OBCO - How to Correct VAT Errors and Make Adjustments

All Articles

Jun 15, 2025

Alina

How to Correct VAT Errors and Make Adjustments

In the United Arab Emirates, every individual or business registered for VAT must file a VAT Return (Form 201) with the Federal Tax Authority (FTA) for each applicable tax period. In this blog, we will assess how much VAT a business collects from customers (output VAT) and how much it pays on its own purchases (input VAT). It is important for correct tax reporting. However, if there are mistakes in these numbers called "VAT errors," it can lead to fines, tax checks, or legal problems.

What Is a VAT Error?

VAT errors arise when:

A company miscalculates the output VAT that needs to be paid.
The input VAT claimed is inaccurate or unjustified.

Whether these mistakes lead to an overpayment or underpayment, they must be corrected through a VAT adjustment or a voluntary disclosure via Form 211, depending on the severity and timing of the discovery.

What Is VAT Adjustment?

The process of amendment in a previously submitted VAT error is known as VAT adjustment, it might include the following corrections:

Returned or canceled goods/services.
Mistaken tax rate application.
Issued credit notes or invoice revisions.

For small discrepancies (less than AED 10,000), adjustments can usually be made directly in the VAT Return of the period when the error is identified. Larger discrepancies require formal steps.

Correcting VAT Errors: Timeframes and Processes

1. Errors of AED 10,000 or Less

Amendable directly in the tax return for the period in which the error is found.
If the business is no longer VAT-registered or unable to amend the return, submit Form 211 for voluntary disclosure.

2. Errors Exceeding AED 10,000

These errors should be disclosed to the FTA through Form 211.
When the VAT error is identified, it is required to disclose it within 20 business days..
Late disclosures may trigger VAT penalties for errors, including fines calculated on unpaid or misclaimed VAT amounts.

Time Limit for Correcting VAT Errors

The law allows VAT errors to be reworked within five years from the end of the tax period in which the error occurred. However, for cases involving tax evasion or failure to register for VAT, the correction window extends to 15 years. The FTA has the right to reclaim taxes and apply heavy penalties during this period.

Common VAT Errors on Tax Invoices

Tax invoices are another area where frequent errors occur, such as:

Charging VAT on exempt or zero-rated supplies.
Applying incorrect VAT rates.
Omitting VAT from standard-rated supplies.

To correct these, suppliers must:

Issue a credit note when too much VAT has been charged.
Re-issue a corrected invoice when VAT was undercharged.

These corrections ensure that the buyer receives a valid invoice and can properly claim input VAT, helping both parties maintain compliance.

The Rise of E-Invoicing and VAT Accuracy

With the UAE moving toward e-invoicing regulations, businesses are encouraged to adopt digital invoicing systems to reduce human error. E-invoicing offers:

Automated VAT calculations,
Seamless integration with accounting software,
Reduced risk of filing errors, and
Better compliance documentation for audits.

Such systems not only streamline reporting but also act as a preventive tool against future VAT penalties for errors.

The Risks of Ignoring VAT Errors

In case of non-addressing the issue or incorrection VAT-related mistakes, there must be significant consequences, such as:

Audits or investigations by the FTA.
Ineligibility for tax refunds.
Reputational damage and disrupted business operations.

A proactive approach using VAT adjustments or timely voluntary disclosures helps mitigate these risks and maintain credibility with both regulators and stakeholders.

VAT Refund Applications: What Foreign Businesses Need to Know

Even foreign businesses not established in the UAE must follow local VAT laws when submitting refund claims. If an error is discovered:

File Form 211 within 20 business days.
If the refund error is due to an incorrect return, the original VAT return must be corrected accordingly.

Proper handling ensures that the FTA processes refunds without delays or disputes.

VAT Penalties for Errors: What You Should Know

The FTA imposes strict fines based on:

A fixed amount for failure to file a voluntary disclosure.
A percentage of the underpaid or overclaimed tax.

At this stage, it is important to understand that late VAT error detection leads to an increased amount of VAT penalties. Businesses are strongly encouraged to perform internal reviews and submit disclosures promptly to avoid these penalties.