The Federal Tax Authority (FTA) has announced that businesses must complete Corporate Tax registration within 90 days from the Date of Incorporation / MOA.
To mitigate the severe consequences associated with late or non-filing of VAT, businesses must diligently adhere to the taxation regulations and deadlines set by the Federal Tax Authority . Companies must appoint a qualified individual who can meticulously document all tax input and output, ensuring accurate records and timely submission of filings. By doing so, businesses can proactively avoid penalties and maintain compliance with VAT requirements. In this blog, we will discuss what happens if a business doesn’t file taxes in UAE.
Consequences of Not Paying Taxes in UAE
- Audits
Non-compliance with tax filing obligations can lead to a significant consequence: the possibility of an audit for businesses. If the FTA suspects that a business has either failed to file taxes or reported its income incorrectly, they have the authority to initiate an audit . Going through an audit is an arduous and demanding process, necessitating detailed financial records and documentation by the business. Furthermore, an audit can give rise to further penalties, fines, and even potential legal repercussions if the FTA concludes that the business owes additional taxes.
- Penalties & Interest
Failure to file and pay taxes promptly results in significant penalties and interest. When a business neglects to file taxes within the stipulated timeframe, it can face a failure-to-file penalty of unpaid taxes per month. Businesses must understand that the longer they delay tax payments, the more they will accumulate in terms of interest and penalties. By promptly fulfilling tax obligations, businesses can avoid these adverse consequences and maintain compliance with regulatory requirements.
- Liens and Levies
Failure to file taxes or settle tax debts can lead to the imposition of liens and levies by the FTA. When a business neglects its tax obligations, the FTA may place a lien on the business's assets, creating a legal claim against its property and assets. This can significantly hinder the business's ability to secure credit or sell its assets. Moreover, the FTA can take further action by initiating a levy, which involves legally seizing the business's assets, including bank accounts, real estate, and other owned property, to satisfy its tax debts. To prevent such detrimental measures, businesses must prioritize timely tax filing and payment, thereby avoiding the imposition of liens and levies that could impede their financial stability and operations.
- Legal Action
Non-compliance with tax filing and payment obligations can lead to the initiation of legal proceedings by the FTA against the business. This may involve filing a lawsuit to recover the unpaid taxes or obtaining a court order to seize the business's assets. Engaging in legal action can be a burdensome and resource-intensive process, potentially causing significant financial strain and damaging the business's reputation.
Businesses Registered for VAT in the UAE are Currently Subject to the Following Penalties if they don’t File Taxes:
- Failing to File VAT Returns
In the event of a business or its legal representative failing to file a VAT return within the designated timeframe as specified by the FTA, it is crucial to note that penalties will be imposed on the company's legal representative.
Businesses must ensure the timely and accurate filing of VAT returns to avoid such penalties. Taking proactive measures and fulfilling VAT obligations on time will help businesses maintain compliance and avoid any adverse consequences.
- Failing to File Returns before the Deadline
Failure to file VAT returns before the deadline set by the FTA will result in penalties being imposed on the company's legal representative. A fixed administrative penalty of AED 1,000 is imposed for the first offence of failing to file a VAT return on time, and AED 2,000 for any subsequent offence within 24 months. By ensuring timely and accurate filing of VAT returns , businesses can proactively avoid these penalties and maintain compliance with regulatory requirements.
- Failing to pay VAT in a Tax Return form Before the Deadline
If VAT due is not paid by the deadline 2% of the unpaid tax is due immediately after the deadline 4% of the unpaid tax is due seven days after the deadline from one calendar month after the deadline onward, a further 1% per day may apply, up to a maximum of 300% of the unpaid tax. Businesses must fulfill their tax obligations promptly to avoid these penalties and maintain compliance with the FTA regulations.
- Submission of Incorrect Tax Returns
Submitting an incorrect tax return without voluntary disclosure attracts a fixed penalty of AED 3,000 for the first offence and AED 5,000 for subsequent offences within 24 months. In addition, a percentage based penalty. If a VAT-registered business fails to make a voluntary disclosure or only does so after receiving notification and the audit process has commenced, the penalty will be fifty percent of the unpaid amount.
However, if the business voluntarily discloses the error after receiving a notification but before the audit starts, the penalty will be thirty percent of the unpaid amount. Furthermore, if the business proactively makes a voluntary disclosure before receiving a tax audit notification from UAE tax authorities, the penalty will be five percent of the unpaid amount owed to the tax authority. Businesses should diligently adhere to accurate tax reporting to avoid these penalties and ensure compliance with the FTA regulations.
By now, you have gained an understanding of the potential consequences when business taxes are not filed in the UAE. To prevent these consequences, it is crucial to promptly file and pay taxes, seek expert advice from a reputable tax professional, and stay updated on evolving tax laws and regulations. By following these proactive measures, businesses can fulfill their tax obligations effectively and steer clear of any adverse repercussions. If you are in need of VAT Services in Dubai , consider selecting Reyson Badger. Our team is well-equipped to assist you in filing your taxes efficiently and accurately.
