure 
  • 20 Working days right after the receipt of Tax Assessment

However, if the taxpayer has underpaid the VAT returns, then the penalty will apply from the due date of the original VAT return, in case there is no voluntary disclosure.

The new Late Payment Penalties are as below:

  • No VAT Penalty from due date today 6. Earlier, an underpaid VAT return had 2% of the underpaid amount
  • From Day 7 until day 30, is also exempt from the VAT penalty giving the taxpayers ample time to provide disclosures and justifications.
  • From day 31 onwards, a 4% tax on the underpaid VAT is levied unless there is a voluntary disclosure or receipt of tax assessment, where 20 business days are granted for voluntary disclosure.

What are the fixed Late Payment Penalties?

The current First Voluntary Disclosure was AED 3000/- made AED 1000/- under the new rules. Any subsequent voluntary disclosure has been reduced to AED 3000/- from the initial AED 5000/- 

Furthermore, there is an increase in the percentage of penalty levied when a correction of error is notified to the taxpayer by the Federal Tax Authority. Initially, there was a penalty of 30% of the underpaid amount after receiving the notification from the FTA Audit. It was furthered to 50% if the error was discovered during the FTA Audit. There is a flat 50% penalty of the underpaid tax amount and an additional 4% underpaid tax each month from the date of the VAT returns due.

Taxpayers can benefit up to a 70% waiver of penalties if the unpaid qualify with the below conditions.

  • If the penalties were imposed on the taxpayer before 28th June 2021 and are unpaid.
  • If the total tax amount and 30% of administrative penalties are paid by 31st December 2021 but not before 28th June 2021.

Some other significant changes in the penalties under the Cabinet

  • Penalty for showing prices inclusive of VAT is now reduced from AED 15,000 to AED 5,000/-
  • Non-issuance of Tax Credit note or Tax Invoice penalty is reduced from AED 5,000/- to AED 2,500
  • There is a reduction in the penalty from AED 20,000/- to AED 10,000 for late registration, whereas deregistration has been reduced from AED 10,000 to AED 1,000 per month. It is capped at AED 10,000

Summary

The recent changes in the administrative VAT penalties provide relief for taxpayers. There is a significant change from penalties being generalized to a fault- related liabilities. The increase in penalties is seen chiefly where the historic filing data can be easily studied, and such penalties can be avoided. Farahat and Co are one of the UAE’s leading TAX Consultancy. They have a team of qualified VAT Consultants who can help your company to prevent any such penalty. To avoid any late payment penalty or error in reporting, you can seek assistance from a qualified accountant from Farahat and Co. Click here to get in touch today!

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. Read more