What is the latest update on Tax Administrative Penalties?

The UAE Federal tax authority (‘FTA’) has recently announced that it will provide relief measures to UAE companies by allowing up to 70 % cut on the applicable administrative penalties. The said decision was issued by the FTA during the first session held for the ‘Tax agent virtual session meet of 2021’. The FTA announced the Federal cabinet decision no. 49 of 2021 amending some provisions of the Cabinet decision no. 40 of 2017 on ‘Administrative Penalties for Violation of Tax Laws in the UAE’.

The recently announced measures allow for a re-determination of the unpaid administrative penalties imposed on taxable persons prior to 28 June 2021.

What are administrative penalties:

Administrative Penalties refer to the monetary amounts imposed on a Tax Registrant by the FTA Authority for breaching the provisions of the Federal Law No. (7) of 2017 on ‘Tax Procedures or the Tax Law’ (‘Tax law’). The administrative penalties are listed in the tables 1 to 3 of the UAE tax law, and can include amongst others the following:

• The failure of the person conducting Business to keep the required records and other information specified in Tax Procedures Law and the Tax Law (An administrative penalty of Aed 10,000 is applicable for the first time, which is increased to Aed 50,000 in case of repetition).
• The failure of the person conducting Business to submit the data, records and documents related to Tax in Arabic to the Authority when requested (An administrative penalty of Aed 20,000 is applicable).
• The failure of the Taxable Person to submit a registration application within the timeframe specified in the Tax Law (An administrative penalty of Aed 20,000 is applicable).
• The submittal of an incorrect Tax Return by the Registrant (Two penalties administrative penalty are applied: 1) Fixed penalty of Aed 3000 for the first time and Aed 5000 in case of repetition; and 2) A percentage-based administrative penalty is applied based on the level of voluntary disclosure.

The failure of the Registrant to submit the Tax Return within the timeframe specified in the Tax Law.

If a tax registrant is able to meet the specific three conditions, which are mentioned hereinafter, then the FTA will reassess their unsettled and payable administrative penalties due as on 28 June 2021 to be equal to thirty per cent of the total unsettled penalties. This essentially means the remaining seventy per cent to the payable administrative penalty will be waived off for the eligible tax registrant.

Eligibility conditions for a reduction in Administrative penalties:

The UAE Cabinet decision No. 49 of 2021 specifically states three conditions that must be met by a tax registrant in order to be eligible:

First Condition:
The administrative penalty must be imposed under Cabinet Decision No. 40 of 2017 on the Administrative Penalties for Violating Tax Laws in the UAE before June 28, 2021, which is the effective date of the new decision, and remain outstanding on such date.

Second Condition:
The second eligibility conditions require that the tax registrant settles all payable tax by December 31, 2021.

Third Condition:
The third eligibility condition requires the tax registrants to pay 30 per cent of administrative penalties payable and unsettled by June 28, 2021 on or before December 31 2021.