Late reprieve: Firms which failed to register for VAT won’t face penalties until April 30

The Federal Tax Authority (FTA) of the United Arab Emirates has given a reprieve to firms that missed the deadline to register for value-added tax (VAT).

Companies eligible for VAT – those with a turnover of 375,000 dirhams ($102,110) or more – had been told by the FTA that they needed to register before December 3 last year in order for the FTA to be able to process their application and to allocate the necessary Tax Registration Number (TRN) required for them to be able to charge the tax.

The FTA had previously said it expected about 350,000 firms to register for VAT, and a number of media outlets reported last month that its head, Khalid Al Bustani, had said that about 260,000 firms had registered to date.The organisation had also said that firms which fail to submit registrations on time would face fines of up to 20,000 dirhams. However, in a statement issued on Wednesday following an FTA board meeting chaired by the UAE’s Minister of Finance and deputy ruler of Dubai, Sheikh Hamdan bin Rashid Al Maktoum, the organisation said its board had “approved a plan to exempt businesses that are late in registering with the authority from administrative penalties until April 30, 2018”.

“This takes into consideration the lack of readiness of some businesses during the first phase of VAT implementation, and reflects FTA’s commitment to assisting businesses and encouraging them to be compliant with the tax procedures and to avoid administrative penalties.”

It also said that a tender for a tourist refund scheme had been reviewed, with the board urging for the system to be implemented.

In the statement, Sheikh Hamdan described the response levels to the new tax by businesses as “very satisfactory”.

“There is a steady increase in the tax compliance ratios, which confirms the success of the model adopted by the FTA, which is based on encouraging self-compliance by businesses through easy electronic registration and electronic compliance with tax obligations,” Sheikh Hamdan said.

Jeremy Cape, a tax partner with law firm Squire Patton Boggs, said that the FTA’s decision not to fine companies that had not registered for VAT in time to meet its deadlines “was perhaps not a huge surprise given the timelines”.

He said that although firms had known about the likelihood of VAT introduction about one year ago, registration for companies had only opened in October.

“It was still a bit of a shock and a lot of businesses weren’t really aware of  VAT, how it worked and what they needed to do, so they didn’t get around to do it,” he told Zawya in a telephone interview on Wednesday evening.

“I think the government will be looking at it and thinking, ‘Is there any point coming down like a ton of bricks on businesses who failed to register on time?’ And they’re taking the view that there’s not,” he added.

Cape said that although he felt that deciding to accept penalties until April 30 was a sensible move, “I hope that they are able to implement it in a way that isn’t unfair on those businesses that did get prepared, and obviously at some stage they are going to have to differentiate between those who are complying and those who aren’t”.

He also said there were some “tricky points” of law coming up that the FTA will need to address.

“VAT is a heavily litigated tax in countries that have it. There is a lot of VAT litigation that goes on in points of law in the UK and the EU and I expect that to be the case (in the UAE).”