Read below to understand when to file and pay your VAT Returns in the UAE. Also, how to calculate the penalty of delaying your VAT payment deadline.
As per the UAE VAT law, every VAT registered person/business files their quarterly/ monthly return (as the case may be) and makes the payment by the 28th day of the month following the return period. Unless, the 28th day falls on a Friday, Saturday or a National holiday, where it will be pushed to the next working day.
The VAT liability needs to be fulfilled (VAT payment deadline to Federal Tax Authority) by the 28th, which means the VAT amount should reach the FTA before the 28th. If there is a delay in this, penalties will begin to be levied.
The bottom line: It is essential to make sure that you pay your VAT liability on time. However, when it so happens that your business cannot adhere to the Federal Tax Authority deadline, it is essential you understand the financial implication of this is. As the delay increases the penalty also increases.
Your business/you (i.e.the Registrant) shall incur a late payment penalty as follows:
- 2% of the unpaid tax is due immediately once the payment is late.
- 4% of the amount of tax which is still unpaid is due on the seventh day following the deadline for payment.
- 1% daily penalty will be charged on any amount that is still unpaid one calendar month after the deadline for payment, up to a maximum of 300%.
For example: Your VAT liability for your tax period is AED 10,000, and the business was not able to make the payment for 1 year. The additional penalty for this tax payment is AED 30,000.
Note that the FTA allows for partial payment, therefore if the business was able to make a payment of AED 4,000 before the deadline. Then the VAT liability reduces to AED 6,000 and the penalty will be calculated on the new liability and can reach up to AED 18,000.