UAE tax penalties reduction and discounts

Looking for an opportunity to reduce or avoid VAT penalties which have been accumulating over a period of time? This information will give you a useful insight for the same.

The UAE Cabinet of Ministers issued Decision No. 49/2021 amending provisions of Cabinet Decision No. 40/2017 regulating tax penalties on 28th April 2021 which are:

  • LATE PENALTY DATES HAVE BEEN REVISED
  • PENALTIES REDUCED FROM 1% PER DAY TO 4% PER MONTH
  • LATE PENALTY STILL CAPPED AT MAXIMUM 300%
  • CHANCES OF REDUCTION OF PREVIOUS UNPAID PENALTIES

Spectrum Auditing is an approved tax agent with team of professionals who will advise you to avoid penalties and other queries.

Penalty reduction information:

New calculation of late payment penalties will be calculated as follows:

OLD RULE ON PENALTY NEW ON PENALTY (PRESENT)
2% of the unpaid tax immediately past the due date

4% is due on the seventh day following the due date

2% of the unpaid tax immediately past the due date
1% per day after a calendar month from the due date. 4% per month thereafter commencing a month after the due date

 

The 300% cap on the late payment penalties is still applicable.

So the late payment penalties have been reduced from 1% per day to 4% per month for the due amount after a calendar month.

Its duty of the business to maintain proper records, not being able to provide when asked can lead to penalty of AED 10,000 for first time and 20,000 on repetition. Spectrum as a team can help you maintaining and guiding at each step and walk through your success story.

 

Due date / start of penalties:

In October 2020, the UAE Federal Supreme Court ordered that late payment penalties should apply retrospective to the voluntary disclosure, calculated as of the date of the original tax return.

  • 20 weekdays as of the date of submission of a voluntary disclosure
  • 20 weekdays as of the date of a tax audit

The text of the new Decision is explicit and reads to apply the late payment penalties 20 weekdays from the date of a voluntary disclosure or audit assessment, as opposed to retrospectively.

This should be read in caveat with the Supreme Court order that late payment penalties apply retrospectively from the date of the original tax return.

Voluntary disclosure:

PREVIOUS AMENDMENT NEW AMENDMENT
Previously voluntary disclosure followed fixed base penalty where if disclosed for

First time – AED 3,000

Repetition – AED 5,000

In case while filing the vat there are some error, voluntary disclosure penalty has been reduced, it is 5% in the first year on the difference amount from date of tax return, assessment or related claim, 10% in the second year and 30% in third year and so on.

 

Discounts for previous penalties:

The new Decision grants the Federal Tax Authority to decrease your penalty provided the following conditions are met:

  • 1. Regularly pay your taxes till December 2021
  • 2. Pay 30% of your previous outstanding balance for penalty charged as per previous cabinet decision
  • 3. Lead to decrease in tax penalty by 30%

 

Following is the full list of penalties that are revised based on Cabinet Resolution No. (49) of 2021 Amending Some Provisions of Cabinet Resolution No. (40) of 2017 On Administrative Penalties Imposed for Violating the State’s Tax Laws

 

Article (1)

Replacement of Tables

The below tables shall replace the tables on the administrative violations and penalties attached to Cabinet Resolution No. (40) of 2017 on Administrative Penalties imposed on violations to the tax laws of the UAE:

Table No. (1)
On Administrative Violations and Penalties related to the application of Federal Law No. (7) of 2017 on Tax Procedure

No. Violation Description Administrative Penalty (AED)
1. The person doing business failed to keep the required records and other information specified in the Tax Procedure Law and the tax law. (1,000) for the first time.(2,000) in case of repetition.

 

2. The person doing business failed to submit data, records and documents related to tax in Arabic to FTA upon request. (20,000)
3. The taxable person failed to submit the registration application within the time limit specified in the tax law. (10,000)
4. The Registrant failed to submit a request to cancel the registration within the time limit specified in the tax law. (1,000) upon delay in submitting the application and on the same date per month, with a maximum of (10,000)
5. The Registrant failed to inform FTA of any situation that may require amending the information related to its tax record kept with FTA. (5,000) for the first time. (10,000) in case of repetition.
6. The legal representative of the taxable person failed to report its appointment as a legal representative of the taxable person within the specified dates, provided that the penalties in this case shall be from the legal representative’s own money. (10,000)
7. The legal representative of the taxable person failed to submit the tax return within the specified dates, within the specified dates, provided that the penalties in this case shall be from the legal representative’s own money. (1,000) for the first time.(2,000) in case of repetition within (24) months.
8. The Registrant failed to submit the tax return within the time limit specified in the tax law. (1,000) for the first time.(2,000) in case of repetition within (24) months.
9. The taxable person failed to pay the tax shown as a tax payable in the tax return or voluntary declaration that was submitted, or the tax assessment that was notified within the time limit specified in the tax law. 1. The taxable person shall pay the penalty applicable to the late payment of the payable tax, with a maximum of (300%), in accordance with the following:a)    (2%) of the unpaid tax due on the day following the due date for payment, upon late payment of the payable tax.

b)    (4%) monthly penalty due after one month from the payment due date, and on the same date every month after that, on the amount of tax that has not been paid to date.

2. For the purposes of this penalty, the due date for payment in the event of voluntary declaration and tax assessment is as follows:

a)    In the case of the voluntary

declaration, (20) business days from the date of its submission.

b)   In the case of tax assessment, (20) business days from the date of its receipt.

10. The Registrant submitted an incorrect tax return. 1. A fixed penalty is imposed:(1,000) for the first time. (2,000) in case of repetition.
2. As an exception toClause (1) of this penalty, if the incorrect tax return results in a tax difference less than the fixed fine mentioned in Clause (1) of this penalty, a fine equal to the tax difference shall be imposed, provided it is not less than AED (500).

3. Whoever corrects its tax return before the payment due date shall be exempted from the penalty specified in Clauses (1) and (2) of this penalty.

11. The person / taxpayer makes a voluntary declaration of errors in the tax return, tax assessment or tax refund application, in accordance with Clauses (1) and (2) of Article (10) of the Tax Procedures Law. Without prejudice to the consequences of the penalty mentioned in Clause (10) hereof, a proportional penalty shall be imposed on the amount of the difference between the tax calculated and the tax that should have been calculated, in accordance with the following:1.    (5%) on the difference amount in the event that the voluntary declaration was submitted within one year of the due date of the tax return, tax assessment, or related refund application.

2.    (10%) on the difference amount in the event that the voluntary declaration was submitted during the second year from the due date of the tax return, tax assessment, or related refund application.

3.    (20%) on the difference amount in the event that the voluntary declaration was submitted during the third year from the due date of the tax return, tax assessment, or related refund application.

4.    (30%) on the difference amount in the event that the voluntary declaration was submitted during the fourth year from the due date of the tax return, tax assessment, or related refund application.

5.    (40%) on the difference amount in the event that the voluntary declaration was submitted after the fourth year from the due date of the tax return, tax assessment, or related refund application.

12. The person / taxpayer fails to make a voluntary declaration of an error in the tax return, tax assessment or tax refund application, in accordance with Clauses (1) and (2) of Article (10) of the Tax Procedures Law, before being notified of FTA’s tax audit. Without prejudice to the consequences of the penalty mentioned in Clause (10) hereof, shall be imposed a person:1.    A penalty of (50%)on the amount of error;

2.    A penalty of (4%) for each month or part of the month from any of the following:

a)     Tax unpaid to FTA, from the date that payment is due for the relevant tax period until the date of receipt of the tax assessment.

b)    The tax that has not been refunded to FTA due to an unjust tax refund, from the date of the tax refund from FTA until the date of receiving the tax assessment.

13. The person doing business failed to provide facilities to the tax auditor in violation to the provisions of Article (21) of the Tax Procedure Law. (20,000)
14. The Registrant failed to calculate tax on behalf of another person when the registered taxable person is obligated to do so in accordance with the tax law. 1) The Registrant shall pay the penalty applicable to the late payment of the payable tax, with a maximum of (300%), in accordance with the following:a)     (2%) of the unpaid tax due on the day following the due date for payment, upon late payment of the payable tax.

b)    (4%) monthly penalty due after one month from the payment due date, and on the same date every month after that, on the amount of tax that has not been paid to date.

2) For the purposes of this penalty, the due date for payment in the event of voluntary declaration and tax assessment is as follows:

a)     In the case of the voluntary declaration, (20) business days from the date of its submission.

b)    In the case of tax assessment, (20) business days from the date of its receipt.

15. The taxable person failed to calculate any tax that may be due on importing goods in accordance with the tax law. (50%) of unpaid or undeclared tax.

 

Table No. (2)
On Administrative Violations and Penalties related to the application of Federal Decree-Law No. (7) of 2017 on Excise Tax

No. Violation Description Administrative Penalty (AED)
1. The taxable person failed to present the prices as inclusive of the tax. (5,000)
2. Failure to comply with the conditions and procedures for transporting the excise goods from one designated zone to another, and the mechanism of preserving, storing and processing them in it. The penalty shall be the higher of (50,000) or (50%) of the tax, if any, imposed on the goods related to the violation.
3. The taxable person failed to provide FTA with price lists of excise goods it has produced or imported. (5,000) for the first time(10,000) for each repetition

 

 

Table No. (3)
On Administrative Violations and Penalties related to the application of Federal Decree-Law No. (8) of 2017 on Value Added Tax

No. Violation Description Administrative Penalty (AED)
1. The taxable person failed to present the (5,000) prices as inclusive of the tax. (5,000)
2. The taxable person failed to report to FTA about its application of the tax on the margin basis. (2,500)
3. Failure to comply with the necessary conditions and procedures for storing goods in a designated zone or moving them to another designated zone. The penalty shall be the higher of (50,000) or (50%) of the tax, if any, imposed on the goods related to the violation.
4. The taxable person failed to issue the tax invoice or alternative document when making any supply. (2,500) for each case discovered.
5. The taxable person failed to issue the tax credit note or alternative document. (2,500) for each case discovered.
6. The taxable person failed to comply with the conditions and procedures related to issuing the tax invoice and tax credit note electronically. (2,500) for each case discovered.

 

Why choose Spectrum Auditing?

Spectrum Auditing team is well equipped to advise and take care of your requirements of Value Added Tax (VAT). Our passion and heart lie in serving the clients and we aim to keep client’s satisfaction as our primary motto. We are registered Auditors under the Ministry of Economy UAE and also registered Tax Agent from Federal Tax Agency UAE, Dubai providing dedicated Audit, Accounting, Tax services, Financial Advisory and Business Advisory Services complying regulatory requirements.

Reach us to have a frills free life in your journey in UAE. We at Spectrum will assist you in taking care of all the procedures involved in the VAT process. Call us today for any kind of assistance at +971 4 2699329 or email us at info@spectrumaccounts.com to get all your queries addressed. Spectrum is your partner in your success.

FTA Approved TAX Agency