Reduction of VAT Penalties Due to Covid

The recent Covid-19 pandemic has affected the economy and pushed millions of companies into near bankruptcy and closure. In addition, the pandemic has reduced consumption and affected the production and supply chains due to the subsequent virus-variant containment waves, frequent lockdowns and shortage of man and material.

In the pre-covid times, companies operating in the UAE are subjected to administrative penalties for any delay in submitting the due tax within the specified period. The new system of administrative penalties introduced with the VAT is in line with global standards. They ensure companies file their tax returns on time and ensure they settle dues with Government authorities.

Due to the Covid pandemic, businesses are adversely affected and require all assistance from the Government in tough times. The penalties will again add to the financial burden of the companies already reeling from the crises. To support businesses to overcome the pandemic ill effects, the UAE federal government has offered massive relief measures to the businesses facing capital crunches due to prevailing harsh market conditions. However, it cannot settle the tax liabilities with the Federal Tax Authority (FTA) on time.

Tax Penalty Relief Measures

As per the newly-released UAE Federal Cabinet Decision No. 49 of the year 2021, the UAE taxpayers with currently pending penalties can have them reduced to 30 per cent in total, provided that the taxpayers settle them before the period ending December 31, 2021.

  • Under the tax penalty rules, any late payment penalties are calculated starting from when the respective tax return was supposed to be filed, resulting in up to 300% of penalties. In the future, a substantial reduction in the late payment fee from prevailing one per cent per day to one per cent per month on the total outstanding while an overall cap remains at 300 per cent.
  • The measures also announced that there would be no penalty levied if the tax was paid within the submission of tax disclosure.
  • Suppose the taxpayers want to rectify past errors and make final settlements with the authorities as per the legal provisions. In that case, such taxpayers have imposed a nominal fixed penalty and variable penalty that ranges from 5 per cent to around 40 per cent based on the time taken to rectify the error.
  • The Federal Government also reduced the applicable fixed penalties hugely by up to 50 per cent for other forms of tax violations such as late registration and deregistration, failing to issue tax compliant invoice/tax credit notes.
  • The current penalty for late tax registration is reduced from AED20,000 to AED10,000. The current penalty for failing to submit a tax deregistration application at the specified time is reduced from AED10,000 to AED1,000 per month.
  • The current penalty for companies failing to display their product and service prices, including VAT, was decreased from AED15,000 to AED5,000.
  • The current penalty for businesses failing to issue a transaction tax invoice or tax credit note is reduced from AED5,000 to AED2,500.
  • The new provisions are applicable for a limited time. Companies need to take this opportunity and settle their outstanding dues with the authorities.

How Can Jaxa Help?

Jaxa Chartered Accountants are one of the pioneer accounting companies in the UAE. We closely work with companies in the UAE mainland and Freezones catering to clients from the Middle East and international regions operating in the UAE. We are Approved Auditors for many UAE Freezones. Our services include bookkeeping, accounting services, tax calculations & filing, compliance and auditing. Please Contact Us with your queries regarding the current UAE tax regulations. We’d be happy to help!

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