Under VAT, certain violations of the provisions of the VAT Law can invite an administrative penalty. Administrative penalties are additional amounts payable by a person for breaching the provisions of the VAT Law. Let us understand the actions which invite administrative penalties under VAT in UAE and the amount of VAT penalty in each of these cases:

VAT compliant invoicing

VAT compliance begins with VAT invoicing. Every single invoice that you generate or transaction you record must be done in a VAT compliant way. With Tally.ERP 9, you don’t have to worry whether you have raised an invoice correctly or not.

All you have to do in Tally.ERP 9 is to enter TRN (UAE) or TIN (KSA) and the period. As soon as you start recording transactions in Tally.ERP 9, the VAT ready software maps all the data with VAT rules. Let us look at some examples to understand this better.

• Tally.ERP 9 applies VAT in invoices wherever applicable.
• Verifies whether the TRN/TIN are correct or not and raises alerts when they need to be corrected.
• Warns if manual alteration is done on already calculated values.
• Gives you the flexibility to add expenses or discounts with VAT implication.
• Shows how VAT calculation has been done for all the transactions.
• Invoices are matched in registers, profit & loss account, balance sheet and other reports.

Actions inviting Administrative Penalty under VAT

1. Failure by a Taxable Person to display prices inclusive of Tax

Every Taxable Person in UAE should display the price of taxable goods or services as inclusive of VAT, except in the following cases:

• The supply is for export
• The customer is a registrant
• Import of goods or services

If a Taxable Person omits to display the prices of goods or services as inclusive of tax, it will lead to an administrative penalty of AED 15,000.

2. Failure by a Taxable Person to notify the FTA regarding charge of Tax based on the margin

A Taxable Person should calculate Tax on the profit margin on supply of second-hand goods, antiques and collectors’ items such as stamps, coins, etc. Here, the profit margin is the difference between the purchase price and selling price of the goods.

An omission to notify the FTA regarding the charge of tax based on margin will lead to an administrative VAT penalty of AED 2,500.

3. Failure to comply with the conditions and procedures related to keeping goods in a Designated Zone or moving them to another Designated Zone

A Designated Zone is a VAT free zone which is considered to be outside the state of UAE for the purpose of VAT. As a result, on any transfer of goods between Designated Zones, VAT will not be levied. To know more about the conditions and procedures related to keeping goods in a Designated Zone or moving them to another Designated Zone, you can read our article VAT on Free Zones in UAE .

If a taxable person does not comply with the conditions and procedures related to Designated Zones, an administrative penalty of AED 50,000 or 50% of the tax chargeable as a result of the violation, whichever is higher, will be applicable.

4. Failure by a Taxable Person to issue a Tax Invoice or an alternative document when making any supply

Tax Invoice is the essential document to be issued by a registrant when a taxable supply of goods or services is made. To know more about Tax Invoice under VAT in UAE, you can read our article Tax Invoice.

A failure by a Taxable person to issue a tax invoice or alternative document for taxable supplies will invite an administrative penalty of AED 5,000 for each Tax Invoice or alternative document not issued.

5. Failure by a Taxable Person to issue a Tax Credit Note or an alternative document

A Tax Credit Note is a written or electronic document in which the occurrence of any amendment to a taxable supply that reduces or cancels the same is recorded.

A failure by a Taxable Person to issue a Tax Credit Note or alternative document, where applicable, will lead to an administrative penalty of AED 5,000 for each Tax Credit Note or alternative document not issued.

6. Failure by a Taxable Person to comply with the conditions and procedures regarding issue of electronic Tax Invoices and electronic Tax Credit Notes

A Taxable Person can issue a Tax Invoice or Tax Credit Note electronically, provided:

• a. The Taxable Person must be capable of securely storing a copy of the electronic Tax Invoice as per the record keeping requirements
• b. The authenticity of origin and integrity of the content of the electronic Tax Invoice or Tax Credit Note is guaranteed

If a Taxable Person does not comply with these conditions for issue of electronic Tax Invoices or Tax Credit Notes, it will invite an administrative penalty of AED 5,000 for each electronic Tax Invoice or Tax Credit Note for which the conditions are not met.

Hence, tax payers should take note of the high administrative penalty when certain provisions of the VAT Law are violated and ensure that these are noted and avoided.

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