The UAE Government, on the 28th day of April 2021, has amended some provisions on the administrative penalties for violation of tax law in the UAE by Cabinet Decision No. 49 of 2021
Notable Changes Under the New Tax Penalty Law
Under the new Decision, amendments were made to some provisions under administrative penalties on tax procedures, excise tax, and value-added tax.
The amendment reduced tax penalties for non-compliance with tax procedures. The most notable change is the reduction of penalties for tax payment default. There is also a reduction in penalties for late payment of tax and voluntary disclosure of errors before the taxpayers are notified by the Authority.
The new Administrative Penalties for Violation of Tax Law also defines and amended the “due date” for payment in Tax Assessment and Voluntary Disclosure.
The amendment retains the cap on the penalties at 300% as under the old law. Under the new tax penalties law, penalties are significantly lower than the penalties under the old law.
Furthermore, any taxpayer who meets certain conditions may benefit from a seventy percent (70%) tax waiver off their penalties with the new amendment.
Due Date as provided under the New Tax Penalty Law
The new tax penalties law states that the due date for the penalty imposed on default of payment of Tax Assessment and Voluntary Disclosure shall be;
- Twenty (20) business days of the receipt of tax assessment in case of Tax Assessment
- Twenty (20) business days of following the submission of a voluntary disclose in case of Voluntary Disclosure
The amendments to the administrative penalties for violation of Tax Law are highlighted below;
Amendment on penalties relating to the implementation of Tax procedures
| Violation | Administrative Penalty under the old law (Cabinet Decision No. 40 of 2017 | Administrative Penalty under the new law (Cabinet Decision No. 49 of 2021 | |
| 1 | Default of payment of submitted Tax Return, Voluntary Disclosure or Tax Assessment |
| 4% of the unpaid tax after one month from the due date. |
| 2 | Incorrect Tax Return | 1. Fixed Penalty ofTA a) First violation AED 3000 b). Repetition AED 5000 2. Percentage Based Penalties on unpaid tax are as follows a) 50% for failure to make voluntary disclosure after being notified and Authority has commenced Tax audit process b) 30% if a voluntary disclosure is made after notification but before the Authority commences Tax audit c) 5% if a voluntary disclosure is made before notification from the Authority. | 1. Fixed Penalty of a) first violation AED 1000 b). repetition AED 3000 Percentage Based Penalties NIL |
| 3 | Voluntary disclosure of errors | 1.) A fixed Penalty of: a). For the first violation, AED 3000 b). Repetition AED 5000 2. Percentage Based Penalties to the amount unpaid a) 50% after notification and tax audit by the Authority b) 30% after notification but before tax audit by the Authority c) 5% before notification by the Authority. | Fixed Penalty- NIL Percentage Based Penalty on the difference between calculated tax and correct tax a) 5% within one (1) year from submission due date b). 10% within the second (2nd) year from the submission due date c).20% within the third (3rd) year from the submission date d.) 30% within the fourth (4th) year from the submission due date e). 40% after the fourth (4th) year from the submission due date. |
| 4. | Failure to Voluntarily Disclose errors | Fixed Penalty
2. Percentage-Based Penalty to the amount unpaid a). 50% if voluntary disclose is made after being notified and tax audit has started Authority b). 30% if voluntary is made after being notified but before tax audit by the Authority c). 5% if voluntary disclose is made before being notified by the Authority. | NIL Percentage-Based Penalty a) 50% on the amount of error b) 4% every month on unpaid tax from the due date until the date of receipt of tax assessment. 4% monthly on tax, not return to the Authority. |
| Not keeping records and information. | Repetition of offense 50,000 | Repetition of offense 20,000 | |
| 5 | Non-submittal of deregistration application | AED 10,000 | AED 1000 monthly up to the sum of AED 10,000 |
| 6 | Failure to report an appointment of a legal representative | AED 20,000 | AED 10,000 |
Amendment to penalties relating to the implementation of Excise Tax
| Violation | Administrative Penalty under the old law (cabinet Resolution No. 40 of 2017 | Administrative Penalty under the new law (Cabinet Resolution No. 49 of 2021 | |
| 1 | Failure to display prices and Tax | AED 15,000 | AED 5000 |
| 2. | Failure to provide Authority with price list | AED 20,000 for repetition of the offense | AED 10,000 for repetition of the offense |
Amendment to penalties for violation on Value Added Tax
| Violation | Administrative Penalty under the old law (cabinet Resolution No. 40 of 2017 | Administrative Penalty under the new law (Cabinet Resolution No. 49 of 2021 | |
| 1. | Failure to displace prices and Tax | AED 15,000 | AED 5000 |
| 2. | Failure to issue a Tax invoice | AED 5000 for each tax invoice | AED 2500 for each tax invoice |
| 3. | Non-issuance of a Tax Credit Note | AED 5000 for each tax credit note | AED 2500 for each |
| 4. | Non-compliance with laws on electronic issuance of a Tax invoice and Tax Credit note | AED 5000 for each case | AED 2500 for each case |
Redetermination of Administrative Penalties on taxpayers before the effective date
Under the new amendment, the tax authority has the right to reduce previously unpaid penalties by 70% if pax payers meet certain conditions as follows;
- Administrative Penalties contained in the Cabinet Decision No 40 of 2017 has been imposed on a taxpayer before the effective date of the new amendment Resolution which was not fully settled by the effective date or;
Where the Taxpayer satisfies the following;
- pays payable tax in full not later than 31st day of December 2021
- If 30% of total administrative penalties on a taxpayer is not paid up till the effective date of the new Decision but not later than the 31st day of December 2021.
The new resolution came into effect on the 28th day of June 2021, sixty days (60) after its issuance.
The implication of the new amendment
The amendment reduces the financial burden on taxpayers who are unable to pay their penalties in the UAE. The incentives of tax waivers given under the new Cabinet Resolution will further encourage taxpayers to settle their penalties within the time frame given to enjoy the said waiver by the Government. The amendment is a massive incentive to business owners in the UAE who may be under the burden of tax payment to disclose any error before the Tax Authority notifies them voluntarily.
Your next line of action as a Taxpayer
Under the new amendment, any taxpayer who fulfills certain conditions, as explained earlier, would enjoy reducing previously imposed penalties until the 31st day of December 2021. As a taxpayer, there is a need to evaluate your tax position to see ways to benefit from the new Decision. You need the help of a Tax consultant to help you. Farahat & Co is a Tax consultant with many Tax experts who can assist you. Contact us today.
