How to Apply for VAT Penalty Waiver in UAE?

The Federal Tax Authority (FTA) imposes VAT Fines and penalties in UAE on businesses that fail to comply with the Value Added Tax (VAT) law. The penalties vary depending on the nature of the violation, but they can be significant. The FTA may waive a VAT penalty if the business can show that it had a reasonable excuse for the violation. 

The Federal Tax Authority has created several tools that enable taxpayers to ask for a decrease in or exemption from administrative fines imposed by tax regulations. A waiver or decrease can only be granted by the FTA, and each request will be considered on its own merits.

 

VAT Penalty Waiver in UAE

A VAT Penalty Waiver in UAE is a request to the Federal Tax Authority (FTA) to Consider & reduce or exempt a taxpayer who is subjected to a VAT penalty. The FTA may grant a waiver if the taxpayer can show that there was an excuse for the violation that led to the penalty.

About processing administrative penalty installments and waivers, FTA issued Cabinet Decree No. 105. The new cabinet decision went into effect on March 1st, 2022. The project enables taxpayers to gradually pay off administrative fines, subject to certain conditions and qualifying restrictions.

Normally, anyone looking for a waiver should send their application directly to the FTA. However, the following may also submit waivers:

• Your authorized tax advisor or Tax Agents in UAE
• Your designated legal representative

 

The Representative Member of the Tax Group should be in charge of filing the waiver request if you are a member of a Tax Group. Please be aware that Tax Consultants or Advisors cannot request waivers on behalf of others if they are not registered Tax Agents.

 

VAT Penalty Waiver & Installment Overview

The following are the main principles of the decision:

Penalty Installments

Taxable individuals who meet the following requirements can choose to receive penalty installments:

• The application is specifically for outstanding fines.
• The total amount of overdue penalties is AED 50,000 or more.
• The Tax Disputes Resolution Committee (TDRC) or Federal Courts are not currently hearing a case involving outstanding fines.
• Taxpayers must pay up all unpaid taxes for the related tax period before requesting an installment.

 

Criteria to request a Penalties waiver

The FTA has put in place a system for administrative penalty waivers that enables taxpayers to submit their waiver requests. The following prerequisites must be satisfied to qualify for a penalty waiver:

• The application for penalty waivers cannot be connected to instances of tax evasion.
• Requests for waivers must be made within the time range specified by the FTA.

 

Requests for penalty waivers may be made by taxable individuals under the following conditions:

• Illness or death of the business owner or taxpayer.
• A significant employee of the tax-registered business passes away, gets sick, or resigns.
• Demonstrating the limitations or preventative measures that the local government authorities have placed on the taxpayer.
• Provide proof of an FTA communication or payment system breakdown.
• Cases when there are limitations on the taxpayer's or business owner's freedom.
• Proving that the required taxes were paid, but from the tax account of another tax-registered person.
• If all taxes owed were paid before the current circumstances and the insolvency was not done with the intention of evading taxes, fines may be waived in cases of insolvency or bankruptcy.

 

Required details to apply Waiver of Penalty

The following details must be submitted to apply for a penalty installment or waiver:

• Candidate's name, email address, and contact information
• The registration number for taxes
• The total amount of penalties and the type of violation
• The day the penalty was issued
• The reason for the request for a penalty waiver or installments
• For requests for installment payments or waivers, the taxable person must certify that they will pay the fines by the Committee's approved payment schedule or guarantee that the factors that led to the penalties will be resolved and will not occur again.
• If a penalty installment request is made, a commitment from the person to follow the committee's agreed installment schedule for making the necessary payment settlement.
• An undertaking declaring that the violation has been corrected and an assurance not to repeat it in the future must be provided if the request is for the waiving of administrative penalties.

 

VAT/TAX Penalty Waiver Timeline in UAE

The FTA will carry out the following actions as soon as all the required conditions are satisfied:

• Within 40 working days of the submission date, consider the installment or waiver requests.
• Within an additional 20 working days after the review, declare your decision.
• Within an extra ten working days, notify the taxable person of the decision.
• Remarkably, if the committee doesn't respond, the request has been rejected.

 

The following are the roles that the FTA Committee performs:

• Set the deadline for submitting requests for waivers.
• Analyze the installment system and create a payment schedule with due dates.
• Determine the amount of the penalty that can be waived and ask the taxable person for any additional information that is required.
• Calculate the percentage of penalties that will be waived in response to waiver requests.
• To process an installment request, it may ask for whatever guarantee it considers necessary.

 

Failure to Pay

The committee has the right to modify or completely revoke the authorized installment plan if the taxable person is unable to pay the installments on time.

 

Timeline for Refunding penalty

The committee has the authority to determine the conditions and guidelines for fines that have already been paid during the last five years. If a penalty waiver request is granted and the fine is paid, the money will be deposited to the taxpayer's FTA account within 90 business days, or if the taxpayer cancels their tax registration, it will be repaid in cash.

 

Mechanisms for Penalty Waiver Requests

The mechanisms for requesting a penalty waiver include:

• Application for reconsideration
• Application for a reduction or exemption based on Cabinet Decision No. 51 of 2021
• Appeal to TDRC

 

Reconsideration Submission

With a Reconsideration Submission, you may challenge FTA penalties. Apply within 20 days of receiving the notice and citing laws, reasons, and a strong conclusion. This ensures the accuracy and fairness of penalty assessments for businesses.

 

Appeal to TDRC

The FTA has the authority to deny a reconsideration application after it has been submitted if the grounds for reconsideration are found to be invalid. You can appeal to the Tax Dispute Resolution Committee (TDRC) if the FTA rejects your request for reconsideration. You have 20 days from the FTA decision to file your appeal. If necessary, the BMS Auditing VAT team can develop strong TDRC appeals with its extensive industry experience.

 

Application for Reduction and Exemption

A method for people or organizations to request lower penalties or exemptions when they violate tax regulations was introduced by Cabinet Decision No. 51 of 2021. The FTA requires valid proof and justification for the mistake that led to the penalty. Those who meet specific requirements may request for this exemption.

 

Requirements for Penalty Reduction/Exemption Application

• The person must provide a valid excuse that meets the criteria of the FTA.
• The justification for the excuse must be supported by evidence.
• The request must be made within 40 business days of the expiration of the window for justification.
• The person must provide evidence that the violation has been rectified.
• The application would be instantly rejected if the violation had been done on purpose.

 

Procedures for Submitting Requests for Penalty Installments and Waivers

1. The authorized form issued by the authority must be used to make requests for paying administrative penalties through installments or waivers. The form must have all the required data with the attached documents they have demanded.

2. The person is not permitted to submit more than one request for the same set of administrative penalties that are being reviewed to be waived or to be paid in installments.
3. The authorities will dismiss the request if the conditions specified in this article are not met.

 

Evaluation Process of VAT Penalty Waiver in UAE

• The precise timeframe within which waiver requests must be submitted is set by the committee.
• Rules and authorized tables are followed when the committee sets the penalty payment schedule.
• Requests for installment payments or waivers are reviewed; if in accordance with Cabinet Decision No. 105 of 2021, they are approved.
• Together with FTA, the committee looks for additional information as necessary.
• Decisions about the extent of penalty waivers must be made by the committee.
• The Committee makes decisions regarding requests within 60 days; failure to get a response indicates rejection.
• The committee may look for assurances regarding the appropriate execution of the installment plan.

 

It is crucial to keep in mind that the FTA may take up to 40 business days to react after receiving your completed waiver application. During this period, they will carefully review your request and assess the accompanying materials.

It is crucial to be aware that you can submit requests for both a penalty waiver and a reconsideration to the FTA at the same time. You can make both of these requests to the authorities if you think you have sufficient grounds for challenging the penalty and asking for its removal or reduction.

Additionally, the FTA permits you to submit a single application for review that contains multiple penalties. This simplifies the procedure and enables the FTA to do its evaluation more quickly by allowing you to address many penalties in a single thorough request.

 

VAT Consultants in UAE

In Dubai, United Arab Emirates, BMS Auditing is among the top audit firms in Dubai offering tax and accounting advice. Our team of qualified accountants is committed to helping businesses with the pertinent VAT regulations in compliance with the tax procedure law.

Our VAT Consultants in Dubai will help you prepare and submit your application for a waiver of the VAT penalty while adhering to the strict guidelines, under the direction of our tax specialists. The chance of your request being denied or taking longer than expected is decreased by our comprehensive approach, which makes sure that all required documents for waiver evidence are appropriately collected.

To successfully navigate the legal processes and work to reverse any penalties imposed, we also thoroughly investigate your financial data. You can contact us at BMS Auditing for additional information and to benefit from our experience if you need to waive your incurred VAT penalties and interest.

 

Frequently Asked Questions(FAQ)

 

1. How to Apply for VAT Penalty Waiver in UAE?

In most cases, applications for waivers are submitted directly to the FTA. However, there's some flexibility – approved tax advisors, UAE tax agents, and appointed attorneys can also handle the application process for you.

 

2. How to apply for overstay fine reduction in UAE?

The application procedure for an overstay fine reduction in Dubai entails the following steps:  

• To reduce your Dubai overstay fine, apply in person at a GDRFA office.
• Bring your passport, visa, and any proof explaining your overstay.
• Track your application status online using the GDRFA website.

 

3. What is the penalty for late VAT payments?

• A 2% penalty will be applied to the total amount owed if payment is made after 16–30 days.
• Late by more than 31 days: You'll owe two penalties:
• 2% on the amount due by day 15.
• Another 2% on the remaining balance by day 30. 

In general, the penalty increases with the date of payment.

 

4. What happens if I don't pay VAT in the UAE?

If you fail to pay your VAT penalty before the deadline, you may face more difficulties. This is what you may encounter: 

• Interest Charges: You will be responsible for extra expenses on top of the original penalty amount. These expenses accumulate over time, so the longer you wait, the more you'll owe.
• Tax Assessment: The Federal Tax Authority (FTA) may conduct a thorough review of your tax situation. This might involve examining your records and potentially leading to a demand for additional tax payments.
• Legal Action: In severe cases of non-payment, the FTA could take legal action against you. This could include a lawsuit or even the seizure of your property.

 

5. How can I remove VAT penalty in UAE?

In the UAE, you can request a VAT Penalty Waiver from the Federal Tax Authority (FTA). This waiver essentially asks the FTA to reconsider, reduce, or even completely eliminate your VAT penalty.