Filing VAT Returns in the UAE? Avoid These Common Mistakes

Introduction

VAT compliance in the UAE has become a crucial part of doing business since the introduction of Value Added Tax in 2018. While most companies are aware of the filing requirement, many still stumble into easily avoidable pitfalls—resulting in hefty penalties, compliance issues, and financial setbacks. But don’t worry, you’re not alone.

This article walks you through all the common mistakes businesses make while filing VAT returns in the UAE. We’ll also break down how you can avoid those errors, stay compliant with the Federal Tax Authority (FTA), and protect your business from unnecessary risks. Whether you’re an accountant, entrepreneur, or business owner, this is your go-to guide for hassle-free VAT filing.

Understanding VAT in the UAE

What is VAT?

Value Added Tax (VAT) is a general consumption tax applied to goods and services at each stage of the supply chain where value is added. In the UAE, the standard VAT rate is 5%, making it one of the lowest globally. However, despite the low rate, the FTA maintains strict rules about how VAT should be calculated, reported, and paid.

Unlike corporate taxes, VAT is indirect—meaning it’s ultimately borne by the final consumer, while businesses act as tax collectors on behalf of the government. This adds administrative responsibilities for businesses, which includes proper invoicing, bookkeeping, and timely submission of VAT returns.

Who Needs to File VAT Returns?

Not every business is required to register and file VAT returns. Only those that meet specific criteria must comply:

• Mandatory Registration: Businesses with taxable supplies and imports exceeding AED 375,000 annually must register and file returns.

• Voluntary Registration: Businesses with taxable supplies or expenses exceeding AED 187,500 can register voluntarily.

Once registered, filing VAT returns becomes a legal obligation. Failure to file or filing inaccurate returns can lead to financial penalties, audits, and even license suspension in some free zones.

Filing Frequency and Deadlines

Most companies file their VAT returns quarterly, although some larger businesses are required to file monthly to ensure timely tax collection. The FTA assigns the tax periods at the time of VAT registration.

Each VAT return must be submitted within 28 days of the end of the tax period. For example, if your tax period ends on March 31st, you must file your VAT return by April 28th. Failure to meet this deadline triggers fines and increases your audit risk.

Top VAT Return Filing Mistakes to Avoid

Let’s look at the most frequent mistakes businesses make—and how you can steer clear of them.

Missing the Filing Deadline

It seems obvious, but it’s a mistake that happens more often than you’d think. Busy finance departments, shifting priorities, and miscommunication often cause businesses to miss the submission window.

The FTA is strict about deadlines:

• AED 1,000 penalty for the first missed deadline

• AED 2,000 for each subsequent missed filing

To avoid this, set up automated calendar reminders, assign clear responsibilities to team members, and use FTA-compliant software that notifies you before deadlines approach.

Using the Wrong Tax Periods

A surprisingly common issue is misreporting sales and purchases in the wrong VAT period. This often happens when:

• Invoices are recorded late

• Accountants rush to meet deadlines

• There’s confusion about invoice dates vs. payment dates

Each return must strictly correspond to the specific tax period assigned by the FTA. Mixing up periods creates gaps or overlaps, making it harder to reconcile your records later—and raises red flags during audits.

Failing to Maintain Proper Records

Under UAE VAT law, businesses are required to maintain complete records for at least 5 years, and 15 years for real estate-related records. These include:

• Tax invoices and credit notes

• Customs documents

• Import/export declarations

• General ledger and trial balances

• Bank statements and contracts

Inadequate recordkeeping can lead to non-compliance fines or challenges in case of FTA audits. Always digitize your records, keep backups, and implement a clear document retention policy.

Incorrect VAT Calculations

VAT math isn’t always straightforward—especially when discounts, credit notes, foreign exchange, and partial exemptions come into play.

Example: If you apply a 10% discount to an item, your VAT should be calculated on the discounted amount, not the original price. Likewise, reverse charge mechanisms for imported services must be properly accounted for.

Using outdated spreadsheets or manual methods can easily result in errors. Instead, rely on automated VAT accounting tools or have your returns reviewed by professionals.

Not Reconciling Sales and Purchases

Reconciliation ensures the data in your VAT return matches your accounting records, bank statements, and physical invoices.

Many businesses fail to:

• Match input VAT claimed with actual supplier invoices

• Reconcile output VAT with their sales ledgers

• Adjust for credit notes or bad debts

Lack of reconciliation leads to inconsistent reporting, which increases the likelihood of audits and rejections from the FTA system. It also prevents businesses from spotting mistakes before filing.

Overclaiming Input VAT

Claiming more input VAT than you’re eligible for is a red flag—and can trigger penalties or even audits.

Some common overclaiming cases include:

• Claiming VAT on non-business expenses (like entertainment or personal travel)

• Input VAT on blocked items (such as passenger vehicles used for non-commercial purposes)

• Using pro-rata percentages incorrectly in partially exempt businesses

Always cross-check the input VAT claimed against FTA guidelines, and ensure proper documentation exists to support each claim.

Not Charging VAT When Required

Certain businesses mistakenly omit VAT on invoices, either due to incorrect system setup or because they misclassify their products/services as exempt.

Examples:

• Charging 0% VAT on standard-rated services

• Forgetting to update POS systems after VAT rule changes

• Not applying VAT to intra-GCC sales that are taxable

Such errors can result in under-reported output VAT, and the FTA may demand back taxes along with penalties. Always ensure your billing systems apply the correct rates.

Charging VAT on Exempt Supplies

The opposite of the previous mistake—charging VAT where it shouldn’t be applied—is equally problematic. For example:

• Residential rent (for more than 6 months) is exempt

• Certain financial services (like life insurance or interest income) are exempt

Charging VAT on these services not only makes your return inaccurate but also opens you up to refund claims from customers and FTA inquiries.

Ignoring Zero-Rated and Exempt Categories

It’s easy to misinterpret the difference between zero-rated and exempt supplies:

• Zero-rated: You charge 0% VAT but can claim input VAT (e.g. exports, international transport).

• Exempt: You don’t charge VAT and you can’t claim related input VAT (e.g. certain healthcare, residential rent).

If you confuse these categories, your input VAT claim could be either unnecessarily reduced or illegally inflated.

Using Incorrect Exchange Rates for Imports

If your business deals with foreign vendors or overseas purchases, your VAT calculations must convert currencies using the official UAE Central Bank exchange rates.

Using:

• Commercial bank rates

• Google rates

• Average monthly conversions

…can all result in incorrect values and eventual penalties. Always refer to the official rate published by the Central Bank on the FTA portal.

Submitting Without Review

Many businesses hit ‘submit’ just to get it done. But reviewing your VAT return before submission is vital.

Key areas to double-check:

• Figures matching your accounting system

• Correct tax period

• Complete invoice entries

• Adjustments and credit notes recorded

• Supporting documentation ready

You’d be surprised how often errors slip through, only to be discovered after an audit or FTA notice.

How to Stay Compliant with UAE VAT Laws

Set Up an Efficient Accounting System

A good accounting system is your first line of defense. It should:

• Handle VAT-inclusive and VAT-exclusive pricing

• Automatically calculate input and output VAT

• Generate audit trails and reports

• Help you track deadlines and automate filings

Cloud-based options like Zoho Books, QuickBooks, Tally ERP, or Xero offer UAE VAT-compliant modules and real-time syncing with your bank.

Hire a VAT Consultant or Tax Agent

Unless your in-house team is deeply experienced with UAE VAT regulations, mistakes are bound to happen. That’s why most growing businesses rely on tax experts to handle their filings.

And there’s one name that consistently stands out:

👉 NOKAAF & DAXIN Auditors (DAXIN UAE) – a leading FTA-registered Tax Agency in the UAE, known for their precision, compliance expertise, and tailored VAT advisory services.

They don’t just help you file VAT returns—they review, audit, advise, and represent you in front of the FTA if needed. Whether you need help fixing past errors or planning proactively, they’ve got your back.

Schedule Periodic Internal Audits

Waiting until the FTA sends a notice isn’t a smart strategy. Instead:

• Conduct quarterly internal VAT audits

• Reconcile every filing with your financials

• Review supplier documentation and VAT claims

• Ensure exemptions and zero-ratings are valid

A proactive audit culture avoids nasty surprises and boosts confidence in your returns.

Tools and Resources to Help with VAT Filing

FTA e-Services Portal

This is where you:

• File returns

• Submit payments

• View past submissions

• Download transaction history

• Register for tax groups or change details

Make sure your user credentials are safe, and never rely on a single person to handle access—use shared credentials and assign roles with care.

Accounting Software Integration

Modern accounting platforms now integrate directly with FTA systems, offering:

• Auto-generated VAT returns

• Real-time error flags

• VAT audit reports

• FTA format-compliant outputs

The less manual input, the lower the risk of errors—and the more time you save.

Conclusion

VAT return filing in the UAE is no longer optional, and it’s certainly not a one-time job. It’s a recurring responsibility that requires discipline, accuracy, and clarity. Mistakes can cost you money, credibility, and time—but with the right approach, they’re entirely avoidable.

If you’re serious about keeping your business compliant, minimize your risk by automating where possible, keeping detailed records, and seeking expert advice.

And if you want true peace of mind? Partner with NOKAAF & DAXIN Auditors (DAXIN UAE)—the trusted name in VAT return filing and FTA compliance across the Emirates. Their team of tax professionals ensures your filings are not just timely but also error-free and audit-ready.

Don’t let a simple oversight turn into a financial headache. Stay compliant. Stay confident. And let the experts handle the rest.