FTA’s Revamp on Tax Administrative Penalties in UAE
Reshma Raju Thomas
The recent Cabinet decisions on administrative penalties came forth as a relief for the business sector as the reduction would mean a decrease in the legal obligations and a boost in their capabilities to nurture and contribute to the growth of the national economy. This reform further enhances FTA’s goal to provide an environment that promotes a high level of tax compliance.
Redetermination Of Administrative Penalties (Public Clarification TAXP004)
On 28 April 2021, the Cabinet issued Decision No. 49 of 2021 on Amending some provisions of Cabinet Decision No. 40 of 2017 on Administrative Penalties for Violations of Tax Laws in the UAE. Cabinet Decision No. 49 of 2021 amended some of the administrative penalties related to certain violations and allowed for a redetermination of some of the penalties already imposed.
On 30 December 2021, Cabinet Decision No. 49 of 2021 was amended by Cabinet Decision No. 108 of 2021 which replaced the third Article of Cabinet Decision No. 49 of 2021 and provided an extended timeframe to benefit from the concessionary measures provided in the form of redetermination of administrative penalties and is applicable from 1 January 2022. The original deadline granted was 28 June 2021 under the previous Cabinet Decision No. 49 of 2021. The Public Clarification TAXP004 released in January 2022 replaces Public Clarification TAXP002.
FTA redetermines the amounts of unsettled payable administrative penalties imposed based on the Cabinet Decision No. 40 of 2017 and imposed in full before 28 June 2021, if all the following conditions are met:
- paid the total amounts of the payable tax by 31 December 2021
- paid the 30% of the total amount of the unsettled administrative penalties which were imposed before 28 June 2021 and paid not later than 31 December 2021.
Where the above conditions are met, the FTA will, redetermine the amount of administrative penalties payable and not settled by 28 June 2021, to equal 30% of that unpaid part. Hence, the person shall not be required to pay the remaining part of 70%.
Where the registrant failed to satisfy the conditions by 31 December 2021, they can benefit from the extended deadline till 31 December 2022 and if the conditions are satisfied by 31 December 2022 and the FTA will redetermine the penalty in 30 business days from 31 December 2022.
Administrative Penalties Installments and Waivers
The Federal Tax Authority (FTA) introduces administrative penalties installments and waivers as per Cabinet Decision no. 105 of 2021 on the Procedures of Administrative Penalty Installments and Waivers, effective from 1 March 2022.
Administrative penalties installments
This scheme allows taxpayers to settle tax administrative penalties through installments. A request should be submitted to the FTA, and the FTA will approve when all the following conditions are met:
- It must be for unpaid penalties.
- The amount of penalty is more than AED 50,000 and subject to amendment by Committee.
- With the exception of the Reconsideration mechanism, the penalties shall not be disputed before the Tax Dispute Resolution Committee (TDRC) or the competent courts or any other relevant authorities.
- All taxes relating to the penalties imposed are paid in full.
Administrative penalties waivers
Taxpayers will need to file a separate request to FTA for this scheme and the grant of penalty waiver will depend on the following conditions:
- Fines are not related to tax evasion crime
- Request to be made within specified time stated by the Committee
- The request shall be related to:
- Where death or illness of registered natural person or owner (in case of sole establishment) led to non-compliance to its tax obligation
- Where death, illness, or resignation of a principal employee was a direct cause of non-compliance to its tax obligation
- Any government-imposed precautionary or preventive measure was the reason for failure to meet the tax obligation.
- Any general defect in Authority’s systems, payment systems, or used telecommunications services was a direct cause of failure to meet its tax obligation on time.
- Implementation of any of the penalties restricting freedom by a registered natural person or the owner of a sole establishment.
- The person carried out its tax duties and paid all tax amounts due under the tax law through another account of the taxpayer
- The person is declared insolvent or bankrupt and due tax amounts were paid before the declaration of insolvency or bankruptcy. Such a declaration must not be the aim to avoid payment of administrative penalties.
- Any other cases approved by Committee.
The FTA takes up to 40 working days to review the penalty installment and waiver requests from the date of submission and a further 20 working days to issue its decision based on the assessment. They will need another 10 working days to inform the applicant of its decision. Where no communication is received within the timeline, the request will be considered rejected.
FTA has the sole right to approve or amend penalty installment requests and they will require a payment guarantee to ensure the installment plan is reasonable.
The decision also states that FTA is responsible to assess the penalty percentage that can be waived if the penalty waiver request is approved, and they can set the rules based on the penalties paid previously within the last five years.
FTA’s latest reforms on tax compliance succeed in fostering growth by the business sectors in the region to attract foreign investment and incentivize companies to set up or expand their operations in the country, further strengthening the economy.
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