VAT Penalty Waiver in UAE

The Federal Tax Authority (FTA) imposes VAT penalties and fines on taxpayers who are non-compliant with VAT law. The severity of penalties varies based on the violation done by the specified company. The process of a taxpayer requesting an FTA to reduce or exempt them from VAT penalty is called a VAT penalty waiver in UAE. The FTA may accept the request if it is in accordance with the criteria mentioned in Cabinet Decree No.105 of 2021. This article explains the VAT penalty waiver in UAE and the procedure to request it from the FTA, which reflects the proper VAT return filing.

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What is VAT Penalty Waiver in UAE?

A VAT penalty waiver in the UAE is a formal request submitted to the FTA to reconsider and potentially waive the imposed penalties associated with VAT non-compliance. The Federal Tax Authority (FTA) might grant a full or partial waiver if the business can demonstrate a valid reason for the mistake, such as technical glitches, unforeseen circumstances, or unintentional errors. However, the process requires a formal application with supporting documentation, and the FTA has the final say on approval.

Criteria to request VAT Penalty Waiver in UAE

The FTA has a system that helps taxpayers to submit requests to waive administrative penalties. It should be connected to the tax evasion cases, a serious offence. The new Cabinet decision listed the accepted reasons for approving the waiver requests. Those reasons are, 

• Death or Serious Illness: If the taxpayer is an individual or the owner of a business has passed away, or if either has experienced a serious illness that significantly impacted their ability to manage tax affairs.
• Loss of Key Employee: When a key employee responsible for tax compliance dies, becomes ill, or resigns unexpectedly.
• Government Restrictions: When a taxpayer's business is directly affected by limitations or preventative measures imposed by UAE government agencies.
• Technical Issues: If system failures at the FTA or payment/communication systems hinder a large group of taxpayers from meeting tax obligations.
• Loss of Liberty: If a taxpayer who is an individual or a business owner experiences restrictions on their freedom that prevent them from managing tax affairs.
• Accidental Double Payment: If all taxes were mistakenly paid through another registered taxpayer's account.
• Insolvency/Bankruptcy (with Conditions): In cases of insolvency or bankruptcy, penalty waivers might be considered if the penalties were paid before the financial hardship and there's no evidence of tax evasion attempts.

Mechanisms for VAT Penalty Waiver Request in UAE

There are various mechanisms available to challenge or seek relief from VAT penalty in UAE,

1. Reconsideration Submission:

• This is your first line of defence. You can file a Reconsideration Application within 20 business days of receiving the penalty notification.
• The application must be submitted in Arabic and accompanied by supporting documents.
• It should clearly explain the reason for reconsideration, cite relevant laws to support your case, and conclude with a compelling argument for a revised decision.

2. Appeal to TDRC (Tax Disputes Resolution Committee):

• If the FTA rejects your reconsideration application, you can appeal their decision to the TDRC.
• You have another 20 business days from the FTA's rejection notice to file this appeal.
• A strong appeal hinges on presenting valid grounds to challenge the FTA's decision. Consider seeking professional help to draft an effective appeal leveraging industry knowledge and regulations.

3. Application for Reduction/Exemption (Cabinet Decision No. 51 of 2021):

• This option allows individuals or businesses to request a reduction or complete exemption from a penalty.
• To qualify, you must demonstrate a valid excuse for the violation supported by convincing evidence.

Procedure to request for UAE VAT Penalty Waiver

This section outlines the general steps involved in requesting a VAT penalty waiver from the UAE's Federal Tax Authority (FTA).

Application Process:

1. Authorized Form: Use the official form provided by the FTA to request penalty waivers or instalments. Ensure all required information is accurately filled out and all supporting documents are attached.
2. Single Request Rule: You can only submit one request for the same set of penalties under consideration for waiver or instalment. Submitting multiple applications for the same penalties will lead to rejection.
3. Meeting Eligibility Criteria: Your request will be dismissed if it doesn't comply with the conditions set forth by the FTA.

Evaluation Process:

1. Timeframe for Submission: The committee responsible for evaluating requests determines the specific timeframe for submitting waiver applications. Make sure your request falls within the designated period.
2. Review and Approval: The committee assesses requests based on Cabinet Decision No. 105 of 2021. If your request aligns with the criteria, it will be approved.
3. Additional Information: In collaboration with the FTA, the committee may request further information from you to aid their evaluation.
4. Extent of Waiver: The committee holds the authority to determine the extent of any penalty waiver granted.
5. Decision Timeline: The committee aims to deliver a decision within 60 business days. The absence of a response within this timeframe indicates rejection.
6. Installment Plan Guarantee: The committee might request additional assurances regarding your commitment to fulfilling an approved instalment plan.

UAE VAT Penalty Waiver Timelines

These are the timeline framework undertaken by FTA and the responsible committee regarding the VAT Penalty Waiver in UAE:

• The FTA will take up to 40 business days to assess your application and ensure it meets all the requirements. They'll forward everything to the Committee for a decision if everything seems in order.
• The Committee has 60 business days to evaluate your request. After reaching a conclusion, they will notify you of their decision within 10 business days.
• If you don't receive communication from the Committee within the designated time frame, your request is rejected.

Conditions to Pay Administrative Penalties in Installments

The Federal Tax Authority (FTA) in the UAE offers an option for businesses to settle outstanding administrative penalties through installments. However, specific criteria need to be met for your request to be approved. Here are the conditions to be met:

• The instalment request applies only to unsettled penalties.
• The total amount of penalties you owe must be at least AED 50,000.
• Penalties currently contested before the Tax Disputes Resolution Committee (TDRC) or the courts (excluding the reconsideration process) are not eligible for instalments.
• The tax is due for the tax period the instalment request is subject to, and it must be settled in order to get approval for the instalment request.

Conclusion

In the UAE, businesses that face VAT penalties for non-compliance can request a waiver from the Federal Tax Authority (FTA). The FTA may grant a full or partial waiver if the business can justify the mistake with a valid reason and proper documentation. Reasons for approval include serious illness, death of a key employee, government restrictions, etc. Businesses can request a waiver through a reconsideration application, appeal to the TDRC, or application for reduction/exemption. The responsible committee will assess the request based on specific criteria and make a decision within 60 business days. Fillings.ae helps with your VAT return filing and avoids the penalties.

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