VAT in UAE

FAQs on Value Added Tax in UAE

Let’s clear up the confusion around Value Added Tax (VAT in UAE) by answering all the questions that we often get from you.

I should have undergone VAT registration in UAE a year ago. Is there a penalty?

The Federal Tax Authority (FTA), in most cases, is going to impose a penalty for late VAT registration in UAE. As per Cabinet Decision (no 40) of 2017, for failure of a taxable person in submitting an application for VAT registration in UAE when it reaches the mandatory registration threshold of AED 375,000, it will incur an administrative penalty of AED 20,000.

Can I get a VAT refund in UAE for business expenses?

This is a rather complicated issue. VAT incurred by businesses for food and accommodation of employees can be reclaimed. However, food and accommodation for entertaining clients are not considered in UAE by the FTA as tax-deductible. It’s also possible for taxable persons or VAT-registered businesses to reclaim VAT for motor and fuel expenses. However, there are several different criteria that businesses need to meet with regards to gas or fuel so it can be reclaimed. It’s best to consult with a regulated tax agent in Dubai for more information on the subject.

What are the conditions to be eligible for bad debt relief for VAT in UAE?

Bad debt relief in UAE arises when certain customers default payments (either in part or in full) to a supplier who has already accounted for VAT. The local tax authority allows businesses to claim the already paid tax back on bad debts based on these conditions:

  • VAT should’ve been already accounted for and settled with the FTA on each supply – this condition is going to be considered satisfied if the supplier charged VAT on a tax invoice and accounted for VAT via a submitted tax return
  • The consideration for a supply was written off – the supplier or VAT-registered business should write off part or the entire consideration for a supply as bad debt in company accounts. If just a part of the consideration was written off, bad debt relief in UAE can be taken based on the written off consideration
  • More than 6 months has passed from date of supply – before the deadline, the supplier must have engaged with the customer in recovering debt and collecting the outstanding amount. The supplier has to wait 6 months from date of supply before it can initiate the bad debt adjustment
  • Notification was sent to the customer – the supplier has to notify the customer regarding the amount that was written off. The notification has to include a relevant tax invoice number with the issuance date of the tax invoice that was left unpaid.

The notification may be sent through email, post, letter, or any other type of communication. Acknowledgment of receipt for the notification isn’t necessary to be issued by the customer. A VAT-registered business can still make the bad debt adjustment without an acknowledgment from the customer. However, the supplier has to retain evidence of taking the best measures for notifying the customer.

What is the mechanism for claiming bad debt relief in UAE?

Adjustment related to bad debt relief can be made during VAT return filing in UAE. The adjustment amount has to be VAT amount only.  It also should be classified for each emirate (if applicable).

What are the most common violations of businesses related to VAT in UAE?

The most common violations of VAT-registered businesses in UAE, which you should avoid committing following a successful VAT registration in UAE are as follows:

  • Failure in displaying the prices of goods and services inclusive of VAT – penalty is AED 15,000
  • Failure in complying with all the procedures and conditions related to the transfer of excise goods to a designated zone from a UAE designated zone, and the mechanism for storing and processing of the excise goods – AED 50,000 is the penalty or fifty percent of the tax chargeable with respect to goods as a result of this particular violation
  • Failure of a VAT-registered business to provide FTA with a price list for excise goods that are sold, imported and/or produced – AED 5,000 administrative penalty will be imposed for the first offense and AED 20,000 for repeated offense
  • Failure of a business to submit an application for VAT deregistration in UAE within the specified timeframe – AED 10,000 administrative penalty will be imposed
  • Failure of a VAT-registered business to submit records, documents, and data related to VAT when the authority requests such – AED 20,000 is the administrative penalty
  • Failure of a business to keep required information of the FTA as specified in the Tax Law – AED 10,000 for the first offense and AED 50,000 for a repeated offense

If you have any questions that are not answered here, contact us here in VAT Registration UAE so we can address them pronto.

Reference:

https://www.mof.gov.ae/en/lawsAndPolitics/CabinetResolutions/Documents/ViolationsTaxLaw.pdf