Introduction

In the UAE, even small accounting errors can trigger serious penalties from the Federal Tax Authority (FTA). New startups and SMEs often struggle with VAT filing, record-keeping, expense categorization, and corporate tax compliance — leading to fines ranging from AED 1,000 to AED 50,000.

At MHK Accounting & Taxation Services LLC, we help UAE businesses avoid costly FTA mistakes through proper bookkeeping, tax compliance, and audit-ready documentation.

This guide explains the most common accounting mistakes, the penalties involved, and how your business can stay fully compliant in 2026.

1. Incorrect VAT Filing & Misreported Financials

Many new companies file VAT without reconciling sales, purchases, credit notes, or import data.

Common mistakes:

• Reporting wrong VAT amounts
• Missing import VAT from customs
• Not recording reverse-charge transactions
• Filing VAT returns with incorrect or incomplete books

FTA Penalty

• AED 1,000 first time
• AED 2,000 second time within 24 months
• Additional fines for late filing or inaccurate figures

2. Poor Bookkeeping & Incomplete Records

Many startups use spreadsheets instead of proper accounting systems.

Key issues:

• Missing invoices
• No chart of accounts
• Unreconciled bank accounts
• No backup of financial data

FTA Fine

• Up to AED 50,000 for missing or incorrect accounting records
• AED 20,000 for incorrect tax invoices

3. Not Maintaining Tax Invoices

Many Free Zone and Mainland companies issue invoices without mandatory FTA fields.

A valid UAE tax invoice must include:

• TRN
• Invoice number
• Date
• Customer details
• Line-item breakdown
• VAT amount

FTA Penalty

• AED 5,000 per incorrect invoice

4. Cash Transactions Without Documentation

Startups often record revenue or expenses directly as cash without proof.

Risk:

• FTA may treat undocumented expenses as non-deductible, increasing taxable profit.

Penalty

• Additional tax + penalties for inaccurate tax filings.

5. Using the Wrong Accounting Method

Some SMEs mix cash basis and accrual basis, causing inconsistencies.

Example Mistake

Recognizing income only when cash is received — instead of when services are delivered.

FTA Penalty

• Corrections + re-filings + administrative fines.

6. Ignoring Corporate Tax Compliance (9% CT)

From 2023 onwards, UAE requires every taxable business to:

• Maintain audited financial statements
• File annual corporate tax returns
• Keep records for 7 years

FTA Penalty

• AED 500 to AED 20,000 for non-compliance
• Additional fines for underreporting income

7. No VAT Reconciliation Before Filing

New businesses often file VAT directly from sales records without reconciling:

• Sales
• Purchases
• Customs imports
• Expenses
• Output & input VAT

Result

Mismatch → FTA audit → penalties.

8. Not Using FTA-Compliant Accounting Software

Manual entries increase the risk of errors.

Recommended tools (FTA-compliant):

• Zoho Books
• QuickBooks Online
• Anaira UAE Edition
• Focus ERP

Conclusion

FTA penalties can become a major burden for new UAE businesses. Accurate bookkeeping, proper VAT filing, and compliance with corporate tax rules are essential for avoiding fines and staying audit-ready in 2026.

MHK Accounting helps businesses maintain FTA-compliant books, file taxes accurately, and prepare for audits with zero stress.

External References

• Federal Tax Authority UAE
• UAE Corporate Tax Law
• VAT Executive Regulations
• Zoho Books UAE
• QuickBooks UAE

Call to Action

Avoid FTA penalties before they happen.
MHK provides complete bookkeeping, VAT filing, corporate tax compliance, and FTA audit preparation.

Book your FREE consultation today.