What are the consequences of non-compliance with UAE VAT?

A year on and VAT is still relatively new but getting more embedded into everyday life in the UAE.  There are still many areas of uncertainty and the knowledge of process and procedures is in its infancy but as the old saying goes, ignorance is no defense when it comes to law (and, of course, tax law).  Let’s take a closer look at the consequences of not complying with the rules of UAE VAT.

Perhaps the most commonly transgressed element is registration itself.  Since the 1st of January 2018, all companies that had a turnover of AED375,000 or more in the previous 12 months were required to register for VAT.  These companies are required to disclose their tax registration number on all invoices and include VAT at 5% on all goods and services that are subject to VAT.  The penalty or non-compliance with this is AED20,000 (subject to change).  As is common practice around the world, the fine can increase with repeated transgressions or continued non-compliance.

Failure to register may also occur where the correct process is not followed, or the necessary documentation is not provided.  Over and above the fines incurred, a business can also incur additional financial losses from not being able to offset VAT due against VAT paid which would in effect increase their net VAT liability.

We have included a summary of some of the most common penalties in this article for information and reference but, remember that this is still quite new and revision of these penalties is likely to be ongoing as more experience is gained by both the Federal Tax Authority (FTA) and by the business community as a whole.

Infraction First Penalty Repeat Penalty
Failure to keep the required records AED10,000 for the first offence AED50,000 for each repeat offence
Failure to submit the required records in Arabic when requested by the Authority AED20,000
Failure to submit a registration application AED20,000
Failure to submit a deregistration application AED10,000
Failure to inform the Authority of an amendment to tax records that needs to be submitted. AED5,000 for the first offence. AED15,000 in case of further offences
Failure to inform the Authority of an amendment to tax records that needs to be submitted. AED5,000 for the first offence. AED15,000 in case of further offences
Failure to notify the authority that a legal representative has been appointed for the business AED20,000
Failure of the legal representative to file a tax return AED1,000 for the first time AED2,000 in case of repetition within 24 months.
Failure of the Registrant to submit a tax return  AED1,000 for the first time  AED2,000 in case of repetition within 24 months. 
Failure to pay the tax stated in the tax return  2% of the unpaid tax is due immediately.  4% is due on the seventh day following the deadline for payment (and 1% per day for any unpaid tax beyond 30 days to a max of 300%) 
Submission of incorrect tax returns.  (AED3,000) for the first time.  (AED5,000) in case of repetition 

Getting your affairs in order with the right software, that can capture and report on your VAT position, is very important. 

1.      Such tools will drastically reduce the amount of time your organisation will expend on collating and cross-referencing tax information which, when calculated in financial terms, can be extremely costly in its own right. 

2.      There is also a very real risk of incurring additional penalties starting at AED10,000 that can increase to AED50,000 for repeat occurrences (in addition to a whole host of other penalties already in place and others likely to be added as experience and practice grows).

In the complex and multi layered world of construction, you will need to take advantage of the tried and tested systems designed specifically for construction companies.  Platforms such as BuildSmart and Candy by CCS can capture, collate and cross reference all elements from your end-to-end process and enable the accounting sections to have access to all the correct information in real time.  This will result in you all but mitigating the risk of incurring these penalties now and as the framework changes over time.

Contact CCS and learn how market leading software can help you navigate the challenges of VAT for your Business.

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