VAT Mistakes in the UAE: Top Errors Businesses Make & How to Avoid Them

Discover the most common VAT mistakes UAE businesses make and how to stay compliant with FTA regulations to avoid fines and audits.

Since the implementation of Value Added Tax (VAT) in the UAE in 2018, businesses have been expected to follow strict compliance standards set by the Federal Tax Authority (FTA). While most companies are aware of their tax obligations, many still make critical mistakes that can lead to hefty fines, audits, and even legal consequences.

Here are the top VAT mistakes businesses in the UAE make — and how you can avoid them:

1. Late VAT Registration or Deregistration

Mistake: Many businesses fail to register for VAT on time after exceeding the mandatory threshold (AED 375,000) — or forget to deregister when they no longer meet the criteria.

Consequence:

• Late registration penalty: AED 10,000

• Continued VAT obligations without proper deregistration

How to Avoid It:

• Monitor your monthly revenue to see if you’re nearing the threshold

• Register within 30 days of becoming eligible

• If your business no longer meets the criteria, apply for deregistration promptly through the FTA portal

2. Charging VAT Incorrectly (or Not Charging It at All)

Mistake: Businesses often charge VAT on zero-rated or exempt supplies, or fail to charge VAT when it's required.

Consequence:

• Incorrect VAT filing

• Underpayment or overpayment issues

• Customer disputes and FTA penalties

How to Avoid It:

• Understand the difference between standard-rated (5%), zero-rated, and exempt goods/services

• Regularly train your finance and sales teams on current VAT laws

3. Errors in Filing VAT Returns

Mistake: Misreporting figures, forgetting to include credit notes, or incorrect input/output tax reporting are all common filing errors.

Consequence:

• Filing incorrect returns may trigger FTA audits

• Fines for inaccurate returns (AED 1,000 for first offense, AED 2,000 for subsequent ones)

How to Avoid It:

• Use VAT-compliant accounting software

• Review all invoices, records, and credit/debit notes before filing

• Hire a registered tax agent or VAT consultant to audit your returns

4. Poor Record-Keeping

Mistake: Businesses fail to maintain proper documentation, such as invoices, VAT returns, and accounting records for the required period (5 years).

Consequence:

• Difficulty during audits

• Fines up to AED 10,000 for non-compliance

How to Avoid It:

• Keep organized digital and physical records

• Store all VAT invoices, transaction reports, and supporting documents securely

• Maintain records for at least 5 years (15 years for real estate businesses)

5. Incorrect VAT Treatment of Imports & Exports

Mistake: Many businesses misunderstand the VAT rules regarding cross-border transactions.

Consequence:

• Double taxation or underreported tax

• Delays in customs clearance and FTA penalties

How to Avoid It:

• Understand when reverse charge mechanism applies

• Clarify whether your exports are zero-rated (e.g., exports outside GCC)

• Consult a VAT expert for international trade transactions

6. Ignoring Penalty Notifications from the FTA

Mistake: Some businesses ignore notifications or don't check their FTA portal regularly for alerts and fines.

Consequence:

• Penalties accumulate over time

• Missed deadlines and possible suspension of tax registration

How to Avoid It:

• Regularly log in to the FTA online portal

• Assign a team member to monitor updates, notices, and deadlines

• Resolve penalties promptly and file reconsideration requests if applicable

7. Not Appointing a Tax Agent or Advisor

Mistake: Attempting to manage VAT without professional guidance, especially for complex transactions or industries

Consequence:

• Higher risk of non-compliance

• Missed opportunities for legitimate tax savings

How to Avoid It:

• Hire an FTA-approved tax agent or consultant

• Stay informed on latest tax laws and updates from FTA

• Conduct regular VAT health checks for your business

Final Thoughts

VAT compliance is not just about avoiding penalties—it's about building a sustainable, transparent, and well-managed business. Whether you're a startup or an established firm, staying ahead of your VAT obligations ensures smoother operations and protects your brand's credibility.

If you're unsure whether your business is VAT compliant, it's best to consult with VAT professionals or tax advisors who understand UAE’s local regulations in depth.

Need VAT help?
Get in touch with Diligence Business Management (DBM) for VAT registration, filing, and audit support.
📞 Call/WhatsApp: +971 50 504 6228
🌐 Visit: www.dbmsbusiness.com

💼 Need Expert Help with VAT in the UAE?

At DBMS Business Management, we offer:

• VAT registration & deregistration

• Filing & return services

• FTA audit preparation

• Tax health checks

📧 Email: info@dbmsbusiness.com
📞 Call: +971-505046228
🌐 Website: www.dbmsbusiness.com