What Are the Penalties for Late VAT Return Filing?

Filing VAT (Value Added Tax) returns on time is a crucial responsibility for businesses registered for VAT. However, if a business fails to meet the deadlines, it may face significant penalties and repercussions. This blog explores the penalties associated with late VAT Return Filing In Dubai, helping you understand the importance of timely submission and the potential consequences of non-compliance.

 

 

Understanding VAT Return Deadlines

 

Before delving into the penalties, it’s essential to comprehend the deadlines associated with VAT returns. Generally, VAT returns must be submitted quarterly, although some businesses may opt for monthly or annual returns. The deadline for submitting a VAT return is 28th day after the end of the VAT period. For instance, if your VAT quarter ends on March 31, the return must be filed by April 28.

 

Penalties for Late VAT Return Filing

 

The penalties for late VAT return filing can be substantial, varying based on the frequency and severity of the delay. Here are the primary penalties and their implications:

 

1. The failure of the Registrant to submit the Tax Return within the timeframe specified in the Tax Law 

 

• 1,000 for the first time. 

 

• 2,000 in case of repetition within 24 months. 

 

2. Interest on Unpaid VAT

 

The failure of the Taxable Person to settle the Payable Tax stated in the submitted Tax Return 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. 

 

In addition to penalties, businesses may also incur interest on unpaid VAT. The interest rate is determined by FTA (Federal tax authority) and is typically set at a rate higher than the base rate. Interest is charged from the date the VAT was due until it is paid in full.

 

Mitigating Factors and Reasonable Excuse

 

FTA recognizes that there may be circumstances beyond a business’s control that lead to late VAT return filing. In such cases, businesses can appeal against the penalties if they have a reasonable excuse. Some examples of reasonable excuses include:

 

• Severe illness or hospitalization

 

• Computer or software failure when preparing the return

 

• Fire, flood, or theft preventing the return’s completion

 

• Postal delays beyond the business’s control

 

It’s crucial to communicate with FTA as soon as possible if you believe you have a reasonable excuse. Providing supporting evidence will strengthen your case and may result in the waiver of penalties.

 

Consequences of Persistent Non-Compliance

 

Persistently failing to file VAT returns on time can have severe repercussions beyond financial penalties. FTA may take enforcement actions, including:

 

• Debt collection: FTA can engage debt collection agencies to recover unpaid VAT and penalties.

 

• Legal proceedings: Persistent non-compliance can lead to court action, resulting in additional legal costs and potential damage to the business’s reputation.

 

• Business closure: In extreme cases, FTA has the authority to shut down the business to recover outstanding debts.

 

Timely VAT return filing is essential to avoid penalties and maintain a good standing with FTA. Understanding the penalties for late submission underscores the importance of adhering to deadlines. If you anticipate difficulties in meeting a deadline, proactive communication with FTA can prevent potential penalties and ensure compliance. By staying informed and organized, businesses can navigate VAT obligations smoothly and avoid costly repercussions.

 

Controls and Procedures for Paying Administrative Penalties by Instalments and Waiving and Refunding Administrative Penalties.

 

Scope of Application

The provisions of this Decision shall apply to the requests for Settlement of Administrative Penalties by instalments, Waiver and Refund of Administrative Penalties, in whole or in part, which are imposed on any Person for violating the provisions of the Tax Procedures Law or Tax Law.

 

Controls for Settlement of Administrative Penalties by Instalments

 

The Committee may approve the Settlement of Administrative Penalties by instalments if the following are met: 

 

• The Request to pay by instalments shall be in respect of unsettled Administrative Penalties only. 
• The Administrative Penalties required to be paid in instalments by the Person shall not be less than (50,000) fifty thousand Dirhams, and the Committee may make any adjustments to that amount. 
• The Administrative Penalties, which are the subject of the Request to pay by instalments, shall not be subject to dispute before the Tax Dispute Resolution Committee, the competent courts, or any other entity involved in the consideration of tax objections or appeals in accordance with the mechanism stated in the Federal Law No. 7 of 2017, except objection through the reconsideration mechanism. 
• The Person should not owe any payable tax in respect of the tax period which is the subject of the Request. 

 

Controls and Cases for Waiver of Administrative Penalties

 

The Committee may approve the Waiver of Administrative Penalties if the following are met:

 

• The violation for which the Administrative Penalties arose should not be in connection to a tax evasion crime. 
• The submission of the request shall be within the period specified by the Committee. 
• The Person’s request shall relate to one of the following cases: 

 

1. a. Death of the registered natural person or the owner of a sole establishment, if the death was a direct cause for failing to fulfil the tax obligation. 

1. b. Illness of the registered natural person or the owner of a sole establishment, if the illness prevented the person from fulfilling the tax obligation on time. 
2. c. Death, illness, or resignation of a key employee of a registered establishment, provided that it is proven that this was a direct cause for not fulfilling the tax obligation on time. 
3. d. Restrictions, or precautionary or preventive procedures imposed by government authorities in the State, if these restrictions or procedures were a direct cause for not fulfilling the tax obligation. 
4. e. A general malfunction in the Authority’s systems, payment gateways or used telecommunication services, where that was a direct cause for not fulfilling the tax obligations of a Category of Persons on time. 
5. f. Execution of a custodial sentence on the registered person or the owner of a sole establishment. 
6. g. The person carries out the tax obligations and settles all due tax amounts in accordance with the Tax Law through an account of another person registered for tax purposes with the Authority. 
7. h. If the Person has been declared insolvent or bankrupt, and due taxes before the declaration of bankruptcy or insolvency were settled, unless the purpose of declaring the bankruptcy or insolvency is to evade paying such Administrative Penalties. 
8. i. Any other cases assessed by the Committee. 

 

Procedures for Submitting Requests for Paying by Instalment and Waiver

 

1. Requests for Settlement of Administrative Penalties by instalments or Waiver of Administrative Penalties shall be submitted to the Authority in the forms prepared by the Authority for this purpose. The request shall contain the following documents and data: 
2. Name and information related to the Person, including email and correspondence address. 
3. Tax registration number (TRN), if applicable. 
4. Amount of Administrative Penalties and violations relating to the Request. 
5. Date of imposition of the Administrative Penalties subject of the Request. 
6. Reasons for submitting the Request. 
7. Attaching an undertaking by the Person to settle the required payment in accordance with the Administrative Penalties instalment plan approved by the Committee, in case the request relates to the Settlement of Administrative Penalties by instalments. 
8. Attaching an undertaking by the Person that the person has corrected the violation and undertakes not to repeat the violation, in case the request relates to the Waiver of Administrative Penalties. 
9. Any other documents or details requested by the Committee or the Authority. 
10. The Person shall not make more than one request for Settlement of Administrative Penalties by instalments or Waiver of Administrative Penalties in respect to same Administrative Penalties under review. 
11. The Request shall be disregarded if the provisions of this Article are not met. 

 

 

Controls and Procedures of the Refund of Administrative Penalties 

 

• The Committee shall specify the cases and rules for the refund of penalties collected during the 5 five years preceding the date of reviewing the refund of the penalties, in order to achieve tax justice and equality between the legal positions of Taxable Persons. 
• The Authority should consider the financial implications of the Refund of Administrative Penalties and make recommendations to the Committee.