Penalties levied on Voluntary Disclosure in UAE
A Voluntary Disclosure is a form (VAT Form 211) provided by the Federal Tax Authority (FTA) which enables the taxpayers to voluntarily notify the FTA about the error or omission in a previous Tax Return, Tax Assessment or Tax Refund application. However, on using Voluntary Disclosure Form, penalties will be levied by the FTA. There are two type of Voluntary Disclosure penalties which will be jointly levied, one which is fixed penalty and other being percentage based depending upon the situations or timing of the disclosure.
1. Fixed Penalty for Voluntary Disclosure
2. Percentage-Based Penalty for Voluntary Disclosure
To know what is Voluntary Disclosure Form and when to use it, please read our article Voluntary Disclosure Form
Let us understand the two type of penalties for Voluntary Disclosure
|Type of Voluntary Disclosure Penalties||Details|
|Fixed Penalty for Voluntary Disclosure||The penalty is applicable for the first time usage as well as every repeated usage of Voluntary Disclosure|
|Percentage-Based Penalty for Voluntary Disclosure||Percentage based penalty shall be applied on the amount unpaid to the Authority due to the error. The range of Penalty is from 5% to 50% depending on the situations.|
Both, fixed based penalty and percentage based penalty will jointly be levied on making Voluntary Disclosure. The amount and percentage of penalties for Voluntary disclosure are detailed below:
Fixed Penalty for Voluntary Disclosure
|First Time||3,000 AED|
As mentioned in the above table, if the taxpayer uses the VAT Voluntary Disclosure form for the first time, 3,000 AED will be levied. For every repetition in using the VAT Voluntary Disclosure form, 5,000 AED shall be levied.
Percentage-Based Penalty on Voluntary Disclosure
This will be levied in all the situations where a taxpayer has disclosed less than the actual tax liability in the return and subsequently uses VAT Voluntary Disclosure form to disclose remaining liability. The percentage based penalty will be levied on the unpaid amount as detailed below:
|Type||Percentage of Penalty|
|Voluntary disclosure before the authority notifies (by way of a tax audit or tax assessment)||5% of the tax amount which was not disclosed earlier|
|Voluntary disclosure after the authority notifies for a tax audit but before starting the tax audit||30% of the unpaid tax amount as a penalty|
|Voluntary disclosure during a tax audit||50% of the unpaid tax amount|
As mentioned in the above table, If the taxable person makes a voluntary disclosure before the authority notifies (by way of a tax audit or tax assessment), 5% of the tax amount which was unpaid earlier will be the penalty. In case, the taxable person makes a voluntary disclosure after the authority notifies for a tax audit but before starting the tax audit, he has to pay 30% of the unpaid tax amount as a penalty.
In case, the authority notifies the taxable person for a tax audit and during the tax audit, if he makes a voluntary disclosure by using VAT Voluntary Disclosure Form, he will be liable to pay 50% of the unpaid tax amount.