VAT Penalties: How to Avoid Penalties Under VAT in UAE?

It is vital for the CEO of business to know and obey the new rules and regulations of VAT to avoid hard penalties which might be as higher as AED 50,000.

Here are the seven steps by which fiscal penalties can be avoided, which is caused due to violations, errors or incorrect record-keeping:

VAT Registration

VAT registration in UAE is important for the company which offers taxable goods or services with a yearly revenue of AED 367,000 or above. Option of registration will also be given to those whose yearly revenue is between AED 200,000 and AED 367,000. The Federal Tax Authority said that if the businesses fails to register in the given time then it could result in non-compliance penalties which can be as drastic as AED 20,000. The unregistered companies cannot do sales until they get their tax registration certificate (TRC).

Record all transactions

The requirement of the law is that, the businesses must stand up to their expectations and must have minimum turnover (as shown through fiscal records) to record their costs, business income and other similar VAT charges, and be sure to keep all the records up to date so that these records can be submitted to the FTA in Arabic.

The businesses which does not meet the minimum yearly turnover are advised to at least maintain the records of all the transactions. Whether your company is registered to VAT or not, the final decision will be taken as per the record which you have maintained and it will be the evidence for the FTA which will come for the survey. Or else, it may be considered as non-compliance, which will lead to the penalty.

Recommended: VAT Penalty in UAE

Collect VAT

On goods and services purchased by the customers, VAT is collected by the businesses on behalf of the government. If in any case, businesses fails to collect VAT, then they have to pay five times the VAT levied applicable on the company and must be paid within the time frame given by the tax authorities. So therefore it is suggested to follow the VAT collection compliance as per the tax authorities.

File VAT return

If you business has yearly turnover more than AED 150 million, then VAT returns must be filed every month and if the revenue is less than AED 150 million then they must pay file VAT quarterly. Penalties will given to those businesses which fails to file the tax return at the given time.

Understand zero rates and exempt suppliers

Some businesses have been excluded by FTA from tax. VAT taxable is still applicable to the zero-rated supplier but with the zero-percent rate. So, it is important for the companies to record and report on all the supplies. Real estate developers, airlines, clinics, jewellery, hospitals and schools are included in such industries.

Reverse Charges

The amount of VAT which is paid on goods and services, if purchased in the UAE is Reverse charges. These charges will be applicable on the goods and services which will be imported from outside the GCC. Under the Reverse Charge Mechanism, the business will not pay the VAT, but is shifted from seller to buyer. In this case, the buyer will inform about their input VAT (on the goods purchased) including their normal output VAT (on sale) in their returns for that quarter.

Get the basics right

Within 14 days of date of supply, a tax invoice must be issued. For tax invoice, it is compulsory registrant to include name, address and Tax Registration Number (TRN) to make the supply. An invoice must have the date of issue and a unique number due to which it easy to identify the tax voice and invoice in any order. And it is compulsory for it to precisely state the unit price, the quantity or volume supplied, the rate of tax and the amount payable which must be mentioned in UAE dirham.

From experience, we know that in other mature VAT jurisdictions, businesses have problem to answer the questions raised during audit by tax authorities. This problem is due to the incomplete submission of documents that support liabilities and claims reported within the VAT returns. As VAT is transactional in nature, then it will be advisable for businesses applying the tax to set in place an union of automated processes and tools that can effectively produce an audit file, on the request of tax authorities.

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