Top 5 VAT Mistakes Dubai Businesses Make | Avoid FTA Penalties
Don’t let a simple math error or a missed deadline derail your company’s growth. The Federal Tax Authority (FTA) isn’t known for its leniency when it comes to compliance. One wrong box checked on your return can lead to hefty fines that eat right into your margins.
The good news? Most of these traps are avoidable if you know where to look. We’ve seen it all at MNK Auditing. From SMEs to larger firms, the same few slip-ups keep appearing.
Here are the top five VAT mistakes Dubai businesses make and—more importantly—how you can steer clear of them.
Table Of Contents
Missing the Filing Deadline (The Most Expensive VAT Mistakes Dubai)
Life in Dubai moves fast. It’s easy to get caught up in operations and forget that your VAT return is due. Whether you file monthly or quarterly, the FTA expects your submission and payment by the 28th day of the month following your tax period.
What is the cost of being late? It starts at AED 1,000 for a first-time offense and jumps to AED 2,000 if you repeat it within 24 months. On top of that, you’ll face a 2% immediate penalty on unpaid tax, which scales up the longer you wait.
How to avoid it: Don’t rely on memory. Set digital alerts or, better yet, automate your process. Our VAT accounting services can ensure your filings are submitted well before the deadline.
Claiming VAT on Non-Recoverable Expenses
- Business entertainment (taking a client out for a fancy dinner).
- Personal use of company cell phones or cars.
- Employee benefits that aren't legally required.
If you claim these, you’re essentially asking for an audit. [Outbound Link: FTA Guide on Input Tax Recovery] explains exactly what is and isn’t allowed.
Confusing Zero-Rated vs. Exempt Supplies
This is where it gets technical. Not all “no tax” transactions are the same.
Zero-rated supplies
(like exports or certain healthcare services) are taxed at 0%. You can still claim the VAT back on your costs.
Exempt supplies
(like certain financial services or local public transport) are outside the scope. You cannot claim back VAT on costs related to these.
Poor Record-Keeping Habits
If the FTA knocks on your door for an audit, they’ll want to see records for the last five years (or 15 years for real estate). Many Dubai businesses still rely on disorganized folders or messy spreadsheets.
Missing invoices or lack of a proper audit trail is a one-way ticket to an AED 10,000 fine. Manual bookkeeping is prone to error. The shift toward AI-driven accounting is helping many SMEs in Dubai stay organized by automating data entry and catching duplicates before they become problems.
How to avoid it? Go digital. Cloud-based systems make retrieving a three-year-old invoice a five-second task instead of a five-hour headache.
Ignoring the Reverse Charge Mechanism (RCM)
You do not pay the vendor VAT when you purchase services from outside the UAE, such as software subscriptions or Google Ads. Rather, you are responsible for accounting for that VAT through the Reverse Charge Mechanism.
Simply put, a lot of companies neglect to include these in their returns as both an input and an output. Failing to report it is a violation of compliance even if the net impact is zero.
Final Thoughts
VAT mistakes Dubai isn’t just a 5% add-on; they’re a legal obligation that requires precision. With new corporate tax rules and stricter FTA oversight, being “mostly right” isn’t enough. Are you confident your last return was 100% accurate?
FAQ
Don’t panic, but don’t ignore it. If the error is under AED 10,000, you can usually fix it in your next return. If it’s more than that, you need to file a “Voluntary Disclosure” (Form 211) within 20 business days. Doing it yourself is much cheaper than waiting for the FTA to find it.
Not necessarily. The FTA accepts digital records as long as they are legible and easily accessible. Just make sure you have a reliable backup. A “the dog ate my laptop” excuse won’t save you from a fine.
Absolutely not. You cannot charge VAT or issue a “Tax Invoice” until you have your Tax Registration Number. If you’re over the threshold, apply immediately—don’t wait.
Usually, it’s because the invoice was missing key info (like your TRN or the correct date) or the expense was “blocked”, like entertainment. Double-check your receipts before hitting submit.