UAE Tax Penalty Reforms
To support businesses, provide an incentive for voluntary compliance, and simplify correcting past mistakes, the Emirates authorities and the Federal Tax Authority (FTA) have implemented a streamlined tax penalties system for businesses (UAE) that incorporates several significant changes under the UAE Tax Penalty Reforms.
Overview of Changes
The new tax penalty structure provides for less severe tax penalties and encourages timely disclosures, as well as greater clarity and consistency in the tax penalty framework. These changes under the UAE Tax Penalty Reforms will affect businesses across the UAE in terms of record-keeping, reports, and voluntary compliance, which can be classified into three general categories:
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- Reduced Penalties For Common Violations
Many fines imposed for routine and procedural violations have been greatly reduced. For example, the fine for not providing tax documents in Arabic upon request has gone from Dh 20,000 to Dh 5,000, and the fines for failure to timely update tax records have also been greatly reduced. The FTA implemented these changes to ease the compliance burden on businesses while ensuring regulatory compliance continues to exist.
- Repeat Violations.
The new system for repeat violations replaces the old system, whereby penalising repeat violations was identical across all violations of the same nature; i.e., the penalty for all repeat violations was the same. The new system will impose a penalty of Dh1,000 for the first offence and a penalty of Dh5,000 for a subsequent offence if the company receives a subsequent notice of violation within 24 months.
The new system of fines for repeat violations creates a predictable system for the taxpayer and encourages timely compliance with the tax laws.
- Reduced Penalties for Legal Representatives
The penalties for legal representatives who fail to notify the appropriate authorities of their appointment are reduced from Dh10,000 to Dh1,000. The liability of the legal representative continues to exist and must be paid with the legal representative’s own funds; however, the penalty amount has been significantly reduced, substantially decreasing the financial risk associated with not notifying the appropriate authorities.
- Encouragement of Voluntary Disclosure
The New Framework Emphasises voluntary compliance, which allows businesses to discover and report errors (e.g., incorrect tax returns, late-filed claims) before being alerted to an audit, thereby receiving lower penalties.
The structure of this initiative is to promote proactive error resolution without incurring high costs to the business and to address barriers to correcting errors.
- Expanded Coverage of Tax Obligations
The new guidance affects a wide-ranging area of compliance areas, including delinquent payment, inaccurate tax reporting, and failure to withhold taxes from others as expected.
According to FTA, the result is that a business is able to become compliant with its tax liability while increasing the level of transparency within the system.
Purpose for Implementing the Reforms
According to officials, the amendments are consistent with international best practices; therefore, the overall strategy is to provide a more friendly environment for businesses to operate in when it comes to taxation. The officials are trying to eliminate compliance costs for businesses by lowering penalties and simplifying procedures, while simultaneously encouraging all businesses to adhere to tax laws under the UAE Tax Penalty Reforms.
With that in mind, all businesses should thoroughly examine their existing tax practices and seize the opportunity of the new framework to remain compliant so as to not incur any penalties.
According to the Federal Tax Authority, businesses can benefit from simplified compliance under the new system.
For more insights, read our guide on UAE corporate tax:
