The Value Added Tax (VAT) is one of the new business taxes in the UAE, and the good thing is that, due to its transparent rules and laws, it has become more embedded into the UAE tax system than any other tax. The VAT implementation with strict rules and regulations has become one of the revenue streams that diversify the UAE’s conventional income, other than oil and mining.
The federal government ensures, with various clarification points and rules, that every business gets a transparent version of their tax filings. With this approach, the government encourages firms and enterprises to comply with rules and regulations. However, businesses that are still not registered with the Federal Tax Authority (FTA) struggle with their records and filing processes. At this point, it is very crucial to understand that non-compliance will result in VAT penalties. Fortunately, many expert tax professionals are available in the UAE who can provide professional assistance to such companies. So in the given blog, we will discover how to avoid non-VAT compliance in the UAE and what could be its consequences for business revenues and operations.
What’s Important About UAE VAT Penalties?
VAT is a 5% tax levied on imports and services in the UAE. The Federal Tax Authority is the regulatory body that imposes tax penalties, rules, and regulations regarding VAT and its compliance in the UAE. If a business is non-compliant for a longer time, its VAT penalties will increase by specific percentages, making it difficult for the business to remain operational. Also, in case of non-compliance, VAT penalties serve as a model for other businesses to follow tax laws and fulfill mandatory economic responsibilities in the UAE.
Pro Tips for Businesses in the UAE to Steer Clear of VAT Penalties
VAT registration
In the UAE, as per FTA rules, companies that generate revenue of more than AED 375,000 are required to pay VAT. If the business is non-compliant with the registration requirement, it will charge the company a penalty of AED 10,000. At the VAT registration stage, tax consultants in Dubai, UAE, can offer professional assistance in this regard.
Accurate Record Maintenance
The FTA provides proper guidelines for financial record keeping, and every business must adhere to the provided rules to remain compliant with the UAE VAT tax laws.
Properly maintained financial record-keeping allows companies to file VAT returns as per UAE tax regulations and rules. Accurate bookkeeping assists businesses in claiming input tax as well. Companies must keep records and documents for at least five years from the VAT period end.
Timely Submission
When the VAT tax period ends, every business is required to submit VAT returns by the 28th day or the specified deadline of the ending period. In case the company fails to do so, it will be charged with a fine of AED 1000 for the first late submission, and if the practice continues by the business, it has to pay a penalty of AED 2000 for a second late submission, within a 2-year duration. The best way to avoid such hefty penalties is to consult with FTA-registered tax consultants in the UAE.
Be Pro-Active: Pre-Audit Reviews Can Bypass Mistakes Before FTA Inspection
If companies go for a proactive strategy for their VAT filing and record keeping, it will protect businesses from penalties. An internal audit is one of the best strategies to identify any discrepancies in the record and correct, them before the FTA steps in.
Periodic reviews could be helpful as well, and ensure correct bookkeeping and VAT tax filings.
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VAT Compliance Mistakes to Avoid in the UAE
Inaccurate VAT rates
When filing for VAT in the UAE, it is important to classify products under the right category; otherwise, companies have to pay VAT penalties. Therefore, it is important to ensure accurate service or product classification according to the UAE VAT laws. Timely record entries and classification can mitigate the issue.
False Financial Numbers
Underreporting of monetary records or overstating buying sheets to decrease the VAT percentage is considered fraud in the UAE, and FTA charges fines and penalties for that, so, it is mandatory for companies to correctly show financial data in reports.
Inappropriate Allocation of Tax Invoice
If any company fails to issue valid tax invoices as per FTA regulations, the UAE government will charge penalties due to noncompliance with the UAE VAT tax rules. It is important to meet invoice requirements before submission.
Take Aways
At this point, it is essential to contemplate that the UAE VAT tax compliance is not all about penalties and fines. It is about seamless business operations and transparent taxation in the country. Due to minor mistakes in record keeping, declarations, service classifications, and late filings, several businesses might face unnecessary fines. To avoid financial inconvenience, it is better to consult tax consultants with professional expertise.
