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December 30, 2020
Over the last few decades, the UAE’s has grown from an economy dependent on fishing to among the largest oil exporters in the world. Hence, this has substantially impacted on the country’s social and economic development. Employees in the UAE who are GCC nationals (this includes the UAE) are subject to a social security regime of 17.5%.
Those who are UAE nationals pay 5% which is automatically deducted off their pay check and the employer pays the further 12.5%. United Arab Emirates does not have any federal income tax the same also applies to freelancers and self-employed individuals who are residents of the Emirates., because most of the revenues have been generated from oil sales to other countries. The UAE does not have any income tax for those working in the UAE, regardless of their residency status. Those who are not tax residents of the UAE may still have to pay income tax in their country of residence depending on their own taxation laws. An income tax decree has been enacted by each Emirate, but in practice, the enforcement of these decrees is restricted to foreign banks and to oil companies.
However, there are over forty free zones in the country; businesses registered here are exempt from paying tax for a period that can be extended. There are no capital gains taxes unless the company is taxable under other income tax. On 14 October 2020, the UAE Federal Supreme Court passed its judgment on an appeal filed by the UAE Federal Tax Authority (FTA) in relation to the Court of Appeal’s judgment concerning the imposition of penalties resulting from a voluntary disclosure.
More about the developments
Earlier the court used to observe that UAE Tax Procedures Law distinguishes penalties for late payment of tax as shown in submitted returns or notified assessments, from fines and penalties applicable to voluntary disclosures. But recently the court observed that late payment penalties should also apply to voluntary disclosures up to 300% of the tax due, late payment penalties should be levied from the due date of the tax return and not from the date of the voluntary disclosure and also that the voluntary disclosure penalties explicitly mentioned under Item 11 of the Schedule of Penalties attached to the Cabinet Resolution No. 40 of 2017, will apply to voluntary disclosures, in addition to late payment penalties 50% or 30%, or 5% of the tax due, depending on the timing of the submission of the voluntary disclosure. As a lot has changed after this decree, it is advisable that one consults an expert of the field in case of tax dispute and litigation matters.
It is agreed by most Civil Lawyers of Dubai that this judgement is a major development in UAE tax landscape and will affect upcoming decisions to be issued by the various Tax Dispute Resolution Committees (TDRC) and Federal Courts. This will change how things will function in the business sector, from transactions to how VAT guidelines are interpreted, it is crucial as it is levied on a majority of goods and services. A lot is still ambiguous about this decree and there are certain things that still need some more reforming.