Voluntary VAT Disclosures can Result in Huge Penalties

Jay Krishnan, Partner

26 October, 2020

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UAE based businesses will have to pay penalties for voluntary disclosures, from the date of the original VAT return in which the error was made to the date of receipt of payment of the VAT. Initially, penalties on voluntary disclosures were treated as admin fines, and heavier penalties were not imposed for late payments. The ruling by UAE Federal Supreme Court comes as a huge shock for businesses, as the penalties can reach up to 300 percent of the dues.

The judgment by the Federal Supreme Court will be the first final and conclusive judgment to be issued on penalties for voluntary disclosure. The judgment may affect upcoming decisions to be issued by the various Tax Dispute Resolution Committees and Federal Courts.

A voluntary disclosure is a form provided by FTA that gives taxpayers an opportunity to voluntarily notify the authority about any error or omission in a previous Tax Return, Tax Assessment or Tax Refund application. A voluntary disclosure must be submitted within 20 business days of the taxpayer identifying an error.

“It is always better to ensure there aren’t any errors or omissions in the VAT return form, rather than worrying about penalties at a later stage or not disclosing prior period errors to the FTA. VAT plays a significant role on the entire business system and penalties that result from voluntary disclosure can affect cash flow adversely. Hence, it is important to have the right procedures in place’, says Jay Krishnan, Partner at HLB HAMT.

It has been almost three years since UAE implemented VAT, but the trend of committing errors while filing for VAT is still prevalent among many businesses. HLB HAMT has an exclusive team of trained VAT Consultants who can assist you to steer your business smoothly through the tax laws.

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