The UAE government has outlined clear penalties for violations of the corporate tax regime through Cabinet Decision No. 75 to foster timely compliance. While penalties are imposed strictly as per the law for non-compliance, taxpayers can take regular guidance from professional tax consultants UAE to help navigate the corporate tax and penalties regime effectively. In this article, we will discuss the Administrative Penalties for Violations Related to the Application of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses and the necessary steps to reduce non-compliance.
Types of Administrative Penalties
The Cabinet Decision specifies 14 types of corporate tax violations and the corresponding administrative penalty amounts. The key penalty types include:
- Record Keeping: Failure to maintain proper financial records as required under tax laws attracts a penalty of AED 10,000 and AED 20,000 for repeated violations within 24 months.
- Non-Compliance with Information Requests: Not providing requested tax-related data, records, or documents to the tax authority (Federal Tax Authority) in Arabic within the specified time can result in a penalty of AED 5,000.
- Deregistration Application: Not providing a deregistration application within the timeframe specified attracts a penalty of AED 1,000 in case of late submission of the application and on the same date monthly, up to a maximum of AED 10,000.
- Failure to update tax record details: Failing to inform the tax authorities about any changes requiring updates in the tax records maintained results in a penalty of 1,000 AED for each violation. For repeated violations, the penalty is 5,000 AED.
- 5-6. Late appointment/return filings by tax representative: If the legal tax representative fails to notify their appointment on time or files tax returns late, there is a penalty of 500 AED per month for the first 12 months and 1,000 AED per month thereafter, until compliance.
- Late filing of a tax return by the corporation: Similar monthly penalties of 500 AED and 1,000 AED apply as above for corporations missing the tax return filing deadline.
- Failure to settle payable tax: A monthly penalty of 14% per annum is imposed on outstanding corporate tax amounts from the due date of payment.
- Submission of incorrect return: Submitting an inaccurate tax return attracts a penalty of 500 AED unless errors are fixed in time.
- Voluntary disclosure of errors: If errors are voluntarily disclosed, there is a monthly penalty of 1% of the tax difference until the disclosure date.
- Late voluntary disclosure after tax audit notice: 15% of tax differences plus 1% monthly penalty imposed based on the period of non-disclosure.
- Non-cooperation during tax audits: A flat penalty of 20,000 AED is imposed to ensure inspection processes are not hindered.
- Late or non-filing of other declarations/applications: Similar to the return filing penalties, monthly penalties from 500-1,000 AED are applicable.
- Late submission of tax registration application: A flat penalty of 10,000 AED.
Table 1: Administrative Penalties under Cabinet Decision No. 75 of 2023
| No. | Description of Violation | Administrative Penalty Amount in AED |
|---|---|---|
| 1 | Failure to maintain tax records | 10,000-20,000 |
| 2 | Failure to submit documents in Arabic | 5,000 |
| 3 | Late deregistration application | 1,000 monthly up to 10,000 |
| 4 | Failure to update tax record details | 1,000-5,000 |
| 5-6 | Late appointment/return filings by tax representative | 500-1,000 Monthly |
| 7 | Late filing of a tax return by the corporation | 500-1,000 Monthly |
| 8 | Failure to settle payable tax | 14% monthly on unpaid amounts |
| 9 | Submission of incorrect return | 500 |
| 10 | Voluntary disclosure of errors | 1% monthly on tax differences |
| 11 | Late voluntary disclosure before tax audit | 15% of differences + 1% monthly |
| 12 | Failure to cooperate during tax audit | 20,000 |
| 13 | Late/Non submission of declaration | 500-1,000 Monthly |
| 14 | Late tax registration application | 10,000 |
Factors Affecting Penalty Amount
The precise penalty applicable in a given situation depends on certain factors:
- Repeat vs One-Time Offense: Higher penalties of up to 2-4x apply for repeat offenses of the same violation within a 24 month period.
- Period of Continued Non-Compliance: For ongoing violations like late filing, the penalty amount rises after 12 months of non-compliance.
- Tax Amount Involved: Penalties for incorrect returns and voluntary disclosures are linked to the amount of unpaid tax identified.
- Intentional vs. Bona Fide Mistake: Lower penalties may apply based on factors like cooperation, voluntary disclosures, and bona fide errors established through tax audits.
- Mitigating Factors: The tax authority can consider factors like overall tax compliance history, willingness to rectify errors, and prevent reoccurrence of violations while determining penalties.
Enforcement and Appeals
The penalties are imposed and enforced by the Federal Tax Authority (FTA) which is the principal tax regulator in the UAE. The FTA actively monitors compliance through procedures like tax audits, filing of periodical statements, and leveraging digital reporting platforms.
Taxpayers have the right to appeal any penalty decision through an independent Tax Dispute Resolution Committee set up under the FTA. They can also seek a judicial remedy through civil courts. To encourage early resolution, reduced penalties apply if appeals are made within strict timelines prescribed under tax laws. It is advisable to consult tax specialists to understand appeal options and optimize outcomes.
Tax Consultants UAE and Legal Representatives
Taxpayers can appoint tax consultants in UAE, legal representatives, or agents to assist with tax compliance and represent them before the tax authorities. Key roles include:
- Filing returns, preparing disclosures, and responding to tax assessments
- Providing tax advisory and compliance support services
- Representing taxpayers during tax audits, investigations, and appeals
- Managing penalty negotiations and waiver/reduction requests
- Acting as the main point of contact for all tax matters
Taxpayers remain responsible for their own tax obligations, but using specialized tax consultants UAE can help minimize risks of non-compliance penalties. Corporate Tax UAE is a reputable firm that offers tax advisory and compliance services in the UAE.
Read More: UAE Corporate Tax Registration Deadlines for 2024
