VAT Voluntary Disclosure Penalty Calculation

Taxable persons who are willing to notify the Federal Tax Authority (FTA) of an error or omission in their tax return, tax assessment, or tax refund application may submit a voluntary disclosure pursuant to Article 8 of the Executive Regulations to the Tax Procedures Law.

Cabinet Resolution No. 40/2017 on Administrative Penalties for Violations of Tax Laws in the UAE provides for the application of fixed penalties in cases of voluntary disclosure by the taxable person:

• Fixed penalties of AED 3,000 for the first time, and AED 5,000 for each subsequent voluntary disclosure

If the taxable person makes a voluntary disclosure after being notified of the tax audit and the FTA starts the tax audit, or after being asked for information relating to the tax audit, whichever takes place first, a 50% penalty of the unpaid tax shall apply.

If the taxable person makes the voluntary disclosure after being notified of the tax audit but before the start of the tax audit, a 30% penalty of the unpaid tax shall apply.

If the taxable person makes a voluntary disclosure before being notified of the tax audit by the FTA, a 5% penalty of the unpaid tax shall apply.

There are also additional penalties that have been imposed on taxable person retroactively when voluntary disclosures are submitted to the FTA:

• Late payment penalty at 2% immediately, 4% after the first week, and 1% daily up to a maximum of 300% calculated retrospectively as of the date of the tax return, tax assessment, or tax refund application that is being remedied – not as of the date of the voluntary disclosure.

A recent landmark ruling by the Tax Dispute Resolution Committee (TDRC) clarified that where the taxpayer can clearly evidence that they have acted in good faith and made the voluntary disclosure within the timeframe of twenty business days as of the date their awareness of the error, only the voluntary disclosure penalties apply – and not the retroactive (late payment) penalties that could amount to an additional penalty of 300% of the unpaid tax. Should you need any help or have questions, My Best CFO Team is always happy to help you.