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Consequences of Non-filing or Late Filing of VAT Return in UAE: Don’t Let it Cost You!
Are you aware of the consequences of non-filing or late filing of VAT return in UAE? Learn about the penalties and other legal implications that can cost you dearly.
The value-added tax (VAT) system was introduced in the United Arab Emirates (UAE) in 2018 to diversify the economy and reduce the dependence on oil revenue. All businesses operating in the country, including startups and SMEs, are required to register for VAT and file periodic returns with the Federal Tax Authority (FTA).
While filing VAT returns may seem like a tedious task, it is essential for businesses to comply with the regulations to avoid legal penalties and other consequences.
The Consequences of Non-filing or Late Filing of VAT Return in UAE.
1.Penalties and Fines
Non-filing or late filing of VAT returns in UAE can result in hefty fines and penalties. The FTA has set strict deadlines for filing VAT returns, and failure to comply with these deadlines can lead to severe consequences.
Late filing penalty: AED 1,000 for the first time and AED 2,000 for every subsequent time.
Non-filing penalty: AED 1,000 for the first time and AED 2,000 for every subsequent time.
Administrative penalty: AED 20,000 for each tax period for failing to keep the required records or documents.
Tax evasion penalty: Up to 300% of the tax amount due.
Imprisonment: In severe cases, non-filing or tax evasion can result in imprisonment of up to five years.
2. Business Reputation
Non-filing or late filing of VAT returns can harm a business’s reputation in the market. Failure to comply with the tax regulations can create a negative impression on customers, suppliers, and investors, leading to a loss of trust and credibility.
A business that regularly files its VAT returns on time shows its commitment to complying with the legal and regulatory requirements. This, in turn, enhances its reputation and credibility, making it more attractive to potential customers and investors.
3. Suspension of Services
In UAE, businesses that fail to file their VAT returns on time can face suspension of services. The FTA has the power to suspend the taxpayer’s TRN (Tax Registration Number) and restrict access to government services until the outstanding returns are filed and the fines are paid.
The suspension of services can have severe consequences for businesses, leading to a loss of revenue and customers. It can also negatively impact the relationships with suppliers and partners, who may be reluctant to do business with a suspended taxpayer.
4. Audit and Investigation
Non-filing or late filing of VAT returns can trigger an audit or investigation by the FTA. The FTA has the authority to conduct audits and investigations to ensure that businesses are complying with the tax regulations and filing accurate returns.
If a business is found to be non-compliant, the FTA can impose penalties, fines, and even initiate legal proceedings against the taxpayer. An audit or investigation can be a time-consuming and expensive process, requiring the business to provide detailed records and documents to the FTA.
5. Difficulty in Obtaining Loans
Non-filing or late filing of VAT returns can impact a business’s ability to obtain loans from banks and financial institutions. Banks and financial institutions often require businesses to provide proof of compliance with the tax regulations before approving loans.
If a business has a history of non-filing or late filing of VAT returns, it may be perceived as a risky investment by banks and financial
Steps businesses can take to avoid non-filing or late filing of VAT returns.
To avoid the consequences of non-filing or late filing of VAT returns in the UAE, businesses should take the following steps:
1. Understand their VAT duties: Businesses should be aware of their VAT obligations, including when and how to file VAT returns. This information is available on the FTA website or by obtaining expert assistance.
2. Set up a reminder system: Businesses should set up a reminder system to ensure that their VAT returns are filed on time. This can be accomplished by utilizing a calendar or software that sends reminders.
3. Maintain accurate records: Timely and correct VAT return filing requires accurate record-keeping. Businesses must keep accurate records of all transactions, including sales and purchases, expenses, and VAT charged and collected.
4. Seek professional advice: If a company is confused about its VAT requirements or how to file its VAT returns, it should consult a specialist. VAT professionals can advise on VAT compliance, record-keeping, and VAT return submission.
Frequently Asked Questions:
1. What are the three consequences of late payments?
A late or missed payment might have three major financial consequences: Late payment penalties may apply. Your credit card’s interest rate could be hiked to the penalty rate. Your late payment could be reported to the credit bureaus, potentially reducing your credit score.
2. What are the advantages of deferring VAT?
Businesses can declare and refund import VAT on the same VAT return by using postponed import VAT accounting. In practise, when you use this method, you do not have to pay import VAT at customs. Normally, businesses must pay VAT to Customs authorities upon importation.
3. Is there a time restriction on VAT mistakes?
The standard time restriction for correcting errors is four years after the end of the required accounting period in which the error occurred.
4. How can I avoid paying the VAT penalty?
Returns must be filed within one month and one week of the end of the VAT period, which is 7 May for the quarter ending 31 March. VAT owed must also be paid over to HMRC on the same day to avoid late payment penalties.
5. In the UAE, how can I fix a VAT return error?
If the error’s tax worth exceeds AED 10,000, it must be disclosed to the FTA via voluntary disclosure. A voluntary disclosure must be reported to the FTA within 20 working days after becoming aware of the error, using the form given by the FTA.
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