UAE Tax Penalties Reduced

In a much welcome move, the Federal Tax Authority in UAE has announced revisions/reductions in Administrative Penalties applied for VAT non-compliance by issuing a new Cabinet Decision No. 49/2021. This was a much-needed and awaited move from the Tax Authority to provide relief to VAT registrants during these testing times.

The main aim of the new law is to enhance the competitiveness of the country by creating suitable conditions for both individuals and businesses. This law will also ensure the continuation of companies facing hiccups owing to huge penalties imposed on them for past non-compliances and allow them to correct themselves.

There were many changes in the new decision, and some of the significant differences are discussed below:

  I. Calculation of Penalties

This is one of the most necessary amendments in Cabinet decision 49 of 2021, which has revised the penalties for late payment of VAT from 1% per day to 4% every month. This is a tremendous change and can be very beneficial for both individuals as well as businesses. However, the cap which was applied to the penalties is still kept at 300 Percent.

Where a taxable person has failed to pay the VAT due as per return, voluntary disclosure, or a tax assessment notice within the due dates applicable, penalties would be imposed as below, which can go up to a maximum of 300% of the payable tax:

1. 2% of the unpaid tax will apply to the entity after the due date is passed; and
2. A 4% monthly penalty will be used on the unpaid tax after the expiry of one month from the due date.

The penalty as above was previously 1% per day after the expiry of one month, which has been brought down to a mere 4% per month. This will cause a significant reduction in the amount of penalty.

  II. Start and Due date of penalties 

Another aspect of the previous Cabinet Decision on penalties that needed a review and change was the lack of clarity on the due dates based on which penalties should be imposed. Owing to this, penalties were being imposed on a retrospective basis, which significantly increased the penalty amount’s quantum. The Tax Authority has now addressed this concern and has clarified the same.

The due dates to apply the penalties in the event of voluntary disclosure and tax assessment are defined as follows:

1. In the case of voluntary disclosure, 20 business days from date of submission; and
2. In the case of tax assessment, 20 business days from the date of receipt.

The above ensures that penalties applied in the above scenarios are calculated only after the above events and not from prior periods.

  III. Discounts on the Penalties previously imposed

This decision to offer a discount is a significant one made to providing ease for VAT registrants who have already been charged huge penalties and are unable to settle the same. This is instrumental in ensuring that businesses are not burdened with their past faults and provide them an opportunity to redeem themselves.

The new cabinet decision states that the Federal Tax Authority (FTA) has the right to reduce the penalties imposed before the effective date of the recent Cabinet Decision, which has remained unpaid by 70%. To avail this benefit of reduction in fines, the VAT registrants MUST comply with the below conditions:

1. The penalties eligible for the deduction were imposed prior to the changes as per this new Decision; and
2. The registrant has paid
   1. all his tax dues by the 31st of December 2021; and
   2. 30% of penalties that were imposed previously by December 31, 2021.

On complying with the above, the FTA will waive off the balance 70% penalties.

Points to note here are:

1. The reduction is only on the old penalties before this Cabinet Decision;
2. The VAT registrant should not have any unpaid Tax left by December 31, 2021; and
3. The VAT registrant should pay 30% of the penalty by December 31, 2021, i.e., the portion that will not be waived off the FTA.

The above were some of the major changes made in the new Cabinet Decision, which will significantly reduce the debt burden of VAT registrants. Apart from the above, the FTA has also reduced the quantum of penalties for many non-compliances such as late registration, late de-registration, etc.

The Covid-19 epidemic has affected all the businesses in the world, and everyone is looking for hope, and this change will help the taxpayers start a new chapter in their lives.

To have a detailed understanding of the new Cabinet Decision No. 49 of 2021 and how it can affect your business, feel free to consult with the experts of JAXA Chartered Accountants.

JAXA Chartered Accountants is a certified firm and comprises several experts who will answer all the needs of your business. In addition, they also provide several services that will assist you in your business journey. To know more about the benefits, feel free to Contact Us. We will be happy to help.

Disclaimer: Content posted is for informational & knowledge-sharing purposes only and is not intended to substitute for professional advice related to tax, finance, or accounting. The view/interpretation of the publisher is based on the available Law, guidelines, and information and the unofficial translations of the related Regulations which are available. Each reader should take due professional care before you act after reading the contents of that article/post. No warranty whatsoever is made that any of the articles are accurate and is not intended to provide, and should not be relied on for tax or accounting advice