UAE VAT: Still Getting It Wrong
Five years after the introduction of VAT in the UAE, the Federal Tax Authority (FTA) continues to issue penalties to businesses for avoidable compliance errors. Here are the most common mistakes and how to fix them.
Mistake 1: Incorrect Input Tax Recovery
Many businesses claim input VAT on expenses that are blocked under UAE VAT law, including:
- Entertainment expenses for clients or employees
- Motor vehicles used for personal purposes
- Expenses related to exempt supplies
Fix: Review your input tax recovery policy against Article 53 of the UAE VAT Executive Regulations.
Mistake 2: Wrong VAT Treatment on Exports
Zero-rating applies to exports of goods and services, but only when specific conditions are met. Businesses frequently apply standard rate VAT to zero-rated supplies or vice versa.
Fix: Maintain export documentation (shipping documents, customs declarations) to support zero-rating claims.
Mistake 3: Late VAT Return Filing
VAT returns are due 28 days after the end of the tax period. Late filing attracts a penalty of AED 1,000 for the first offence and AED 2,000 for repeat offences within 24 months.
Fix: Set calendar reminders and automate VAT return preparation through your accounting system.
Mistake 4: Incorrect Place of Supply
For services, the place of supply determines whether UAE VAT applies. Cross-border services to business customers outside the UAE are generally zero-rated, but the rules are complex.
Fix: Document the customer's business status and location for all cross-border service transactions.
Mistake 5: Failure to Issue Tax Invoices
A valid tax invoice must include specific fields: TRN of supplier, date, description, quantity, unit price, tax amount, and total. Missing fields invalidate the invoice for input tax recovery purposes.
Fix: Configure your accounting software to generate FTA-compliant tax invoices automatically.
Penalty Summary
| Violation | Penalty |
|---|---|
| Late VAT registration | AED 20,000 |
| Late VAT return | AED 1,000 – 2,000 |
| Late VAT payment | 2% immediately + 4% monthly |
| Incorrect return | 50% of unpaid tax |
How MAK Advisory Group Can Help
Our UAE VAT team conducts VAT health checks, prepares and files VAT returns, and represents clients in FTA audits. Contact us to book a free VAT compliance review.