The FTA has recently announced an amendment in VAT penalties that will be levied post 28th June 2021 and waiver on existing penalties imposed prior to 28th June 2021. Here we will discuss some of the major takeaways from this update from the FTA’s announcement.
It is important for you to be aware of these major changes so you don't just take advantage of this waiver, but also being aware of the important changes in these penalties will help make the right tax decisions for your company.
Definitely read thisThe FTA has announced that taxpayers will benefit from a 70% reduction in the penalties if the following conditions are met.
1) The administrative penalty must be imposed under Cabinet Decision No. 40 of 2017 on the Administrative Penalties for Violating Tax Laws in the UAE before 28 June 2021,
2) The tax registrant settles all payable tax by 31 December 2021
3) The tax registrants must pay 30% of unsettled administrative penalties payable on 28 June 2021, on or before 31 December 2021
What this means is that if you have penalties and meet this condition you will only have to settle 30% of this amount. This will be a relief to a lot of taxpayers, who took some time to get used to the new tax system in UAE.
There have been many amendments in the VAT penalties by the FTA. So here we will get into some of the most important changes. Some of the penalties have been reduced while some others have a new mechanism for calculation in place.
The penalty for not registering for VAT within the specified timeframe has been dropped down from AED 20,000 to AED 10,000.
In this case there is a new mechanism for the calculation of this penalty. Now the penalty is on the basis of the difference between the tax that should have been calculated and the tax that was actually calculated. The new VAT penalty is calculated as follows-
1. 5% on the difference, where the Voluntary Disclosure is submitted within one year from the due date of submission of the Tax Return, the Tax Assessment, or the relevant refund application;
2. 10% on the difference, where the Voluntary Disclosure is submitted within the second year following the due date of submission of the Tax Return, the Tax Assessment, or the relevant refund application;
3. 20% on the difference, where the Voluntary Disclosure is submitted within the third year following the due date of submission of the Tax Return, the Tax Assessment, or the relevant refund application;
4. 30% on the difference, where the Voluntary Disclosure is submitted within the fourth year from the due date of submission of the Tax Return, the Tax Assessment, or the relevant refund application;
5. 40% of the difference, where the Voluntary Disclosure is submitted after the fourth year from the due date of submission of the Tax Return, the Tax Assessment, or the relevant refund application.
This has been reduced as well. AED 1,000 (previously AED 3,000) for the first voluntary disclosure and AED 2,000 (previously AED 5,000) in the case of repetition.
In this case a new mechanism is explained by the FTA for VAT penalty calculation.
1. 2% of the unpaid tax on the day following the due date of the payment.
2. 4% monthly penalty is due after one month from the due date of payment, and on the same date monthly thereafter, on the unsettled Tax amount to date.
The VAT penalty payable can go up to a maximum of 300%
As per the old calculation late payment penalty would be calculated from the due date of the VAT return that is being amended. Now the taxpayer will be given 20 business days from the date of the submission of the voluntary disclosure. Afterwhich the same late payment penalty discussed above will apply.
The VAT penalty for not Filing for VAT within the specified timeframe remains the same at AED 1,000 for the first return and AED 2,000 in the case of repetition within a 24 month period.
The updated mechanism of VAT penalties calculation in most cases is beneficial for the businesses in the UAE, and encourages business owners to correct the errors sooner. This will definitely be a relief for businesses in UAE, especially for the ones in the growing stage.
To get more advice on the reduction of tax penalties contact us by clicking on this link.
What are some of the Non-Deductible Expenses & Loss offsetting rules | 9% UAE CT| Public Consultation Document
27 Jun 2022
Calculation of Taxable Income | 9% UAE corporation tax | UAE Public Consultation Document
19 Jul 2022
Compliance Requirements in the UAE
08 Feb 2024
Exempt Income | 9% UAE corporation tax | UAE Public Consultation Document
09 Jun 2022
4 FAQ for UAE Automotive Industry - VAT edition
10 Oct 2021