VAT Late Payment Penalty in UAE: Due Dates, Calculations and Examples

In the United Arab Emirates (UAE), businesses registered under VAT are required to maintain proper records, file VAT returns on time, and make payments of Output Vat liabilities within the prescribed time. VAT late payment beyond the due date attracts a penalty 2% initially, 4% after one month, and 1% daily up to 300%.

This blog will provide an in-depth overview of VAT payments and penalties for late payments along with calculations and examples.

VAT Compliance in the UAE

VAT was introduced in the UAE in January 2018 at a standard rate of 5%. Businesses with taxable supplies exceeding AED 375,000 are required to register for VAT, while those with taxable supplies over AED 187,500 may voluntarily register. The Federal Tax Authority (FTA) regulates VAT and imposes stringent compliance guidelines, including:

1. VAT Return Filing: VAT-registered businesses must file regular VAT returns, which summarize their sales (output tax) and purchases (input tax). The standard tax period is quarterly for businesses with an annual turnover below AED 150 million and monthly for those exceeding AED 150 million.
2. VAT Payments: Businesses are required to pay VAT when their output tax (tax on sales) exceeds their input tax (tax on purchases). This payment is due within 28 days after the end of the tax period.

VAT Payment Due Date

Businesses are required to calculate the difference between their output tax (VAT on sales) and input tax (VAT on purchases). The resulting balance must be settled with the Federal Tax Authority (FTA) by the due date, which is 28 days after the end of the tax period.

For Quarterly VAT Period

For businesses filing quarterly VAT returns, the payment deadlines are as follows:

For Monthly VAT Period

For businesses that file monthly VAT returns, the payment deadline is 28 days after the end of each month for which VAT is due. For example, for the month of June, you need to pay the outstanding VAT liability by the 28^th of July.

Example of VAT Payment Date

Company A is a trading company in Dubai. In Q1 2024, they collected VAT on sales amounting to AED 200,000 (output tax). During the same period, they paid AED 150,000 in VAT on purchases (input tax).

• Output Tax = AED 200,000
• Input Tax = AED 150,000
• VAT Payable = AED 200,000 - AED 150,000 = AED 50,000

Company A must pay AED 50,000 to the FTA by April 28, 2024 (28 days after the tax period).

VAT Late Payment Penalty Calculation

Late payment of VAT in the UAE incurs escalating penalties based on how long the payment is delayed. The penalties for missing the VAT payment deadline are as follows:

• 2% of the unpaid tax is applied immediately after the payment deadline.
• 4% penalty is applied after one month, starting from the seventh day after the deadline.
• 1% daily penalty accrues on the outstanding amount
• The total Penalty that could be levied would be up to a maximum of 300% of Unpaid VAT Amount

VAT Late Payment Penalty Calculation in the UAE

The penalty for late VAT payment in the UAE is calculated in three stages. Here’s a breakdown of how it works:

Initial Penalty: 2% Applied Immediately

A 2% penalty is applied to the unpaid VAT amount as soon as the payment deadline passes. The same amount of penalty is 

Formula

• Initial Penalty = 2% × Unpaid VAT Amount

Subsequent Penalty: 4% After 7 Days

Day 7 to Day 30: If the VAT remains unpaid by the 7th day after the deadline, a further 4% penalty is added to the unpaid VAT.

Subsequent Penalty = 4% × Unpaid VAT Amount

Total Penalty (until Day 30) = Initial Penalty (2%) + Subsequent Penalty (4%)

1% Daily Penalty (From Day 30 Onwards)

Starting from the 30th day after the deadline, an additional 1% daily penalty is applied until one of the following occurs:

• The unpaid VAT is fully paid.
• The total penalty reaches 300% of the unpaid VAT amount.

Formula

• Daily Penalty = 1% × Unpaid VAT Amount × Number of Days (after Day 30)
• Penalty Post 30 days of delay= Initial Penalty (2%) + Subsequent Penalty (4%) + Daily Penalty (1% for each day)

Final Total Penalty

The total penalty will be the sum of the initial penalty (2%), the subsequent penalty (4%), and the daily penalty (1% per day)

Or 

300% of the total unpaid VAT amount

whichever is lower.

VAT Late Payment Calculation with Example

Suppose a business in the UAE has an unpaid VAT amount of AED 100,000. The payment was due on 1st August, but the business delayed payment. We will now calculate the penalties under four different scenarios:

Scenario 1: Payment Made on 3rd August (2 Days Late)

In this case, the business only pays the 2% initial penalty as they paid within 7 days. No additional penalties apply.

Total Penalty = 2% × AED 100,000 = AED 2,000

Scenario 2: Payment Made on 15th August (14 Days Late)

Since it is more than 7 days later than the actual due date two penalties are applied

• Initial Penalty = 2% × AED 100,000 = AED 2,000
• Subsequent Penalty = 4% × AED 100,000 = AED 4,000

Total Penalty = AED 2,000 + AED 4,000 = AED 6,000

Scenario 3: Payment Made on 10th September (40 Days Late)

Since the payment is delayed more than 30 days, a daily penalty is also levied post-30 days

Days after 30th day: From 31st August to 10th September = 10 days

Calculation:

• Initial Penalty = 2% × AED 100,000 = AED 2,000
• Subsequent Penalty = 4% × AED 100,000 = AED 4,000
• Daily Penalty = 1% × AED 100,000 × 10 days = AED 10,000

Total Penalty = AED 2,000 + AED 4,000 + AED 10,000 = AED 16,000

Scenario 4: Payment Made on 10th July the Following Year (345 Days Late)

Since the payment is delayed by 345 days, daily penalty post 30 days is also levied.

Days after 30th day: From 31st August of the previous year to 10th July of the following year = 315 days

Calculation:

1. Initial Penalty (2%) = 2% × AED 100,000 = AED 2,000
2. Subsequent Penalty (4%) = 4% × AED 100,000 = AED 4,000
3. Daily Penalty (1%) = 1% × AED 100,000 × 315 days = AED 315,000

Total Penalty = AED 2,000 + AED 4,000 + AED 315,000 = AED 321,000

Or

300% of Unpaid VAT = 300% × AED 100,000 = AED 300,000 

Since AED 300,000 is lower, the maximum penalty will be capped at AED 300,000.

Other VAT Penalties for Non-Compliance

How to Avoid VAT Late Payment Penalties

To avoid penalties, businesses must adopt strict practices to stay compliant:

1. Maintain Accurate Records: Keep all documentation, including VAT invoices and credit notes, up to date and readily accessible.
2. Use Accounting Software: Utilize VAT-compliant accounting software to track and calculate your VAT liabilities accurately.
3. Submit VAT Returns on Time: Ensure that VAT returns are filed by the deadline, even if there are no taxable transactions (submit a nil return).

Conclusion

Penalties for late VAT payments are progressive, starting with 2% immediately after the due date, 4% after one month, and a daily 1% penalty, potentially reaching up to 300% of the unpaid tax. To avoid these penalties, businesses should maintain accurate records, utilize VAT-compliant accounting software, and ensure prompt submission of VAT returns even in the absence of taxable transactions.