VAT Penalty Waiver & Reconsideration

VAT Penalty Waiver & Reconsideration Requests

Administrative penalties in the UAE VAT system are designed to enforce compliance, but the Federal Tax Authority provides structured relief mechanisms for businesses that can demonstrate "reasonable excuses" for their non-compliance. If you've received a VAT penalty notice, you have options for relief.

Types of VAT Penalties

Understanding the type of penalty you've received is the first step toward addressing it:

• Late Registration Penalty: AED 10,000 for failing to register on time.
• Late Filing Penalty: AED 1,000 for first late return, AED 2,000 for subsequent violations.
• Late Payment Penalty: 2% to 4% of unpaid tax per month, up to a maximum of 300%.
• Redetermination Penalty: AED 1,000 for incorrect tax return filing.
• Violation Penalties: Various penalties for record-keeping, invoicing, and other compliance violations.

The Reconsideration and Appeal Process

If you receive a penalty notice that you believe is unjustified or due to extenuating circumstances, you have the right to challenge it through a structured process:

1. Request for Reconsideration: Submit within 40 business days to the FTA.
2. FTA Review: FTA reviews your submission and issues a decision (typically 20-70 business days).
3. Tax Disputes Resolution Committee: If rejected, appeal to the TDRC within 40 business days.
4. Federal Courts: For penalties exceeding AED 50,000, further appeal to Federal Courts is possible.

Criteria for a Successful Penalty Waiver

The FTA reviews waiver applications on a case-by-case basis. Success depends on demonstrating valid "reasonable excuses" for non-compliance:

Acceptable Reasonable Excuses

• Technical Errors: Documented system failures on the EmaraTax portal that prevented filing or payment.
• Extenuating Circumstances: Serious illness of the business owner or key personnel, government- imposed restrictions that prevented compliance, or natural disasters.
• Prompt Remediation: Evidence that the error was corrected as soon as it was discovered.
• First-Time Violation: Clean compliance history can support leniency for minor violations.
• Good Faith Effort: Documentation showing attempts to comply despite challenges.

Documentation Required

To support your reconsideration request, you'll need:

• Penalty notice details and reference number
• Written explanation of the reasonable excuse
• Supporting evidence (medical certificates, system logs, etc.)
• Documentation of corrective actions taken
• Proof of payment (if penalty was already paid)
• Any relevant correspondence with the FTA

Installment Plan Options

Businesses with significant penalties (exceeding AED 50,000) may apply for an installment plan to spread payment over time. Eligibility conditions include:

• Commitment to Compliance: Agreement to maintain future VAT compliance.
• Not Tax Evasion: Penalties must not be related to tax evasion or fraud.
• Financial Hardship: Demonstration that lump sum payment would cause financial difficulty.
• Security: May require bank guarantee or other security.

Voluntary Disclosure for Penalty Reduction

Submitting a Voluntary Disclosure before an FTA audit notice can significantly reduce penalties:

2026 Penalty Structure Changes

From April 14, 2026, the VAT penalty structure will change:

• Non-Compounding: Penalties will shift to a non-compounding structure.
• Fixed Interest Rate: 14% annual interest rate on late payments.
• Monthly Charge: Voluntary Disclosure penalty shifts to 1% per month on tax difference.

Penalty Waiver FAQ: Remedial Advocacy

Common Penalty Scenarios and Solutions

Scenario 1: Missed Filing Deadline

Problem: Forgot to file VAT return by the 28th.
Solution: File immediately and pay calculated penalty. If technical issues caused delay, document and submit reconsideration request.

Scenario 2: Incorrect Return Filed

Problem: Discovered error in already-filed return.
Solution: Submit Voluntary Disclosure immediately if tax difference exceeds AED 10,000. If under AED 10,000, correct in next return.

Scenario 3: Cannot Pay Full Penalty

Problem: Penalty amount is too large to pay at once.
Solution: Apply for installment plan if penalty exceeds AED 50,000 and you commit to future compliance.

How Apex FinConsultants Can Help

Our team provides comprehensive support for all VAT penalty matters:

• Penalty Assessment: Review your penalty notice and determine the best course of action.
• Reconsideration Preparation: Prepare and submit compelling reconsideration requests with proper documentation.
• Voluntary Disclosure: Prepare and file voluntary disclosures to minimize penalties.
• Appeal Representation: Represent you before the TDRC and provide documentation for court appeals.
• Installment Plan Applications: Assist with installment plan applications and security documentation.
• Prevention Strategy: Implement processes to avoid future penalties.