Chewing the VAT
"Filing VAT returns on time is crucial to your business," warns Mohammed Fathy, general manager of Al Dhaheri Jones & Clark. "A delay can not only cause a huge amount of stress, but also threaten your entire business should you fail to comply."
Value-added tax (VAT) is a consumption tax that applies to all goods and services, both physical and digital, bought in the European Union (EU). Every time consumers buy goods or services in the EU, they pay VAT on the spot.
Registered businesses are required to file VAT returns, which are formal statements providing supporting documentation and payment for a specified tax period. These VAT returns are important as they contain the records of the tax users paid in a given period. The formal document provides proof that the registered party has paid its VAT obligation.
While non-compliance can lead to penalties, it also results in backdated payments, investigation by the tax authorities, and black-listing, Fathy notes. It's important that businesses understand the procedure and deadlines for filing and paying VAT returns to reduce the chances of incurring fines and penalties.
Penalties can be severe. In the United Arab Emirates, for example, the administrative penalty for late registration is $5,445. Other fines include $4,084 for failing to display prices inclusive of VAT, $817 for a first incorrect tax filing, and $1,361 for incorrect filings thereafter.