A tax is a way of raising revenues that the governments use to pay public services like hospitals, roads, police services, public schools, and waste control. On January 1st, 2018, the Value Added Tax (VAT) was introduced with Federal Decree-Law Number 8 of 2017 (the VAT law); this is an indirect tax on the transactions of goods and services applied at each stage of the supply chain. Nowadays, the VAT rate is 5%, and the Federal Tax Authority is in charge of its implementation and regulation. The good news is that VAT in UAE is one of the lowest in the world and until the moment there are no plans to increase this rate. In countries like the United Kingdom, China, Colombia, France, and Sweden the VAT rate is between 17%-25%. The VAT law considered four categories:
- Zero Rate sectors: Article 45 established the supply of Goods and services that VAT will be charged at 0%, such as exports of goods and services to outside the GCC, International transportation, and supply of certain education and healthcare services.
- Exempt sectors: According to article 46 of the VAT Law, the supply of some financial services (specified in VAT legislation), residential properties, bare land, and local passenger transport are exempt from VAT.
- Partial exemption: Article 59 stated the partial exemption of VAT.
- 5 % Value Added tax: In the case of a business whose taxable supplies and imports exceed the threshold of 375,0000 AED, the register for VAT is a must.
However, there is a voluntary registration where you are not required to register but you will be eligible to apply for registration when the VAT law is in force if your turnover were more than AED 187.500 in the last two months. For emirate Government bodies and charities, they must register for VAT purposes
There is another exception that is the case of tourists. Once they leave the country, it is possible reimbursement of the VAT. However, it must pay 15% of the administrative fee and 4.8% of the tag fee for every individual claim. This applies only to purchases of at least AED250. The tourist should submit the tax invoices for their purchases with a copy of the passport and credit card. On the other hand, what happens if there is a non-compliance of VAT? According to Federal Law Number 7 of 2017 on tax procedures, there are penalties for non-compliance of Value Added Tax in UAE:
- All VAT-registered persons must maintain proper records or documents to support all the transactions. If there is a failure retaining accounting records, the initial fine will be AED 10,000, but the second time will be AED 50,000.
- When the Arabic translation of transactions is not supplied to FTA, there is a fine of AED 20,000
- The date of submitting the tax return is within the 28th of the month following the tax period. If the tax return is not submitted within the prescribed timeframe, there will be a fine of AED 1,000, but if there is a repetition of the violation within 24 months, there will be a fine 0f AED 2,000
- If in the prescribed time, there is a failure to register for tax, the fine will be AED 20,000
- If there is a miscarriage to settle any taxes payable will result in a late payment penalty of 2 percent of the unpaid tax due immediately.
- In the case of the incorrect tax return submitted, the fine will be AED 3,000 the first time, but if there is a repetition, the fine will be AED 5,000
- If in the VAT records was made an amendment, the authorities should be informed about it, if not, the first time the fine will be AED 5,000, the second time violation, the fine will be AED 15,000.
- If there is not issuing tax invoices and tax credit notes, the fine will be AED 5,000
- In free zones, if there is a non-compliance with the conditions and procedures related to taxable goods, the fine could be AED 50,0000 or 50% of the tax.
- When the prices are not displayed with VAT, the fine will be AED 15,000
- In the event of not submitting a deregistration application in the timeframe specified, the fine will be AED 10,000
- If the business does not notify in the timeframe specified to the Authority that a legal representative has been selected, the fine will be AED 20,000
- Suppose the legal representative of the business fails to file a tax return. In that case, the fine will be AED 1,000 the first time for the legal representative, and the second time will be AED 2,000 (within 24 months).
Form 211: Voluntary disclosure form
On the other hand, it exists in form 211 which allows businesses and taxpayers to notify FTA about the mistakes, omissions, and changes in a tax return or tax refund. This form should be submitted within 20 business days from when the taxable person realized the error. The first time, the fine will be AED 3,000 for using the form 211, and the second time will be AED5,000.
Applications for Reconsideration
Article 27 of Federal Law Number 7 of 2017 states that any person may submit a request according to the advice from the legal person to the Authority to reconsider any of its decisions issued in connection to him within 20 business days. The Authority shall review a request for reconsideration. It has fulfilled the requirements and issued its justified decision within 20 business days from receipt of such application. In case of late payment, there will be a fine of 2%, 4% after the first week, and a daily maximum of 1%.
Tax Disputes Resolution Committee
This committee is confirmed by a member of the judicial Authority and two experts’ members registered in the register of tax to be appointed by the Minister of Justice’s decision in coordination with the Minister.
The tax disputes Resolution Committee have jurisdiction to:
- Decide in respect of objections submitted regarding the Authority’s decisions on applications for reconsideration
- Decide in respect of an application for reconsideration that was submitted to the Authority. Nevertheless, the Authority has not decided in their regard according to the provisions of the Law.