Revised Tax Penalties for various defaults under UAE VAT Law and amendments in Executive Regulations
The Federal Tax Authority (FTA) has revised penalties by issuing Decision No. 49/2021 (New Resolution), amending provisions of Cabinet Decision No. 40/2017 (Old Decision) regulating tax penalties imposed for the violation of Tax Laws in the UAE. Prior to the issuance of the New Decision, taxpayers were faced with heavy penalties for non-compliance under the VAT and 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.
Prior to the issuance of Executive Regulations (ER) for Tax Procedures, there were certain areas where clarity was required. On account of said ER, the same would be clear and be a checklist that can be followed easily.
Recently, the FTA issued two public clarifications and two Cabinet Decisions. The same have been explained below:
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| I. TAXP001: Amendments to the Penalties Regime |
This public clarification provides detailed information on the amendments introduced by Cabinet Decision No. 49 of 2021 (New Resolution) to some of the administrative penalties applicable to certain violations vide Cabinet Decision No. 40 of 2017.
For ease of reference, we have prepared a comparable model of penalties1 levied earlier vis-a-vis at present and also provide our comments in the following categories,i.e., nature of change
- Not amended
- Reduced
- Amended and reduced
- Changes in the mechanism of calculation of penalties (for Violation 9, 10, 11 and 12 of Table 1 of the comparable model)
Further, it has also provided a mechanism to specify the date of imposition in certain penalties.
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| II. TAXP002: Redetermination of Administrative Penalties Levied Prior to the Effective Date of Cabinet Decision No. 49 of 2021 |
This Public Clarification provides detailed information on the redetermination of some of the penalties imposed prior to the effective date of the Old Resolution on fulfillment of certain conditions. Prior to the Old Resolution the penalties were imposed under Old Resolution.
Accordingly, the administrative penalties imposed under the previous Resolution, that have not been paid will be reduced to 30% of the total unpaid penalties if all of the following conditions are met:
- The penalties were applied under the Old Resolution;
- The registrant has paid all taxes due by 31 December 2021;
- By 31 December 2021, the registrant has paid 30% of the total administrative penalties due and unpaid by the effective date of the New Resolution.
(The New Resolution, i.e., The Cabinet Decision No. 49 of 2021, shall be effective after 60 days from the date of its issuance on 28 April 2021, i.e., effective from 28 June 2021.)
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| III. Cabinet Decision No. 49 of 2021 |
Prior to the issuance of Cabinet Resolution No. 49 of 2021, taxpayers were faced with heavy penalties for non-compliance under the VAT and Excise rules and regulations. Although the penalties imposed under the previous Cabinet Resolution No. 40 of 2021 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.
Thus, the New Resolution has amended some of the administrative penalties applicable to certain violations and allows for a redetermination of some of the penalties already imposed. In the said regard, Public Clarification TAXP001 and TAXP001 have been issued.
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| IV. Cabinet Decision No. 51 of 2021 |
| The Executive Regulations of Federal Law on Tax Procedures have been amended by the issue of Cabinet Resolution no. 51 of 2021. The Executive Regulations provides amendment in procedures carried out in day to day activities of the business. Accordingly, the Resolution has commented on the what are accounting records and commercial books and method of keeping them, period of record-keeping, Procedures of Tax Registration, De-registration and Amending Details of Registration, Voluntary Disclosure, etc. |
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1. Comparison of Penalties |
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