What are the VAT penalties in the UAE?

## UAE VAT Penalties

The Federal Tax Authority (FTA) has a structured penalty regime for VAT compliance failures. Understanding these penalties helps businesses avoid them and, where they have been incurred, use the available recourse mechanisms.

## Late VAT Registration Penalties

| Violation | Penalty | |-----------|--------| | First-time late registration | AED 10,000 | | Subsequent late registration | AED 20,000 |

These penalties apply when a business exceeds the mandatory registration threshold (AED 375,000) and fails to apply within 30 days.

Practical note: If you discover late that you should have registered months ago, register immediately. The penalty clock for late registration is a flat fee and does not compound like late payment interest. However, you will also owe back-VAT on all the supplies you should have charged VAT on since the date you became obligated to register.

## Late VAT Return Filing Penalties

| Violation | Penalty | |-----------|--------| | Late filing, first time | AED 1,000 | | Late filing, subsequent occurrences | AED 2,000 per occurrence |

VAT returns (VAT301) are due by the 28th day of the month following the VAT period. Missing this deadline triggers the above penalties regardless of whether any VAT is actually owed.

## Late VAT Payment Penalties

This is where UAE VAT penalties become most significant:

| When | Penalty | |------|--------| | Immediately on due date | 2% of unpaid tax | | After 7 days | Additional 4% of unpaid tax | | Each day thereafter (up to 300%) | 1% per day |

The daily 1% penalty compounds until it reaches 300% of the original unpaid amount, after which it stops increasing. A AED 100,000 VAT liability left unpaid for 90 days would accumulate roughly AED 8,000 in penalties (2% + 4% + 84 days at 1%).

## Errors in VAT Returns

| Violation | Penalty | |-----------|--------| | Understating payable tax | 50% of the understated amount | | Overstating input tax | 50% of the overstated amount | | Late submission of required information | AED 10,000 per violation |

If you discover an error in a previously filed VAT return, voluntarily disclosing it to the FTA before the FTA identifies it may reduce the applicable penalty.

## Voluntary Disclosure

The FTA operates a Voluntary Disclosure mechanism. If you identify an error or omission in a previous return, submitting a voluntary disclosure and paying the corrected amount promptly:

• Stops further daily penalties accruing from the date of disclosure
• May reduce the base penalty percentage if the disclosure is made before the FTA opens an audit

Voluntary disclosure does not eliminate the penalty entirely but is significantly better than waiting for the FTA to find the error.

## Penalty Reconsideration and Waiver

Businesses can apply for penalty reconsideration through the EmaraTax portal within 40 working days of the penalty being imposed. The FTA will consider whether:

• There was a reasonable excuse for the non-compliance
• The non-compliance was a first occurrence with a good compliance history
• There were exceptional circumstances (system failures, natural disasters)

The FTA also operates periodic penalty waiver programs under Cabinet Decisions that allow outstanding penalties to be reduced or waived if the underlying tax is paid in full. These programs are time-limited.

## Common VAT Compliance Violations

Beyond late registration, filing, and payment, other penalised violations include:

• Issuing incorrect tax invoices (AED 5,000 per incorrect invoice)
• Not maintaining VAT records for five years (AED 10,000-50,000)
• Failing to display prices inclusive of VAT where required (AED 15,000)
• Providing incorrect information to the FTA (AED 3,000 for a first offence)