VAT Penalties in UAE

VAT Penalties in UAE:

Summary of Federal Decree-Law No. 49 of 2021

The United Arab Emirates (UAE) has implemented Value Added Tax (VAT) to diversify its revenue sources and align with international taxation standards. To ensure compliance, the UAE has introduced various penalties for violations related to VAT, governed by Federal Decree-Law No. 49 of 2021. This decree brought significant amendments to the existing penalty structure, providing relief in some areas while tightening enforcement in others.

Overview of VAT Penalties Under Decision 49

Federal Decree-Law No. 49 of 2021 introduced several changes to VAT penalties, aiming to make the penalty regime more equitable and supportive for businesses. The law applies to violations such as late registration, incorrect VAT filings, and payment delays.

Key Penalties Outlined in Decision 49

1. Late VAT Registration
   • Penalty: AED 10,000
   • Businesses failing to register for VAT within the stipulated timeframe face this penalty.
2. Late VAT Deregistration
   • Penalty: AED 1,000 for the first month, with an additional AED 1,000 for each subsequent month, capped at AED 10,000.
3. Late VAT Return Filing
   • Penalty:
     • AED 1,000 for the first offense.
     • AED 2,000 for subsequent offenses within 24 months.
4. Late Payment of VAT
   • Penalty: 2% of the unpaid tax immediately upon the due date.
   • Additional 4% monthly penalty applies if the payment remains unpaid.
5. Incorrect VAT Filing
   • Penalty: AED 1,000 for the first offense.
   • AED 2,000 for subsequent offenses within 24 months, plus other penalty for the late payment, etc
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6. Failure to Issue Tax Invoices/Tax Credit Notes
   • Penalty: AED 5,000 per missing document.

Amendments Introduced by Decision 49

• Reduction in penalties for late payment, encouraging voluntary disclosure.
• Introduction of a grace period for businesses to rectify mistakes without incurring substantial fines.
• Penalties for late payment now calculated based on the unpaid tax amount, ensuring proportionality.

Voluntary Disclosure Program

Decision 49 also promotes the voluntary disclosure of errors. Businesses that voluntarily disclose errors before an audit notice may receive reduced penalties. This initiative encourages transparency and helps companies avoid significant financial repercussions.