What are the things to be known about Voluntary Disclosure of VAT in UAE?

Voluntary Disclosure VAT 211 is a type of form issued by the Federal Tax Authority (FTA) in order to inform the FTA about the rectifications of errors and omissions in previous tax returns, tax assessment and application of tax refund. It provides the taxpayers with an opportunity to notify the authority voluntarily about the rectification as soon as possible. So choosing the best auditing firms in Dubai or UAE will help the businesses avoid fines incurring from non-filing and incorrect returns.

When should a taxpayer submit a Voluntary Disclosure form?

According to FTA, there are certain cases in which a taxpayer should submit a Voluntary Disclosure:

  • When the tax return or the tax assessment made is incorrect and the amount paid is less than the actual due, that must be more than AED 10000, then the taxpayer must apply for a Voluntary Disclosure Form.
  • When the tax return or the tax assessment made is incorrect and the amount paid is less than the actual due and the differential amount is less than AED10000, but now there are no other tax returns through which it can be rectified, then, the taxpayer should apply for Voluntary Disclosure.
  • When the tax refund application filed is incorrect and resulted in an incorrect calculation of tax refund i.e. being more than the actual amount entitled, then, the taxpayer must apply for the same.
  • After discovering the errors and omission in your tax returns you must make Voluntary Disclosure within 20 business days.
  • If the differential amount between the actual amount made and to be made is less than AED10000 then it can be rectified in the subsequent period as long as the taxpayer has the opportunity to do so in the tax period in which the error is identified. Hence no need of making a Voluntary Disclosure.

How is penalty charged on Voluntary Disclosure by the FTA?

The penalties levied by the FTA on Voluntary Disclosure are of two types:

  1. Fixed penalty
  2. Percentage based penalty

Fixed Penalty on Voluntary Disclosure

Fixed amount of AED 3000 is charged when a taxpayer files Voluntary Disclosure form for the first time and AED 5000 for further repetitive Voluntary Disclosure made by the taxpayer for the errors and omissions made.



Percentage Based Penalty on Voluntary Disclosure

The FTA has laid down different criteria under which a particular percentage of penalties will be charged on the amount which was not paid to FTA due to errors or omissions made.

5% of penalty will be charged on the amount which is not paid yet to the authority when the errors and omissions are recognized prior to the notification of the authority during an internal audit or tax assessment.

30% of penalty will be charged on the amount which is not yet paid to the authority, which a taxpayer recognizes when the authority notifies about a tax audit to be conducted, and he files for a Voluntary Disclosure before the tax audit.

50% of the penalty will be charged by the authority on the unpaid tax when the errors and omission are found during the tax audit conducted by the authority.

What are the consequences when a taxpayer files for a Voluntary Disclosure by late?

Let us consider a firm XYZ, which deals with home appliances in UAE, the company failed to include a sales invoice which was made in January amounted to AED 1000000, and the VAT of the stated amount was not included in the tax returns filed with the authority. Some months later, they realized that there was a sales invoice which was accidentally omitted. And the amount of tax which was left unpaid was more than AED 10000, for which it was mandatory to file a Voluntary Disclosure for the rectifications. Hence after discovering it the company filed for a Voluntary Disclosure for the errors committed and paid the penalty which amounted to AED 3000 to notify the authority.

On the other hand, another company which dealt with the same business, made an error while computing the tax refund with the authority i.e. they received more amount of refund than the actual amount entitled due to an omission of a sales invoice which amounted to AED 2000000 and the tax return filed was also incorrect (AED100000 was not included) due to the same reason. But the firm didn’t recognize it and didn’t file a Voluntary disclosure, prior to the tax audit conducted by the authority. At last, they had to pay 50% of penalty (AED 50000) on the unpaid amount of tax and an additional penalty for errors committed in the tax refund filed to the authority. If they had filed the Voluntary Disclosure form earlier, they would have been avoided from paying a huge amount of penalty.

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