What is Voluntary Disclosure for VAT in UAE
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What Voluntary Disclosure for VAT is in UAE

It is true that the UAE Federal Tax Authority (FTA) knows everything. So, when its computer system has not detected an error in tax returns, should something be done? Perhaps there is no need in sending corrections as if the local tax authority finds out, your business can get penalized. 

The computer systems and tax officials of the FTA are great in absorbing and verifying massive amounts of data from tax returns. The FTA is obtaining a lot of information on a regular basis such as goods and services which are sold via online platforms. But, it can take a while to confirm the numbers that are reported by businesses across the country. For this reason, it is encouraged by the tax authority to proactively notify them when coming upon a realization that incorrect tax has been reported and the business has not paid the correct amount of tax at any point in the past. When making a voluntary disclosure for VAT in UAE, the business will get less fines compared to when the FTA finds out themselves. 

How is Voluntary Disclosure for VAT in UAE done?

Voluntary disclosure for VAT in UAE is done in various ways. Generally, the process involves the following:

  • Notifying the tax authority through regulated tax agents in Dubai that the business wants to make a voluntary VAT disclosure;
  • Getting confirmation and the registration number from the FTA;
  • Reporting to the FTA what exactly went wrong, as well as why there were omissions or mistakes in the reporting and tax payments; 
  • Calculating the amount of tax, penalties, and interest that are due; 
  • Allowing the FTA to check the voluntary disclosure;
  • Arriving a formal agreement with the computations with the tax authority

If you have deliberately failed in paying the correct amount of tax at any point in the past, it is possible for the FTA to commence criminal investigations with the purpose of prosecution. Often, the FTA will ask the business in completing several different forms apart from the voluntary disclosure to confirm the bank accounts to which the business has access. The FTA would also want a declaration of assets and liabilities which the business owns at a certain period of time, and confirmation that the tax authority has now been told everything including the corrections and updated information. 

What are the Penalties Associated with Voluntary Disclosure for VAT in UAE? 

There are two kinds of penalties – percentage-based and fixed penalty. The percentage-based penalty will be applied to the amount that’s left unpaid by the business to the tax authority because of the error or omission. The range of the percentage-based penalty is from five percent to fifty percent, greatly depending on several different factors. As for the fixed penalty for VAT voluntary disclosure, it is applicable for a first time offense and repeated offenses. The first time offense will be penalized with AED 3,000 while the repeated offense will constitute a penalty of AED 5,000. 

Note: percentage-based and fixed penalties will be levied jointly upon making a voluntary disclosure for VAT in UAE.

For the percentage-based penalty, five percent of the amount owed to the tax authority will be added to the bill if the business notifies the FTA itself by way of recent tax assessments or tax audits.

Request for Voluntary Disclosure Under the UAE Tax Procedures Law

Is Voluntary Disclosure in UAE in my Best /Interests?

Voluntary disclosure for VAT in UAE, regardless of the issue of the business, will allow it to stand in good stead not only with the Federal Tax Authority but also with all other government regulators. Often, the FTA won’t investigate disclosures deeply unless it has already started opening a case itself. When a full disclosure is given to the FTA and done so voluntarily, the penalties charged to the business will be much less compared to when the FTA starts its own investigations. More importantly, voluntary disclosure in UAE will bring your tax affairs in order and up-to-date, resulting in you enjoying peace of mind knowing you have sorted all of your tax obligations. 

Making a UAE VAT voluntary disclosure may be done by the business owner; however, it is best to engage with a seasoned regulated tax agent in Dubai who can provide guidance throughout the entire process. When working out the exact amount of tax that’s due for payment to the authority and the penalties that come with it, it is always recommended to have experts verify the numbers.  

Voluntary Disclosure Experts in UAE

At Farahat & Co, our tax specialists in UAE can provide assistance in going through all the phases of making a VAT voluntary disclosure up until the business is in full agreement with the tax authority, building in time in order to pay, as necessary. Call us today for more information!

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