By Julia | November 23rd, 2017 | VAT
In a recent announcement, the government of UAE has revealed the fees and penalties for non-compliance of value-added tax (VAT) regulations as the date for VAT (a consumer-focused taxation system) implementation approaches. This latest tax regulation, which is supposed to be implemented from January 1, 2018, covers a great number of companies, tax agents, individuals and their legal representatives who fall under the scheme of these upcoming VAT regulations. The revealed penalties lay between the range of Dh3,000 and Dh50,000 varying according to the intensity of the violation made by the organizations or individuals.
According to the latest regulations, if an individual fails to keep the mandatory records and other details mentioned in the laws will have to pay the fine of Dh10,000 for the first instance, while the repetition of such violation of the law will be charged Dh50,000 to that same person. The law also adds that if a person fails to submit the tax-related data, records and documents in Arabic to the authority when asked, that person will be charged a fine of Dh20,000.
As a part of the GCC-wide agreement, the United Arab Emirates will implement a VAT of 5 per cent (one of the lowest percentage of VAT in the world) on a multitude of goods and service from the first day of 2018. According to the UAE regulations, the companies (goods and services providers) with the annual turnover of Dh375,000 or more will be subject to VAT. Businesses with taxable supplies which have the annual turnover of Dh187,500 to Dh375,000 will be provided with the choice to register for VAT. It is anticipated or rather aimed by UAE government to generate Dh12 billion through VAT collections in the first year of VAT implementation, and a sum of Dh20 billion in the year next to that. It is believed by the analysts and economists that with the introduction of VAT in the country, the inflationary pressure will increase.
In a press statement, which was released in the first week of October 2017, it was mentioned that UAE Council of Ministers has adopted Cabinet Decision No. 39 of 2017 on the fees for services provided by the Federal Tax Authority and Cabinet Resolution No. 40 of 2017 on the penalties for breach of tax laws in the UAE. According to a report published in Khaleej Times, Sheikh Hamdan bin Rashid Al Maktoum, the Deputy Ruler of Dubai and UAE Minister of Finance, has stated that the decisions would introduce an additional layer of transparency to the relationship between Authority and its customers. He also added that in turn, this would provide an extra incentive for stakeholders and all the concerned parties to adhere to the tax regulations. The customers can refer to the official Directory of Services Fees to learn what is required of them to comply with the tax procedures.
The fees and penalties that are applied for non-compliance with the VAT and excise tax legislation in the UAE complement the Federal Tax Procedures Law and its Executive Regulations quite well. According to the founding partner of Aurifer Middle East Tax, Thomas Vanhee, these laws have already provided the country’s Federal Tax Authority (FTA) with enough power and the considerably high penalties will now give the FTA a crucial tool to prevent taxpayers from non-compliance. The Penalty framework, which is described as a strict procedure by Vanhee, applies to VAT as well as the excise tax in the UAE. In mature jurisdictions, the fine on excise goods, like tobacco, is also pretty high, as they are quite fraud-sensitive goods. Although the fine for VAT offences are usually a bit lower and provide for a framework in which the voluntary disclosures are appreciated by automatically waiving the fines for tax payers coming forward.
Vanhee also explained that the fine for not registering for VAT is Dh20,000, which double the charge the government take as a penalty in Saudi Arabia. If a tax payer does not pay his due taxes, a daily penalty of one per cent will be applied after one month. In the oldest jurisdictions in the EU, the late payment fines usually range from 0.4 to 1 per cent per month (with exceptions up to 2.75 per cent). In the case of a voluntary disclosure by a taxpayer, it will cost Dh3,000 as a penalty for the first instance and Dh5,000 in case of a repetition. The same amount of fine (Dh3,000 and Dh5,000 respectively) is charged when there’s failure of the taxpayer to voluntary disclose errors in the taxable returns.
As per the FTA, tax registration service and the issuance of the certificate of e-tax registration will cost no money, but a fee of Dh500 will be required for the attestation. For the tax agents, the registration and renewal fees for three years will cost Dh3,000. The FTA also states that the registration and renewal fee for an accounting software provider will be fixed at Dh10,000 for one year while registering a Designated Zone will be charged Dh2,000 each year. The registration of a warehouse keeper or the issuance of an electronic warehouse keeper registration certificate will not be charged any service fee, but an official printed certificate will cost Dh500.
The Federal Law of the UAE prohibits a taxpayer from evading the due taxes and the resulting penalties. If you don’t want to be identified as a tax evader in the newly established tax regulation, you should start learning about the taxes that apply to you and your business. There can be stricter rules against the tax evaders in the future, so if you want to retain your business in this country, it will be wiser for you to pay your due taxes and fees before the deadline.
| Sl. No. | Description of the infringement | Administrative penalty or fine (in Dirhams) |
| 1. | The failure of a person, who conducts business in the UAE, to keep the necessary records and other significant information mentioned in the Tax Procedures Law and Tax Law. | · 10,000 for the first instance.
· 50,000 for repetition of such action. |
| 2. | The failure of a person conducting business in the UAE to present the tax-related information, records and documents to the Authority in Arabic when requested. | 20,000 |
| 3. | The failure of a taxable individual to submit an application for registration within the timeframe mentioned in the Tax Law. | 20,000 |
| 4. | The failure of a Registrant to submit an application for deregistration within the timeframe mentioned in the Tax Law. | 10,000 |
| 5. | The failure of a Registrant to inform the Authority of any situation that seeks the amendment of the information relating to the person’s tax record kept by the Authority. | · 5,000 for the first instance
· 15,000 for the repetition of the same. |
| 6. | The failure of a person to inform the Authority of his appointment as a Legal Representative of a taxable person in the UAE within the mentioned timeframe. The fine will be charged to the Legal Representatives own funds. | 20,000 |
| 7. | The failure of an appointed Legal Representative to file a Tax Return within the mentioned timeframe for the taxable person. The fine will be due from the funds of the Legal Representative. | · 1,000 for the first instance
· 2,000 for the repetition of the same action within next 24 months |
| 8. | The failure of a Registrant to submit the Tax Return within the timeframe mentioned in the Tax Law. | · 1,000 for the first instance
· 2,000 for the repetition of the same action within next 24 months |
| 9. | The failure of a taxable person to settle the payable tax specified in the submitted tax return or tax assessment he/she was informed of, within the timeframe stated in the Tax Law. | · 2% of the due tax is added immediately to the amount of payable tax once the payment is late.
· 4% of the unpaid tax is due on the seventh day following the deadline for payment. · 1% of the unpaid tax is charged daily as a penalty on the unpaid amount of payable tax one calendar month following the deadline for payment. It can go up to 300% of the unpaid amount if the tax is avoided. |
| 10. | The submission of an incorrect tax return by the Registrant. | There are two penalties applicable for such infringement of the Tax Law.
1. The first one is a fixed penalty of · 3,000 for the first instance · 5,000 for the repetition of the action. 2. The remaining penalty is charged based on the following factors. · 50% of the payable tax will be charged as fine, if the Registrant does not disclose the fact voluntarily, or makes a voluntary disclosure after being notified of the tax audit and the Authority has begun the tax audit process, or after being requested to submit information relating to the tax audit – whichever occurs first. · 30% of the payable tax will be charged as a penalty if the Registrant makes a voluntary disclosure after being notified of the tax audit and before the Authority starts auditing the tax. · 5% of the payable tax will be charged to the Registrant if he/she makes a voluntary disclosure before being notified of the tax audit by the Authority. |
| 11. | The voluntary disclosure by a person (taxpayer) of the errors in the tax return, tax assessment, or refund application under the Article 10 (1) and (2) of the Tax Procedures Law. | The person is charged with two separate penalties for this particular violation as well.
1. A fixed penalty of: · 3,000 for the first instance · 5,000 for the repetition of the action. 2. A percentage based penalty depending on several factors. · 50% of the payable tax will be charged as fine, if the person does not disclose the fact voluntarily, or makes a voluntary disclosure after being notified of the tax audit and the Authority has begun the tax audit process, or after being requested to submit information relating to the tax audit – whichever occurs first. · 30% of the payable tax will be charged as a penalty if the taxpayer makes a voluntary disclosure after being notified of the tax audit and before the Authority starts auditing the tax. · 5% of the payable tax will be charged to the person (taxpayer) if he/she makes a voluntary disclosure before being notified of the tax audit by the Authority. |
| 12. | The failure of a taxable person to disclose the errors in tax assessment, tax return, or refund application under the Article 10 (1) and (2) of the Tax Procedures Law voluntarily before being notified that it will be subject to a Tax Audit by the Authority. | Two Penalties are charged for this infringement of the Tax Procedures Law.
1. A fixed penalty is charged amounting: · 3,000 for the first instance · 5,000 for the repetition of the action. 2. 50% of the amount that is unpaid to the Authority due to an error leading to a tax benefit for the person (taxpayer). |
| 13. | The failure to facilitate the job of the Tax Auditor by a person, who is conducting business in the UAE, in violation of the provisions of the Tax Procedures Law, Article (21). | 20,000 |
| 14. | The failure of a Registrant to calculate Tax on behalf of another individual when the registrant taxable person is bound to do so under the Tax Law. | · 2% of the due tax is added immediately to the amount of payable tax once the payment is late.
· 4% of the unpaid tax is due on the seventh day following the deadline for payment. · 1% of the unpaid tax is charged daily as a penalty on the unpaid amount of payable tax one calendar month following the deadline for payment. It can go up to 300% of the unpaid amount if the tax is avoided. |
| 15. | An individual not accounting for any tax that may be due on the import of goods which is mandated by the Tax Law. | 50% of the unpaid or undeclared tax. |
| Sl. No. | Description of the infringement | Fine or administrative penalty (in Dirhams) |
| 1. | The failure to display prices of inclusive tax by a Taxable individual. | 15,000 |
| 2. | Incompetence in complying with the conditions and procedures related to the transfer of the Excise Goods from a designated zone to another designated zone, and the procedure of processing and storing such Excise Goods. | The penalty shall be 50,000 or 50% of the payable tax, whichever is higher, chargeable depending on the goods as the result of the infringement. |
| 3. | Failure to provide the Authority with the price lists for the Excise Goods produced, imported or sold by a taxable person. | · 50,000 for the first instance.
· 20,000 for repetition of such action. |
| Sl. No. | Description of the infringement | Administrative penalty of fine for the infringement |
| 1. | The failure to display prices inclusive of Tax by a taxable person. | 15,000 |
| 2. | The failure to notify the Authority of applying tax based on the margin by a tax payable person. | 2,500 |
| 3. | The failure to have compliance with the conditions and procedures related to keeping the goods in a designated zone or transferring them to another designated zone. | The penalty shall be 50,000 or 50% of the payable tax, whichever is higher, chargeable depending on the goods as the result of the infringement. |
| 4. | The failure to issue the tax invoice or an alternative document while making a supply by a taxable person. | 5,000 for every tax invoice or an alternative document. |
| 5. | The failure to issue a tax credit note or an alternative document by a taxable person. | 5,000 for every tax credit note or an alternative document. |
| 6. | The failure to have compliance with the conditions and procedures concerning the issuance of electronic tax invoices and electronic tax credit notes by a taxable person. | 5,000 for every incorrect document. |
Uaevatexpert.ae is a leading VAT consultation provider in the UAE which helps you get acquainted with the latest regulations and tax provisions in the country. We have a team of professional experts who can provide you with proper knowledge about the significant VAT related issues like VAT Registration, VAT implementation, and VAT return filing services in the UAE. Our team includes industry stalwarts who can help you understand the VAT regulations that concern your business and prevent you from facing a penalty due to tax evasion.
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