VAT Penalties and Its Legal Actions

One of the most drastic change that got implemented in the GCC region was the implementation of VAT proceedings, which became a compulsion for the countries registered under GCC. The United Arab Emirates, being a part of the same circle, has implemented the VAT on 1^st Jan 2018, backed by the idea that this would open a new source of revenue for the Emirati Government. The companies established in the nation is expected to pay VAT on time, or else will be penalized by the Federal Tax Authority. If you possess a business in the UAE, or is planning to start one, you need to be aware about the VAT Penalties and its legal actions that will be imposed due to non-payment of the VAT.

VAT Penalty in the UAE

Since implementation was made a mandate, the Government has also imposed strict rules if the rules are not followed on time. Business entities will be penalized under certain scenarios if they are unable to pay the VAT or implement VAT. The weightage of the penalty also differs as per the scenarios. Let’s have a look at the scenarios.

Scenario 1: Penalty on Late Filing of Return or Tax

The failure of the Taxable Person to settle the Payable Tax stated in the submitted Tax Return or Voluntary Disclosure, or the Tax Assessment he was notified of, within the timeframe specified in the Tax Law.
The Taxable Person shall be obliged to pay the penalty applicable to late payment of Payable Tax up to a maximum of 300%, pursuant to the following:
- 2% of the unpaid Tax shall be due on the day following the due date of payment, where the settlement of Payable Tax is late.
- 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.

Scenario 2: Penalty on Non-Disclosure of Tax Due on Imports

In case if an individual or a business fails to pay tax on the import of goods, then he needs to pay a charge of 50% on the unpaid amount.

Scenario 3: Penalty on Submission of Incorrect Tax Return or Non-Disclosure of Errors

If a taxpayer deliberately hides the errors in the records or submits incorrect tax return, he will be liable for a charge of Dh 3000 for the first time, and an amount of Dh 5000 on repeating the same.

Scenario 4: Penalty on Non-Maintenance of Accounting Records

Accounting records reveals the cashflow of the company. If the accounting records are found to be maintained in an improper way, the taxpayer will be sued to pay a penalty of Dh 10,000. On the other hand, if the offence gets repeated, the penalty gets rise to Dh 50,000.

Scenario 5: Penalty for Wrong Pricing of Items

In the world of business, there are companies who gets indulged in fraudulent activities like pricing of goods too high, or too low. In any case, if any company is found of wrong pricing of goods, a penalty of Dh 15,000 will be charged by the higher authorities.

The Outcome of VAT Penalty Charged in the UAE

By this far, you have got an overall idea regarding the VAT Penalties charged by the higher authorities on special scenarios. In case if your business is charged on the same, then you will be facing the following issues:

The business credibility goes down
The interest of company stakeholders gets lost
The amount of penalty to be paid will be multiple times greater than the profits earned
It becomes extremely difficult to sustain in the competitive market
Being imposed as a VAT Penalty payer, the goodwill of the company is lost

In a nutshell, we can state that a small negligence of non-payment of tax can ruin the whole future of your business. The corporate entities are expected to abide by the stated laws, and failure to maintain this would lead to a disaster. The best part to avoid such scenario is to pay the VAT on time and this will build up a good image in the eyes of the government. The professional consultant firms being experts in the field of Tax and VAT are dedicated to provide the same to their clients. At JAXA, we are destined to provide the same. Our professional experts are well-versed with the concepts of VAT Registration, Tax, Accounting and can help you in avoiding the VAT Penalties. To have a word, do contact us-we’d be glad to assist