Penalty for Late Payment of VAT in UAE

VAT (Value Added Tax) was introduced in the UAE on January 1, 2018, at a standard rate of 5%. It applies to most goods and services, with some exemptions. Businesses must register for VAT if their taxable revenue exceeds AED 375,000 annually. Those earning between AED 187,500 and AED 375,000 can register voluntarily.

Paying VAT on time is crucial to avoid penalties and maintain a good standing with the Federal Tax Authority (FTA). VAT Late payments can lead to financial fines and disrupt business operations. It’s essential for companies to stay compliant by meeting deadlines and keeping accurate tax records.

Failure to comply with VAT payment deadlines can result in significant penalties. As of 2025, the structure for VAT late payment penalty in UAE is as follows:

• 2% penalty on the unpaid amount immediately after the due date.
• 4% additional penalty if the tax is not paid within seven days after the due date.
• 1% daily penalty, starting from one month after the due date, up to a maximum of 300%.

To avoid this penalty for VAT late payment, businesses should set reminders, maintain proper records, and seek expert tax assistance.

Understanding VAT in UAE

Value Added Tax (VAT) is a consumption tax levied on most goods and services within the country. Businesses registered for VAT collect the tax at a rate of 5% on their taxable supplies and account for it to the Federal Tax Authority (FTA).

Consumers ultimately bear the cost of VAT as a 5% increase in the price of goods and services they purchase.

Here are some key points about VAT in UAE: 

• The general VAT rate is 5% on most goods and services.
• A 0% VAT rate applies to exports, international transportation, certain medical and educational services, and the first supply of residential real estate.
• Some goods and services are completely exempt from VAT, such as financial services, local passenger transport, and bare land.
• Businesses with taxable supplies exceeding AED 375,000 in the past 12 months or expected to exceed that amount in the next 30 days must register for VAT.
• Voluntary registration is possible for businesses exceeding AED 187,500.

Who Needs to Pay VAT in UAE?

• Mandatory Registration: Businesses with taxable supplies and imports exceeding AED 375,000 per year must register for VAT.
• Voluntary Registration: Businesses earning between AED 187,500 and AED 375,000 can register voluntarily.
• Foreign Businesses: Non-resident businesses providing taxable goods or services in the UAE may also need to register and pay VAT.

Late Payment of VAT in UAE

Late payment of VAT in the UAE occurs when a registered business fails to pay their due VAT amount to the Federal Tax Authority (FTA) within the specified timeframe. This timeframe is typically 29 days from the end of the tax period.

Late payment of VAT in the UAE can have several negative consequences for businesses, including:

1. Penalties

The FTA imposes steep VAT late payment penalty in UAE. These penalties are calculated as follows:

• Immediate Penalty: A 2% penalty on the unpaid tax amount is applied immediately after the due date.
• One Month Later: An additional 4% penalty is levied if the tax is not paid within seven days after the due date.
• Daily Penalty: A 1% daily penalty accrues on the outstanding amount starting from one month after the due date, up to a maximum of 300% of the unpaid tax.

2. Administrative Fines

In addition to penalties, the FTA may impose administrative fines for non-compliance, such as late submission of tax returns or failure to maintain proper records.

3. Reputational Damage

Repeated late payments can damage a business’s reputation and relationships with clients and suppliers.

4. Legal Action

In extreme cases, the FTA may take legal action against businesses with significant outstanding VAT amounts.

Deadline for VAT Payment in UAE

The FTA assigns businesses a monthly or quarterly VAT filing schedule based on their annual turnover:

Quarterly Filing: Most businesses file their VAT returns every three months.

Monthly Filing: Large businesses with high turnover may be required to file VAT returns every month.

VAT returns and payments must be submitted by the 28th day of the month following the tax period. If the deadline falls on a weekend or public holiday, payment should be made on the last working day before the due date.

VAT Violations and Penalties in UAE

The VAT penalties in the UAE can be severe, depending on the nature of the violation and the frequency of offenses. Here are some of the common violations along with their penalties in 2025:

Please note VAT late payment penalty in UAE may vary depending on the specific nature and severity of the violation. It is recommended to consult with a tax professional such as Shuraa Tax for accurate and up-to-date information.

Late VAT Deregistration Penalty in UAE

UAE businesses are required to apply for VAT deregistration within 20 business days if they no longer meet the criteria for VAT registration. Failing to do so results in penalties imposed by the Federal Tax Authority (FTA).

Late VAT Deregistration Penalties:

• Initial Penalty: A fine of AED 1,000 is imposed if the deregistration application is not submitted within the stipulated 20-business-day period.
• Recurring Penalty: An additional AED 1,000 is charged for each month the delay continues, up to a maximum of AED 10,000.

Common Reasons for Late VAT Payment in UAE

Several reasons may contribute to the late payment of VAT in the UAE. Some common factors include:

1. Cash flow issues

Businesses may struggle to pay their VAT on time if they are experiencing cash flow difficulties due to slow sales, unexpected expenses, or other financial challenges.

2. Accounting errors

Mistakes in calculating or recording VAT can lead to late payments.

3. Lack of awareness

Some businesses may not be fully aware of their VAT obligations and deadlines, resulting in unintentional late payments.

4. System failures

Technical issues with the FTA e-Services portal or a business’s internal accounting software can sometimes delay VAT payments.

VAT Fines Discount in UAE

VAT Fines Discount in the UAE refers to various incentives offered by the Federal Tax Authority (FTA) to encourage timely VAT compliance and reduce the financial burden on businesses facing penalties. These discounts apply specifically to administrative penalties, not the actual VAT liability you owe.

There are currently two main ways to access VAT Fines Discounts:

1. Penalty Redetermination Scheme

This scheme allows for a significant reduction of previously imposed administrative penalties. You can get 70% of your past fines waived by paying only 30% of the original amount. The business must have a clean record of VAT compliance.

2. Early Payment Discount

The FTA offers a 5% discount on late payment penalties if the outstanding VAT amount is paid within 15 days of the due date. This discount can be combined with the penalty redetermination scheme for potentially significant savings.

How to Avoid VAT Fine for Late Payment

Avoiding late VAT payments in the UAE can save you from unnecessary penalties and maintain good standing with the Federal Tax Authority (FTA).

Here are some key strategies to keep in mind:

• Familiarize yourself with the VAT registration threshold, filing deadlines, and record-keeping requirements.
• Maintain accurate records of your taxable supplies and input VAT to accurately calculate your VAT liability each month.
• Mark your calendar with important deadlines for filing and payment to avoid missing them.
• Utilize accounting software or platforms to automate VAT calculations, filing, and payment wherever possible.
• Take advantage of the 5% discount offered by the FTA for early VAT payments.
• Ensure your accounting system accurately reflects all VAT transactions and calculations.
• Before submitting your VAT return, carefully review your calculations and ensure they are correct.

And most importantly, seek professional advice!

Choose Smart Compliance with Shuraa Tax

Timely VAT payments are crucial for businesses in the UAE to maintain compliance and ensure their financial well-being. VAT late payment penalty in UAE can significantly impact a company’s bottom line.

Therefore, it is highly beneficial to seek assistance from a leading tax consultant like Shuraa Tax. With our team of knowledgeable and qualified accountants, auditors, and tax advisors in Dubai, we offer comprehensive VAT solutions to businesses of all sizes.

From registration and filing to consultations and dispute resolution, we guide you through every step with expertise. We help you understand your obligations, minimize risks, and optimize your VAT compliance to ensure your business operate seamlessly and efficiently.

Call us Today and get your queries answered in no time. Let’s simplify taxation together.

📞 Call: +(971) 44081900

💬 WhatsApp: +(971) 508912062

📧 Email: info@shuraatax.com

Frequently Asked Questions

1. What is the penalty for late VAT registration in the UAE?

Businesses that fail to register for VAT within the required timeframe are subject to a penalty of AED 10,000.

2. How much is the penalty for late VAT payment?

The penalty structure for late VAT payment is as follows:

• 2% of the unpaid tax immediately after the due date.
• 4% additional penalty if the tax remains unpaid after seven days.
• 1% daily penalty on the outstanding amount starting one month after the due date, up to a maximum of 300%.

3. Are there penalties for incorrect VAT return submissions?

Yes, submitting an incorrect VAT return can result in a penalty of AED 3,000 for the first offense and AED 5,000 for subsequent offenses.

4. Can VAT penalties in the UAE be waived or reduced?

The Federal Tax Authority (FTA) may consider waiving or reducing penalties under specific circumstances. Businesses must submit a request through the FTA’s e-services portal, providing valid reasons and supporting documentation for the non-compliance.