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Most common Business Mistakes relating to VAT and Penalties

Every registered business within the UAE are subject to VAT Laws and regulations by FTA. Tax-related issues in the UAE have to resolve their tax problems because when they fail to comply the business could face significant penalty and legal implications.

If you violate VAT laws, fines are enforced by the authorities against businesses that are tax-exempt, ranging from thousands of dollars. Taxpayers have an absolute right to contest an administrative penalty that is imposed to their company. The request must be made in the context of a reason that is valid to reconsider and proof.

Table of Contents

  • Common Mistake Businesses Make Relating VAT
    • Inability to display prices including VAT on goods and services.
      • Failure to comply with the regulations concerning the storage and transportation of goods within designated zones
    • Inability to notify FTA regarding the charge of taxes that is based on margins
    • Inability to issue taxes invoices for clients, or any other type of transaction
      • Inability to issue tax credit or E-tax credit notes, and also invoices for customers and clients
  • Get Consultation and Avoid Penalties!

Common Mistake Businesses Make Relating VAT

Authorities in the UAE ensure that every business that operates in the country is in compliance with tax laws. VAT is relatively new to the UAE which means the possibilities are your company could make mistakes that could result in severe penalties.

In that vein, here are the most frequent errors that businesses make in relation to VAT and penalties.

Inability to display prices including VAT on goods and services

Businesses within the UAE which are been registered as VAT registered must display prices for their products and services, which include VAT. However, there are exceptions to this as follows:

  • Business supplies are planned to be exported from the UAE
  • Imported goods
  • The customer also owns an enterprise that is tax-registered FTA

In addition to the cases mentioned above in which a company is VAT registered in the UAE does not display the prices for goods that include VAT to be paid by each client and client, they’ll be subject to a fine that is one thousand dollars. And keep in mind that this penalty is to be paid immediately.

Inability to adhere to regulations pertaining to the storage and movement of goods within designated zones

The government of the UAE has designated certain areas as VAT-free zones. These are not subject to VAT in the UAE. In accordance with the Cabinet’s resolution, ” Although designated free zones are part of the UAE territory but for VAT purposes they must be considered to be outside of the UAE.” The goods that are moved into these zones are not taxed with VAT.

However, if the movement of goods to an area designated for transfer occurs from a non-designated area in UAE however, the transfer is not considered to be VAT-free goods (they will be subject to VAT). There are numerous issues regarding VAT treatment in designated zones. It is advised to talk to an expert tax advisor in UAE to avoid legal penalties.

For the penalty, if a VAT-registered business which is not in compliance with the rules and regulations for the zone designated penalties of up to an amount equal to AED 50,000 is placed on the company. The penalty can also be as high as 50 percent of the tax for violations of the rules and rules of the FTA,

Failure to inform FTA about the recharge of taxes that is based on margins

Every registered business within the UAE are required to determine the VAT amount total according to their profit margins on supplies of their products. This includes stamps, second-hand items. Thus the profit margin can be calculated by subtracting cost of the item from the cost of purchase.

In the same way, VAT is calculated based on profit margins and not on the purchase price. In the event of a failure to notify FTA about taxation on profit margin whether it is intentional or not, can result in a fine of AED 25.000.

Inability to issue taxes invoices for clients, or any other transactions

When the sale of tax-exempt products or services occurs and the business is required to send a tax bill to the client or customer. If a business is unable to issue a tax invoice or an alternative document that proves the transaction occurred in the first place, a penalty of the amount of $5,500 is imposed.

Be aware that this penalty applies to one invoice. Therefore, if your company failed to pay a few invoices, the amount of the penalty will be increased according to. So, it is recommended to contact the company that can provide some of the most efficient VAT consulting services within Dubai in order to get rid of these costly penalty and penalties.

Inability to issue tax credit notes and e-tax credit notes and also invoices to customers and clients

Tax credit notes can be printed or electronically generated documents that inform of any changes or amendments made to tax-exempt supplies, such as any cancellation or reduction of the value of the recorded supply. A registered business in the UAE can issue tax invoices electronically and credit notes if:

  • A company can keep and protect copies of tax invoices and credits in accordance with FTA records-keeping guidelines
  • Businesses can assure the authenticity and reliability of the source of all tax invoices via e-tax or credit cards.

Companies that fail in issuing tax credits notes could result in an administrative penalty from FTA that is AED $5,000 for each SINGLE notes of tax credits that is that was not issued by the firm. Same applies to electronic tax invoices as well as credit notes.

Get Consultation and Avoid Penalties!

All taxpayers who are registered within the UAE must take note of the errors mentioned above and the penalties that are imposed by FTA. We recommend that if you’re looking to ensure that your company is complying with all regulations pertaining to VAT in the UAE and you are not sure, contact a VAT expert regulated or tax advisor in the UAE to avoid costly fines.

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