On 28 April 2021, the UAE Cabinet issued the Decision No. 51 of 2021 to amend certain provisions related to the request for waiver of penalties as stipulated under the Cabinet Decision No. 36 on the Executive Regulations of Federal Law No. 7 of 2017 on Tax Procedures.
On 25 and 27 May 2021, the Federal tax Authority (“FTA”) issued two Public Clarifications “TAXP001” “TAXP002” providing illustrative examples on the reduction and redetermination of penalties further to the Cabinet Resolution No. 49/2021 issued earlier last month to amend the provisions of Cabinet Resolution No. 40/2017 relating to administrative penalties imposed for violation of Tax Laws in the UAE.
1. Public Clarification “TAXP001” on amendments of the penalties regime
This Public Clarification provides further details of the new penalty rates applied and discusses in more details practical examples of the amended penalty rates. Below is a summary of the explanations provided:
Late payment penalties [Violation 9 of the penalty schedule]
In cases of voluntary disclosure and tax assessment, the late payment penalties shall be imposed on the amount of unsettled tax as follows:
Fixed penalties for submission of incorrect tax returns [Violation 10 of the penalty schedule]
Percentage based penalty upon submission of voluntary disclosure [Violation 11 of the penalty schedule]
The percentage based penalty is:
Mechanism to specify the date of imposition of certain penalties applied on a monthly basis
Please refer to the Public Clarification “TAXP001” for further details on the application of new penalties.
2. Public Clarification “TAXP002” on redetermination of administrative penalties
This Public Clarification provides further explanation on the application of the discount on penalties imposed before the effective date of the Cabinet Resolution 49/2021 i.e. 28 June 2021.
The FTA explained the conditions to benefit from this discount as follows:
Where the above conditions are satisfied, the FTA will redetermine at the end of 2021 that the unsettled part of the administrative penalties, i.e. equivalent to 70% of the total amount of penalties imposed, shall no longer be required to be paid.
The FTA will link the redetermination process to the registered taxable person’s e-Services account who will be able to access the information relating to the process as of 28 June 2021.
Please refer to the Public Clarification “TAXP002” for further details on the application of the discount on penalties.
3. Amending certain provisions related to requests for waiver of penalties
The Cabinet Decision No. 51 of 2021 amended certain provisions under Article 26 of the Cabinet Decision No. 36 on the Executive Regulations of Federal Law No. 7 of 2017 on Tax Procedures.
Article 26 stipulates the required conditions for a taxable person to request from the FTA a waiver or reduction of the administrative penalties imposed. The new Decision introduced the following changes on the qualifying conditions:
In addition, the timeframe for the FTA to make its decision in respect of the reduction or waiver of the administrative penalties has been extended from 20 business days to 40 business days.
The new Decision introduced a formal process to apply for the reduction or waiver which should be submitted through a form to be determined by the FTA.
Taxable persons should evaluate whether the conditions stipulated in the Public Clarification “TAXP002” on redetermination of administrative penalties imposed before 28 June 2021 are satisfied to benefit from the redetermination (discount) of any previously imposed penalties and pay the VAT liabilities and penalties due before 31 December 2021.
As of 28 June 2021 the new penalty structure and rates apply and taxable persons should understand how this change will impact their VAT affairs, assess the potential penalties applicable as per the new rates and take any required corrective measures.
Taxable persons who have been subject to penalties in the past are now eligible to request a waiver or reduction of Penalties.
Going forward, any application for waiver or reduction of penalties should be made via the official form (once issued by the FTA).
Tax and Legal Services Leader, PwC Middle East
Tel: +971 (0)4 304 3100
Indirect Tax Leader, PwC Middle East
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Indirect Tax Partner, PwC United Arab Emirates
Tel: +971 (0) 4 304 3688
Antoni A Turczynowicz
Tax Partner & Managed Services Lead, PwC Middle East
Tel: +971 (0) 4 515 7372
Partner, Middle East Indirect Tax and Fiscal Policy, PwC Middle East
Tel: +971 (0) 56 216 1109
Partner, Middle East Customs & International Trade, PwC Middle East
Tel: +971 (0) 4 304 3936