Penalty for late payment of VAT in the UAE

VAT was introduced in the UAE in January 2018, and it's a 5% tax applied to most goods and services. Basically, businesses act as tax collectors for the government, so they charge VAT on sales, pay VAT on any imports, and then hand it over to the Federal Tax Authority (FTA).

The deadline for submitting a UAE VAT return is typically the 28th day of the month after each quarterly (3 months) reporting period ends, however if in one of the months 28th lies within a saturday or sunday, the deadline gets forwarded to the next business day.

If your business needs to register for and pay VAT, it is crucial that you pay on time. Otherwise, you may face various types of penalties:

Besides late payment, businesses may also face fines for:

• Failure to file VAT returns.
• Incorrect VAT calculation.
• Submitting wrong information to the FTA.
• Failure to keep proper records.

Let's see how much it will cost you for a mistake in your tax calculations or for late filing of your tax return. We have compiled a table of the most common VAT penalties you can face with.

One of the main reasons businesses in the UAE miss their VAT payments is poor cash flow management. Many companies either forget about deadlines or lack an accounting system to track their finances and payments. Additionally, some businesses don't realize how important it is to comply with VAT rules, so they wait until the last minute to pay and then face unexpected delays in bank transfers.

Proper financial record keeping and meeting deadlines can help you avoid big penalties. You could hire someone to do it for you, like a professional who can help you organize all your paperwork and make sure you're on time.

The FTA charges penalties as follows:

• 2% of unpaid tax immediately after the deadline.
• 4% monthly penalty on the outstanding amount after one month.
• 1% per day after 1 year (maximum 300%).

Let’s say your VAT liability is AED 100,000, due on 28 April.

• On 29 April → AED 2,000 penalty (2% of 100,000).
• On 29 May → AED 4,000 extra (4% of 100,000).
• After 1 year → 1% per day = AED 1,000 daily until payment, capped at 300% of tax (AED 300,000).

So, if you delay for one year, your penalty could reach AED 138,000 or more.

To avoid losing such a large amount, follow these simple rules:

• Pay as soon as possible – File and pay early to avoid technical issues at the last minute.
• Communicate with FTA – You may apply for reconsideration of penalties in some cases.
• Keep cash flow planning strong – Set aside VAT collected to avoid spending it on business operations.
• Automate VAT reminders with accounting software.
• Hire a tax consultant if you are unsure