VAT was introduced in the UAE with effect from 1st October 2017 and 1st January 2018, respectively. The common tax procedures documenting the rights and obligations of the Federal Tax Authority (FTA) and the taxpayers have then been developed and specified in Federal tax procedures legislation, the Federal Law No. 7 of 2017 on Tax Procedures called “FTP Law” and applicable to all Federal taxes under the jurisdiction of the tax authority.
The number of violations subject to administrative penalties has been specified in Article 25 recommending that each of such penalties must be more than 500 AED but not exceeding three times the amount of tax on which the penalty is imposed.
The UAE Cabinet has announced Decision No. 49 of 2021 on 28th April 2021, making amendments in some of the administrative penalties applicable on the violations for assisting businesses in the country. The amendments included reduced tax and increased clarity on the redetermination of penalty levied as per the old penalty regime of 2017.
A summary of Amendments made on Violations and Administrative Penalties related to the Implementation of Federal Law No. 7 of 2017 on Tax Procedures made the following two areas.
- Reduction in Tax
- New Mechanism for Tax determination
Reduction in Tax
Reduction in Tax has been made on Violations and Administrative Penalties in relation to the
- Implementation of Federal Law No. 7 of 2017 on Tax Procedures
- Implementation of Federal Decree-Law No. 7 of 2017 on Excise Tax, and
- Implementation of Federal Decree-Law No. 8 of 2017 on Value Added Tax
The amendments made in reducing taxes are summarized below
1. The failure of the person conducting business to keep the required records and other information mandated in the tax procedures Law and the tax law. 10,000 AED for the first time and 20,000 AED if repeated
2. The failure of the taxable person to issue a tax Invoice or the alternative document when making any supply 2,500 AED for each detected case.
3. The failure of the taxable person to issue a Tax Credit Note or alternative document 2500 AED for every case detected
4. The failure of the taxable person in meeting the conditions and procedures in relation to the issuance of a tax invoice and a tax credit note electronically 2500 AED for each case detected
5. The failure of the taxable person in displaying prices inclusive of tax 5000 AED
6. The failure of the Taxable Person to provide the Authority with the price lists of the Excise Good that it produces, imports or sells 5,000 AED for the first time and then AED 10,000 in case of repetition.
7. The failure of the Legal Representative of the Taxable Person to inform the Authority of its appointment as Legal Representative within the specified time frame (the Penalties will be due from the Legal Representative’s funds) 10000 AED
8. The failure of the Registrant to inform the Authority of any circumstance that requires the amendment of the information about its Tax record kept by Authority 5,000 AED for the first time and then 10,000 AED for every repetition
9. The failure of the Taxable Person to submit a registration application within the timeframe specified in the Tax Law 10,000 AED
New Mechanisms
New Mechanisms have been announced on Violations and Administrative Penalties related to the Implementation of Federal Law No. 7 of 2017 on Tax Procedures and are as under
1. The failure of the Registrant to submit a deregistration application within the timeframe specified in the Tax Law.
1,000 AED in case of delay, and on the same date afterwards every month, up to a maximum of 10,000.
2. The failure of the Taxable Person to settle the Payable Tax stated in the submitted Tax Return or Voluntary Disclosure or the Tax Assessment he was notified of by the Authority, within the specified timeframe
The Taxable Person shall be obliged to pay the penalty applicable to late payment of Payable Tax up to a maximum of 300% as mentioned below 2% of the unpaid tax shall be due on the next day of the due date
A 4% monthly penalty is due after one month from the due date of payment on the Tax amount unsettled at that point in time
The due date of penalty payment for Voluntary Disclosure and Tax Assessment shall be
For voluntary disclosure, 20 business days from the date of submission
For Tax assessment, 20 business days from the date of receipt
3. The submittal of an incorrect Tax Return by the Registrant
Fixed penalty as mentioned below shall be applied:
1,000 for the first time
2,000 if repeated
If the incorrect Tax Return amounts to Tax difference less than the fixed penalty, a penalty equal to the Tax difference of at least 500 AED shall be levied
Anyone correcting their Tax Return before the due date of payment shall be excluded from the penalty imposed
4. The submittal of a Voluntary Disclosure by the Person/Taxpayer on errors in the Tax Return, Tax Assessment or refund application will attract penalty as below
a percentage-based penalty on the difference between the inaccurately calculated Tax and the correct tax which should have been and as per the following
5% on the difference if submitted within one year from the due date of submission
10% on the difference if submitted in the second year
20% on the difference if submitted beyond the third year
30% on the difference if submitted in the fourth year
40% of the difference if submitted beyond the fourth year
5. The failure of the Taxable person to voluntarily disclose an error in the Tax Return, Tax Assessment, or refund application will attract penalty as below
A penalty of 50% on the amount of error
A penalty of 4% for every month or part of the month, of the following:
The unpaid Tax to the Authority, from the date the payment is due for the relevant Tax Period until the date of receipt of the Tax Assessment.
The Tax that was not returned to the Authority due to ineligible refund, from the date of Tax refund until the date of receipt of the Tax Assessment.
6. The Registrant if fails to calculate Tax on behalf of another person where the Registrant Taxable Person is obliged to do so under the Tax Law is imposed with penalty as under
The Registrant is responsible for paying the penalty applicable to the late settlement of Payable Tax up to a maximum of 300%, according to the following:
2% of the unpaid tax is due on the day following the due date of payment, where the settlement of Payable Tax is late.
A monthly penalty of 4% is due after one month from the due date of payment on the unsettled Tax amount as on that date.
The due date of payment for this penalty in the case of Voluntary Disclosure and Tax Assessment shall be as under
20 business days from the date of submission, in the case of a Voluntary Disclosure.
20 business days from the date of receipt, in case of a Tax Assessment.
We, at IMC can assist you with our expertise in UAE Tax Laws and provide professional advice on the impact of the public clarification on your business and suggest ways that are best in ensuring compliance with the requirements of FTA.
