VAT Refund and Penalties

Determining and Avoiding VAT Late Penalty

In the UAE, VAT penalties can be categorized into three main types: administrative penalties, percentage-based penalties and daily penalties.

Administrative Penalties

These are fixed penalties imposed on businesses for specific violations, regardless of the amount of tax involved. Some examples of administrative penalties include

Failure to register for VAT when required

AED 20,000

Late submission of VAT returns

AED 1,000 for the first offense and AED 2,000 for repeated offenses within 24 months

Failure to display prices inclusive of tax

AED 15,000

Percentage-based Penalties

These penalties are calculated as a percentage of the unpaid tax or the tax underpaid due to errors. Some examples include

Late Payment of VAT

2% of the unpaid tax due immediately
4% on the seventh day following the deadline
1% daily penalty on any amount that is still unpaid one calendar month after the deadline up to a maximum of 300%

Submission of incorrect tax returns resulting in a tax understatement

50% of the amount understated if the error is less than 30% of the total tax due
30% if the error is between 30% and 50% of the total tax due

Voluntary disclosure of errors leading to a tax understatement or refund claim

5% of the tax amount if the disclosure is made within one year
30% if made between one and two years
50% if made after two years

Daily Penalties

These are penalties imposed on a daily basis for ongoing violations, such as failure to cooperate during a tax audit or not providing required information to the Federal Tax Authority (FTA). The daily penalties can accumulate over time, increasing the financial burden on the non-compliant business.

Understanding VAT Refund Scheme for Businesses in the UAE

The VAT refund scheme for businesses in UAE is designed to facilitate the recovery of VAT paid on expenses incurred by businesses that are not registered for VAT in the UAE. The scheme allows non-VAT registered businesses to claim a refund of VAT incurred on eligible business expenses, such as trade shows and exhibitions, import and export of goods, and other business-related expenses. The VAT refund scheme is administered by the Federal Tax Authority (FTA) and businesses can apply for a refund through the FTA online portal. The scheme is intended to support the business community in the UAE and enhance the competitiveness of the economy by encouraging foreign investment and promoting exports. Horizon can help you prepare and reclaim VAT for your business in the UAE.

Can Foreign Businesses be Eligible to Claim VAT Refund?

Foreign businesses that are not registered in the UAE for VAT, but have incurred VAT on their eligible expenses while conducting business activities in the country, may be eligible to claim a VAT refund. To be eligible, the foreign business must meet the following criteria

• Not have a place of establishment or fixed establishment in the UAE or any of the VAT-implementing GCC states.
• Not be a taxable person in the UAE.
• Be registered as an establishment with a competent authority in its jurisdiction of establishment.
• Have incurred VAT on expenses in the UAE (subject to some conditions and limitations).
• Meet certain additional requirements as specified by the FTA.

At Horizon Biz Consultancy, we can help you submit a refund application to the Federal Tax Authority (FTA) as an appointed tax agent. The FTA will then review your application and supporting documents before issuing a refund, subject to your business meeting all eligibility criteria and requirements.