VAT q&a: 'Can I avoid a Dh22,000 penalty imposed by the FTA?'

The Dubai resident made payments through an exchange house, but failed to file the tax return

Mistakes in a taxpayer's registration, filing or payment can quickly result in substantial fines warns tax expert Lisa Martin. Getty Images

Can you please advise me as it seems I have make a big mistake. I have paid all of my VAT due, but I didn't submit the tax return file as I didn't know that I had to submit. I made payments via Al Ansari Exchange, but I later heard that I need to file tax returns on the FTA portal. My payment was Dh12,000 for the first five months but the FTA has added Dh22,000 as a penalty. Can I avoid the penalty by going to the FTA office or is there any other option to avoid this penalty? SK Dubai

A lot of people have made the same mistake in calculating and paying their VAT but failing to file the corresponding VAT return on the FTA online portal. Unfortunately, if you fail to file the return the FTA does not recognise any payments that you have made. Therefore you get fined not only a later filing fee but also interest on the amount of the tax due, until the point at which you file the return. The penalty for missing the filing deadline is Dh1,000 for the first offence and then Dh2,000 for every subsequent missed deadline.

I recommend that you get any outstanding returns up to date and then file on time every quarter. You should pay the VAT due and penalties and then file a reconsideration form to try to get the penalties refunded by the FTA. The reconsideration form needs to be submitted in Arabic and I would advise that you get assistance from a tax agent for this. Honestly I am not optimistic that the FTA will reverse these penalties for you.

My company purchased goods in the UAE and paid VAT, which was reclaimed on the next VAT return. Half these goods were sold in the UAE and we charged output VAT on the sales. The rest were exported, and we did not charge VAT. My question is whether I need to somehow adjust or repay half the input VAT we offset, as the exported sales were made without VAT.  HM Dubai

Put simply, the VAT legislation allows you to reclaim input VAT you have paid to suppliers on goods and services that you then use to make taxable sales. If you make a combination of taxable and non-taxable sales, then you are obliged to restrict the amount of input VAT you reclaim in proportion to your taxable and non-taxable sales. You would do this based on your taxable and non-taxable sales initially on a quarterly basis with a full year's calculation at the year end. However. exports are considered to be part of taxable sales, albeit that they are taxed at zero per cent.  As a result you do not have to reduce the amount of input VAT you may reclaim as all of your sales in this example are deemed to be taxable supplies.

I would like to seek your advice on how to apply for a tax registration number (TRN) even though our company was just opened. Our newly-opened company provides services, hence, it is quite difficult to complete the requirements of the Federal Tax Authority (FTA), but we wanted to apply as we are getting enquiries and to avoid future issues, we wanted to apply for VAT registration immediately. I would appreciate it if you could give any advice in order for us to get a TRN. MC Sharjah

The VAT legislation is very specific about when a business can or must register for VAT. I suggest you read through Articles 13 and 17 of the Decree Law and Articles 7 and 8 of the Executive Regulations. As a start-up business you cannot register for VAT whenever you choose, you may only do so once you have met the voluntary registration threshold contained in the VAT law.     This would be at the point you expect that in the next 30 days your cumulative taxable sales plus taxable expenses will reach a total of Dh187,500. The mandatory and voluntary thresholds are based on a rolling 12-month period.

I appreciate that it might seem that the easiest thing to do is to register for VAT at the earliest opportunity, but I would caution against registering before you are entitled to do so as that would entail providing incorrect information to the FTA. The FTA is very rigorous when it comes to reviewing and accepting voluntary registrations so be prepared to submit a huge amount of detail and supporting documentation to support your registration.

Finally your customers should have no issue with you not being VAT-registered. Businesses whose turnover falls below the mandatory VAT threshold of Dh375,000 per year are not required by law to be registered for VAT. Not being VAT-registered does not make a properly licensed business any less legal or valid than a similar business who is registered.

Lisa Martin, a chartered accountant with more than 20 years' commercial finance experience, is the founder of accounting, auditing and VAT consultancy, The Counting House. Email any VAT queries to [e-mail]