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Penalties For Violation of TAX

Taxation 2021-12-29

In a statement, the FTA said 16 types of administrative penalties have either been reduced or had the method of calculation amended under the latest initiative in line with Cabinet Decision No. 49 of 2021 about amending some provisions of the Administrative Penalties for Violation of Tax Laws in the UAE, is designed to support tax registrants and help them fulfil their tax obligations.

Khalid Ali Al Bustani, director-general of the Federal Tax Authority, said the new amendment will become effective on June 28, 2021, and will reduce many administrative penalties imposed for violating tax laws. He said late payment penalty will not be imposed on voluntary disclosures if payment is settled within 20 business days of submitting the voluntary disclosure.

“This comes as part of the wise leadership’s directives to implement the tax system according to the best standards that ensure further growth for the national economy and help achieve transparency and economic momentum, providing an ideal and resilient tax legislative environment that encourages self-compliance and keeps pace with change through constant issuance of decisions in accordance with phased requirements,” Al Bustani said in a statement to Khaleej Times on Saturday.

Atik Munshi, managing partner at Enterprise House, said the relief announced by FTA on various penalties and their calculation is a positive step from the authority which will certainly be well received by the business community.

“This will also provide a proper direction on how to interpret the various articles thus a further clarity is now known. Such positive action from FTA will boost the business confidence. It remains to be seen on what shall be the outcome of the assesses who have filed and paid their penalties as per previous interpretation,” Munshi told Khaleej Times on Saturday.

 

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1. Amendment of administrative penalties 

The new resolution amends the administrative penalties listed in Table No.(1), Table No.(2) and Table No. (3) of Cabinet Decision No. 40/2017. 

Some of the key amendments to the administrative penalties listed in the new resolution are as follows (non-exhaustive list):

  1. AED 20,000 reduced to AED 10,000 for failure of the taxable person to submit a registration application within the timeframe specified in the Tax Law. 
  2. AED 10,000 reduced to AED 1,000 monthly (not exceeding AED 10,000) for failure of the registrant to submit a deregistration application within the timeframe specified in the Tax Law.
  3. AED 15,000 reduced to AED 5,000 for failure by the taxable person to display prices inclusive of VAT.
  4. AED 5,000 (for each tax invoice) reduced to AED 2,500 (for each instance discovered) for failure by the taxable person to issue a tax invoice / tax credit note or an alternative document when making any supply.
  5. AED 5,000 (for each tax invoice) reduced to AED 2,500 (for each instance discovered) for failure by the taxable person to comply with the conditions and procedures regarding the issuance of electronic tax invoices and electronic tax credit notes.

Moreover, the percentage-based penalties applicable to the late payment of the tax due - in the tax return or in the voluntary disclosure or in the tax assessment - are reduced and the 1% daily penalty previously imposed is eliminated. 

The new late payment penalty is now calculated as follows (the 300% cap still applies):

  1. 2% of the unpaid tax due on the day following the payment due date, 
  2. 4% monthly penalty due after one (1) month from the payment due date, and on the same date every month thereafter, on the amount of tax that has not been paid to date.

The voluntary disclosure penalties that are applicable to the difference between the tax declared and the tax due are now linked to the period during which the taxpayers amend the previously submitted VAT returns and range between 5% (in case the voluntary disclosure was submitted within 1 year from the due date of tax return or tax assessment or refund application) and 40% (in case the voluntary disclosure was submitted after the 4th year). 

Please refer to the Cabinet Resolution No.49/2021 for a comprehensive list of the amended administrative penalties for violations of tax laws in the UAE.

2. Calculation of penalties

The new resolution stipulates that the payment due date for the purposes of calculating the late payment penalty shall be as follows:

  1. 20 business days as of the date of submission of voluntary disclosure.
  2. 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 of the tax return subject to amendment or assessment. 

3. Discounts for previously imposed penalties 

Administrative penalties - that have not been paid - imposed before the effective date of the new resolution will be reduced to 30% of total unpaid penalties if all of the following conditions are met:

  1. The penalties were applied under the previous Cabinet Resolution No. 40/2017; 
  2. The registrant has paid all taxes due by 31 December 2021; and
  3. 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 (i.e. 60 days as of 28 April 2021).

4. Effective date of the new Cabinet Resolution 

The new resolution shall be effective after sixty (60) days from the date of its issuance on 28 April 2021, i.e. effective as from 28 June 2021.

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