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Revised Tax Penalties for Various Defaults Under UAE VAT Law – Taxation

United Arab Emirates: Revised tax penalties for various defaults under UAE VAT law

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The Cabinet of Ministers (CoM) gave a wonderful gift to UAE businesses on the occasion of Ramadan Eid by issuing Decision No. 49/2021 (new resolution) amending the provisions of Cabinet Decision No. 40 / 2017 (old resolution) regulating tax penalties imposed for violation of tax laws in the United Arab Emirates on April 28, 2021.

Before the publication of the new resolution, taxpayers faced heavy penalties for failing to comply with VAT and excise rules and regulations. While the penalties imposed under the previous Cabinet resolution were aimed at reducing non-compliance and being more compliant with the law, these have always placed a heavy burden on taxpayers who wanted to voluntarily correct genuine mistakes.

1. Modification of routine sanctions

The new resolution modifies the administrative penalties mentioned in tables n ° (1), (2) and (3) of the old decision. These are explained in an understandable way in the new published resolution.

2. Calculation of penalties

The new Resolution stipulates that the payment deadline for calculating the late payment penalty is as follows:

  • 20 working days from the date of submission of the voluntary disclosure.
  • 20 working days from the date of receipt of a tax notice.

The foregoing cancels the application of late penalties retroactively from the due date for filing the tax return subject to rectification or adjustment. This should be read as a warning with the Supreme Court judgment of October 2020.

3. Reductions for previously imposed penalties

Administrative penalties that were collected before the effective date of the new resolution and not paid will be reduced to 30% of the total outstanding penalties if all of the following conditions are met:

  • Sanctions were applied under the old resolution;
  • All taxes due have been paid as of December 31, 2021; and
  • By December 31, 2021 at the latest, 30% of the total administrative penalties due and not paid on the date of entry into force of the new resolution (i.e. 60 days from April 28, 2021) have been paid.

4. Effective date of the new Cabinet resolution

The new resolution will enter into force 60 days after the date of its issuance on April 28, 2021, i.e. it would enter into force on June 28, 2021.

Our comments

  1. While there would be a huge difference in the penalty imposed on filing the voluntary disclosure compared to errors identified during the FTA audit, businesses should immediately review their previous VAT returns, identify errors, and file. voluntary disclosure in an appropriate manner and also ensuring that appropriate documentation of and incoming invoices are kept.
  2. Further clarification is awaited on the implementation of the resolution and the way forward for taxpayers during the transition period. It remains to be seen whether the tax amnesty regime (explained in above) would be applicable to pending cases pending litigation.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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