Since the implementation of VAT in the UAE on January 1, 2018, under Federal Decree-Law No. (8) of 2017, the Federal Tax Authority (FTA) has maintained a strict compliance framework. All taxable persons are required to register, collect, file, and remit VAT according to the law. Failing to register for VAT in a timely manner or violating compliance norms can lead to severe legal and financial repercussions for businesses operating in the UAE.
This blog explains in detail the implications of late VAT registration, non-compliance, and how to avoid these common pitfalls with the help of professional consultants.
If your business is unsure about its VAT obligations or facing non-compliance issues, PEAK Business Consultancy Services offers expert VAT registration, filing, and advisory services to keep you compliant and penalty-free in the UAE.
1. Understanding VAT Registration Requirements
VAT registration is mandatory for businesses whose taxable supplies and imports exceed AED 375,000 annually. It is voluntary for businesses exceeding AED 187,500 in supplies or expenses. Registration must be completed within 30 days of crossing the threshold.
Note: Failure to register on time is considered a serious violation and attracts fines and possible legal actions.
2. Administrative Penalties for Late Registration
If a business fails to apply for VAT registration within the stipulated timeframe, the FTA may impose the following administrative penalties:
- AED 10,000 penalty for late VAT registration
- Additional penalties for late returns and payments
- Possible backdating of VAT liability to the date of threshold breach
Backdated liability means that VAT is payable retroactively on past supplies, which can significantly strain the business’s finances—especially if invoices did not include VAT earlier.
3. Non-Filing or Late Filing of VAT Returns
Businesses registered under VAT must file their VAT returns either monthly or quarterly, depending on the tax period assigned. Delays in submitting returns lead to penalties:
- AED 1,000 for the first offense
- AED 2,000 for each subsequent offense within 24 months
Additionally, interest may be charged on late payments at a daily rate, starting from the due date until the actual date of settlement.
4. Inaccurate VAT Returns or False Information
Submitting incorrect VAT returns—whether due to negligence or fraud—can result in high penalties:
- 50% of underpaid tax in case of willful misreporting
- 30% of the amount for errors discovered before a voluntary disclosure
- 5% to 50% administrative penalties depending on the severity and nature of the mistake
These penalties can be compounded if the FTA conducts an audit and identifies repeated errors across multiple returns.
5. Issues with Input Tax Recovery
Late registration can affect a business’s eligibility to recover input VAT on earlier purchases. Input VAT can only be reclaimed for invoices issued within the pre-registration period of six months, and only if related to taxable supplies.
Failing to track these expenses properly leads to forfeiting legitimate tax credits, increasing the overall cost of operations.
6. Impact on Business Reputation
Non-compliance with VAT regulations damages business credibility, especially with banks, investors, and business partners. Clients may avoid engaging with non-compliant vendors to prevent future tax complications.
Pro Tip: Maintain strong tax governance to improve your company’s financial health and public image.
PEAK Business Consultancy Services offers a VAT health check service that evaluates your current compliance and corrects any filing or documentation gaps before the FTA flags them.
7. Ineligibility for Voluntary Disclosure Benefits
Businesses that delay VAT registration or intentionally withhold information may become ineligible for reduced penalties through the voluntary disclosure regime. This increases both their financial liability and legal exposure.
Solution: Voluntarily disclose any past errors or delays before they are discovered during an audit.
8. Exposure to Audits and Investigations
Chronic non-compliance or a history of delayed filings increases the likelihood of an FTA audit. Audits can involve deep scrutiny of invoices, contracts, financial statements, and import/export documentation.
These audits not only disrupt operations but may also lead to retroactive assessments and reputational damage.
9. Legal Implications and Business Closure
In cases of deliberate tax evasion or repeated non-compliance, the FTA has the authority to take legal actions that may include:
- Freezing of business bank accounts
- Revocation of business licenses
- Travel bans and legal proceedings
Such outcomes are avoidable with proper tax planning and timely professional intervention.
Conclusion
The consequences of late VAT registration or non-compliance in the UAE are both financially and operationally serious. Whether it’s penalties, disqualified input claims, or the loss of business reputation, the impact can be long-lasting.
Take action before it’s too late. PEAK Business Consultancy Services provides expert VAT compliance services—from registration and return filing to voluntary disclosures and FTA representation. With us, your VAT obligations are in safe hands.
Stay compliant. Avoid penalties. Focus on growth—with PEAK BCS by your side.
