Revised Tax Penalties For Various Defaults Under UAE VAT Law

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The Cabinet of Ministers (CoM) has provided a wonderful gift to businesses of UAE on the occasion of Ramadan Eid by issuing Decision No. 49/2021 (New Resolution

United Arab Emirates Tax

The Cabinet of Ministers (CoM) has provided a wonderful gift to businesses of UAE on the occasion of Ramadan Eid by issuing Decision No. 49/2021 (New Resolution) amending provisions of Cabinet Decision No. 40/2017 (Old Resolution) regulating tax penalties imposed for the violation of Tax Laws in the UAE on 28 April 2021.

Prior to the issuance of the New Resolution, taxpayers were faced with heavy penalties for non-compliance under the VAT & Excise rules and regulations. Although the penalties imposed under the previous Cabinet Resolution were to reduce non-compliance and to be more compliant with the law, these always posed a heavy burden on taxpayers who wanted to rectify genuine mistakes voluntarily.

1. Amendment of routine penalties

The new Resolution amends the administrative penalties mentioned in Table No. (1), (2) and (3) of the Old Decision. These are explained in a comprehensible manner in the New Resolution issued.

2. Calculation of penalties

The new Resolution stipulates that the payment due date to calculate the late payment penalty shall be as follows:

20 business days as of the date of submission of voluntary disclosure.
20 business days as of the date of receipt of a tax assessment.

The above overrides the application of late payment penalties retrospectively from the due date of filing the tax return subject to amendment or assessment. This should be read in caveat with the Supreme Court judgment of October 2020.

3. Discounts for previously imposed penalties

Administrative penalties which have been levied prior to the effective date of the new Resolution and not paid will be reduced to 30% of total unpaid penalties if all of the following conditions are met:

The penalties were applied under the Old Resolution;
All due taxes have been paid by 31 December 2021; and
On or before 31 December 2021, 30% of the total administrative penalties due and unpaid by the effective date of the new Resolution (i.e., 60 days as of 28 April 2021) have been paid.

4. Effective date of the new Cabinet Resolution

The new Resolution shall be effective after 60 days from the date of its issuance on 28 April 2021, i.e., the same would be effective from 28 June 2021.

Our Comments

While there would be a huge difference of penalty imposed on filing voluntary disclosure when compared to mistakes identified during the FTA audit, businesses should review their past VAT returns immediately, identify the errors, and file voluntary disclosure appropriately and also ensure that proper documentation of outward and inward invoices is maintained.
Further clarification is awaited on the Resolution's implementation and the way forward for taxpayers during the transition period. It remains to be seen whether the tax amnesty scheme (explained in sr.no.3 above) would be applicable to cases pending under litigation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.