The introduction of Value Added Tax (VAT) in 2018 brought significant changes to the business landscape in the UAE. All registered businesses have to comply with VAT regulations around returns filing, tax payments, and documentation.
However, many businesses struggle to align with the complex reporting systems and frequently changing rules. Even minor oversight or delays can attract hefty VAT penalties, creating massive financial strain.
Does your business also have VAT penalties due to late filings or missed payments? Are you worried about paying the lump sum? Well, here’s a relief the Federal Tax Authority (FTA) offers an instalment scheme to pay VAT penalties in equated monthly instalments (EMIs) over 12 or 24 months.
This blog provides a detailed understanding of:
- VAT penalty structure in the UAE
- Common reasons for VAT non-compliance
- Overview of FTA’s instalment plan
- Step-by-step guide to apply for the instalment scheme
- FAQs on penalty waivers and payment defaults
So let’s get started.
What are the VAT Penalty Charges in the UAE?
In case of VAT non-compliance, the FTA imposes the following financial penalties:
Late VAT registration: AED 20,000 one time fine
If you fail to register for VAT within the prescribed 30 days of crossing the mandatory registration threshold, this penalty applies.
Delayed VAT filing: AED 1,000 per return
If you miss filing your VAT return before the 28th of the subsequent month, this monthly fine is levied.
Late VAT payment: Percentage of unpaid tax up to 300%
If the VAT amount is unpaid after the deadline, a penalty of 1% daily subject to max 100% applies. If delay exceeds 60 days, a 300% one-time fine is imposed.
As you can see, penalties accumulate rapidly even for minor defaults. This can paralyze an organisation’s finances.
Penalties are higher for frequent defaulters. Other fines like VAT deregistration, tax evasion also apply for serious non-compliance.
Key Reasons Why Businesses Attract VAT Penalties
Even responsible businesses can sometimes default on VAT compliance obligations due to various everyday challenges. Complex and frequently changing regulations make it enormously difficult to keep up with the latest rules.
Many companies also lack dedicated VAT accountants on staff resulting in capacity issues, while smaller firms with limited employees are especially vulnerable. Over-dependence on external consultants for VAT processes can also be risky as it reduces internal accountability. Manual reporting further amplifies the scope for oversight errors or missed deadlines.
And if businesses don’t proactively track updates, they might simply be unaware of new VAT procedures altogether.
Thus, while penalties might seem harsh, even well-intentioned businesses can falter on meeting compliance for circumstances beyond their control at times.
However, the FTA makes provision for these exact situations by allowing businesses to apply for fixed monthly instalment plans to pay off outstanding VAT penalties. This instalment policy aims to provide feasible recourse especially for small and medium-sized companies facing cash flow issues or temporary challenges that hindered compliance.
By permitting penalty recovery in manageable instalments, it prevents further business disruption while also upholding VAT enforcement.
The FTA portal offers user-friendly application procedures for the instalment plan with eligibility criteria focused on: penalty amount ceilings, prior compliance history, business activity status, and required documentation.
Once approved, businesses can pay penalties over 3-6 month fixed instalments via convenient payment channels. This allows functional continuity alongside VAT correction.
Overall the FTA instalment policy balances regulatory discipline with business pragmatism – enforcing accountability while offering support. Understanding its fair provisions can provide the best solution when facing VAT penalties.
Understanding FTA’s VAT Penalties Instalment Plan
To provide relief from lump sum penalty payment, FTA offers an instalment facility as per Cabinet Decision No. 49 of 2022. This allows eligible businesses to pay penalties in EMIs.
It has the following benefits:
- Avoid large one-time penalty payment
- Flexible repayment up to 24 months
- Payable in equated monthly instalments via self-assessment returns
- Only 1% interest per annum charged on outstanding penalty amount
This greatly reduces the financial burden imposed by VAT penalties allowing businesses to reallocate working capital more productively.
Step-by-Step Guide to Avail the Instalment Facility
If you wish to leverage FTA’s instalment scheme for VAT penalties, follow these steps:
Step 1: Penalty Assessment
- FTA will review your overall VAT compliance history and impose applicable financial penalties as per law
Step 2: Documents Required
- Obtain bank guarantees equal to total outstanding VAT penalty amount
- Ensure bank guarantee remains valid till end of chosen instalment tenure
Step 3: Application
- Access the ‘VAT Penalties Instalment Request’ e-form on FTA portal
- Fill details – penalty amount, chosen tenure, bank details
- Submit form & documents before penalty due date
Step 4: FTA Approval
- FTA verifies eligibility and reviews the instalment request
- If approved, contract gets emailed in 15-20 days
Step 5: Instalment Payment
- The equated monthly instalments reflect in regular VAT returns
- Pay EMIs on time to avoid default and encashment of bank guarantee
Important: Meet the payment deadlines. Else, the bank guarantee will be encashed by FTA attracting full penalty in one go.
Conclusion
We hope this guide helps you access the FTA instalment plan to ease VAT penalties. Don’t hesitate to consult VAT experts so as to avoid penalties by staying compliant.
Actively track updates in VAT law and implement robust internal controls around returns filing, documentation and payments. Choose the 24-month tenure to maximize benefits of the instalment scheme. Invest in technology solutions to minimize human errors and oversight.
FAQs
You can choose a tenure of 12 months or 24 months to pay your VAT penalties through equated monthly instalments (EMIs) as per the scheme. The 24 month option allows you to distribute the penalty amount over the longest duration, making it most affordable.
No. The bank guarantee submitted while availing the instalment plan cannot be cancelled or revoked before full and final settlement of outstanding penalties with the FTA. It must remain valid till the end of chosen repayment tenure.
Availing the VAT penalty instalment scheme does not impact your regular VAT obligations around filings, documentation and payments. You must continue meeting all compliance requirements on time alongside paying penalty instalments.
No, the amount of VAT penalties imposed cannot be negotiated as it is calculated as per federal tax law. However, you can contest the specific compliance violation that led to the penalty by providing documentary proof to FTA.
No application or processing fees are charged to avail the VAT penalties instalment plan. You only need to pay 1% simple interest per annum on reducing the balance of the outstanding penalty amount.
