A 5% VAT has been enforced in the UAE since 2018. Business owners must be familiar with the VAT registration deadline, the VAT filing deadline, and the consequent penalties for missing deadlines. Working with an expert for VAT filing in UAE is an easy way to stay compliant and submit your returns on time.
VAT Filing: Who Has to Do It?
Every business who is registered for VAT has to file their returns by the deadline. There are two types of registration: mandatory and voluntary.
- Mandatory VAT registration: If your business is expected to exceed AED 375,000 in taxable supplies and imports in the upcoming 30 days or has already done so in the past 12 months.
- Voluntary VAT registration: If your business is expected to exceed AED 187,500 in taxable supplies and imports in the upcoming 30 days or has already done so in the past 12 months.
What are the Common VAT Filing Mistakes in UAE?
There are many mistakes business owners can make while filing for VAT. It’s important to carefully check your returns before submitting them to avoid VAT penalties in UAE. These are some of the most common mistakes businesses can make:
1. Missing the Filing Deadline
- Many businesses forget to file their VAT returns on time or assume there’s a grace period.
- The Federal Tax Authority allows only 28 days after the end of a business’ tax period to file Form 201 and pay VAT.
- Missing the deadline leads to a AED 1,000 penalty for the first time and a AED 2,000 penalty if it is repeated within 24 months.
- Even if your business does not have any transactions, you will be required to file a ‘NIL’ return.
2. Claiming Input VAT on Ineligible Expenses
- Some businesses claim VAT on expenses that are not allowed.
- The FTA does not permit claiming VAT on items that are not directly related to business activities.
- This includes staff gifts, client hospitality expenses, costs on personal vehicle use, and employee benefits.
- It’s important to have a valid tax invoice with a supplier’s TRN for compliant VAT return filing in UAE.
3. Keeping Incomplete Records
- The FTA requires businesses to keep their VAT records for at least five years. If you run a real estate business, you will have to save documents for up to 15 years.
- You should keep tax invoices, ledgers, tax credit/debit notes, customs declarations, records for zero-rated or exempt supplies, and inventory records.
- There is a UAE VAT fine of AED 10,000 for maintaining incomplete records, and AED 50,000 if it is a repeat offense.
- Using accounting software and having both digital and physical copies of your records can help you stay compliant.
4. Not Charging VAT When Required
- Some businesses forget to charge VAT on taxable goods or services. This can lead to underreporting or overreporting VAT.
- Zero-rated supplies have to be reported on Box 2 in Form 201. These expenses can be recovered.
- Exempt supplies have to be reported on Box 4 in Form 201. These expenses cannot be recovered.
- Doing these complex calculations incorrectly is a common VAT filing error in UAE.
5. Mistakes in the VAT Return
- If you find an error in a previous VAT return, you should correct it immediately by filing a Voluntary Disclosure (VD).
- You have 20 working days of finding the inconsistency to submit the VD.
- Alternatively, if you submit a VAT return with a mistake, you will be fined AED 3,000.
- If you also fail to pay the VAT amount, there are additional percentage-based penalties on the unpaid tax, so it’s important to disclose errors early.
6. Wrong Reporting Location
- Businesses with multiple branches can sometimes report transactions under the wrong emirate.
- VAT revenue distribution depends on the emirate where the supply takes place.
- If you submit VAT returns with misallocated transactions, the FTA may launch an inquiry into your business operations.
| Mistake | Solution |
| Missing filing deadline | Set reminders or let a consultant handle filing |
| Claiming input VAT on ineligible expenses | Check eligibility before claiming VAT |
| Keeping incomplete records | Maintain complete digital and physical records for 5 years |
| Not charging VAT when required | Review your supplies and charge VAT correctly (5%, 0%, or Exempt) |
| Mistakes in the VAT return | Double-check figures and file a Voluntary Disclosure within 20 days |
| Wrong reporting location | Report under the correct emirate based on the place of supply rules |
Avoid VAT Penalties in UAE With A&A Associate
A&A Associate provides expert services for VAT in Dubai. Our tax consultants can help you calculate and file your VAT returns so that you never miss a deadline and stay FTA- compliant. We also provide corporate tax advisory, and accounting and bookkeeping services in Dubai for both free zone and mainland businesses.
Get Expert Audit Services in Dubai From A&A Associate
A&A Associate is a leading audit firm in Dubai, providing comprehensive external and internal audit services. Our team is highly knowledgeable in international auditing standards and brings extensive experience in delivering objective and thorough audits to businesses throughout the country.
Get Certified Expert Help with Your Books
Precise, compliant accounting for businesses
