Tax Procedures Public Clarification

Redetermination of Administrative Penalties Levied Prior to the Effective Date of Cabinet Decision No 49 of 2021.

TAXP004

Please be informed that Public Clarification TAXP004 replaces Public Clarification TAXP002.

Issue

On 28 April 2021, the Cabinet issued Decision No. 49 of 2021 on Amending some Provisions of Cabinet Decision No. 40 of 2017 on Administrative Penalties for Violations of Tax Laws in the UAE (“Cabinet Decision No. 49 of 2021”) . Cabinet Decision No. 49 of 2021 amended some of the administrative penalties applicable to certain violations and allowed for a redetermination of some of the penalties already imposed.

On 30 December 2021, Cabinet Decision No. 49 of 2021 was amended by Cabinet Decision No. 108 of 2021 on the Amendment of Cabinet Decision No. 40 of 2017 on Administrative Penalties for Violations of Tax Laws in the UAE (“Cabinet Decision No. 108 of 2021”), with effect from 1 January 2022.

Cabinet Decision No. 108 of 2021 amends the timelines provided to benefit from the concessionary measures provided in the form of redetermination of administrative penalties.

This Public Clarification provides detailed information on the redetermination of some of the penalties already imposed.
Details relating to the amendments to administrative penalties in accordance with the First Article of Cabinet Decision No. 49 of 2021 have been discussed in the Tax Procedures Public Clarification “TAXP001 – Amendments to the Penalties Regime”, available on the FTA’s website.

Summary

Cabinet Decision No. 49 of 2021 provides for the ability to redetermine penalties imposed before its effective date (i.e. before 28 June 2021) where the penalties were imposed according to Cabinet Decision No. 40 of 2017 and certain conditions are met. This decision is applicable on all administrative penalties imposed as per Cabinet Decision No. 40 of 2017 whether in respect of tax procedures, VAT or Excise Tax.

Cabinet Decision No. 108 of 2021 extends the period within which a registrant can benefit from the penalty redetermination.

Detailed discussion

Background

The UAE introduced Excise Tax and VAT with effect from 1 October 2017 and 1 January 2018, respectively.

In order to offer consistency in the administration of different taxes, a set of common tax procedures concerning the rights and obligations of the FTA and taxpayers has been developed and prescribed in the Federal tax procedures legislation, including in Federal Law No. 7 of 2017 on Tax Procedures (“FTP Law”). These Federal tax procedures apply to all Federal taxes under the jurisdiction of the FTA.

Article 25 of the FTP Law2 specifies a number of violations which are subject to administrative penalties. This Article also directs the Cabinet to issue a decision that specifies administrative penalties for each of the violations listed in the Article, on condition that each such penalty cannot be less than AED 500 for any violation and cannot exceed three times the amount of tax in respect of which the penalty was levied.

The specific administrative penalties for each violation are prescribed in the Cabinet Decision No. 40 of 2017, which was issued on 24 September 2017. These penalties have been applied to violations since the introduction of the VAT and Excise Taxes.

On 28 April 2021, the Cabinet has issued the Cabinet Decision No. 49 of 2021, which amends some of the administrative penalties applicable on the violations stated in Tables appended to Cabinet Decision No. 40 of 2017. Cabinet Decision No. 49 of 2021 in its Third Article also included concessionary measures in respect of the administrative penalties imposed on them prior to the effective date of Cabinet Decision No. 49 of .2021

Cabinet Decision No. 108 of 2021, replaces the Third Article3 of Cabinet Decision No. 49 of 2021 to provide an extended timeframe for registrants to benefit from this measure. This Public Clarification discusses these measures in detail.

Redetermination of Administrative Penalties Imposed Prior to 28 June 2021

As a concessionary measure aimed to help businesses, Cabinet Decision No. 49 of 2021 and Cabinet Decision No 108 of 2021 give the FTA ability to redetermine the amounts of unsettled payable administrative penalties, which were imposed on registrants on the basis of the penalty rules listed in Cabinet Decision No. 40 of 2017.

To benefit from the redetermination, all of the following conditions have to be met:

Any of the administrative penalties set out in Cabinet Decision No. 40 of 2017 have been imposed on the person before 28 June 2021;
The person has not settled all the administrative penalties imposed on the Person as per Cabinet Decision No. 40 of 2017 in full before 28 June 2021.
The taxable person has undertaken any of the following:
1. Settling the following amounts by 31 December 2021:
  - All payable tax up to 31 December 2021, regardless of whether such tax was payable before or after 28 June 2021; and
  - 30% of the total unsettled administrative penalties referenced above which were imposed before 28 June 2021.
2. Settling the following amounts by 31 December 2022:
  - All payable tax up to 31 December 2022, regardless of whether such tax was payable before or after 28 June 2021.; and
  - 30% of the total unsettled administrative penalties referenced above which were imposed before 28 June 2021.

For completeness, please note that, in this context, settlement means that the FTA must have received the relevant amounts.Where the above conditions are met, the FTA will, redetermine the amount of administrative penalties payable and not settled by 28 June 2021, to equal 30% of that unsettled part. Hence, the person shall not be required to pay the remaining part (i.e. 70%).

Redetermination of Penalties on the Registrant’s Account

Upon satisfying the conditions prescribed above, the FTA will reflect the redetermined penalty on the qualifying registrant’s e-Services account. Where the registrant satisfied the conditions by 31 December 2021, the FTA will redetermine the penalty within 30 business days from 31 December 2021.

However, where the conditions were not satisfied on 31 December 2021 but were satisfied on 31 December 2022, the FTA will redetermine the penalty within 30 business days from 31 December 2022.

Examples

Example 1:

At beginning of April 2021, a penalty of AED 12,000 was imposed on a Registrant as per Cabinet Decision No. 40 of 2017. The Registrant settled AED 2,000 of this penalty on 15 April 2021. On 28 June 2021, AED 10,000 penalties remain unsettled. The Registrant settled all payable tax including that relating to the last return due in 2021 and 30% of the penalties unsettled (i.e. AED 3,000) by 31 December 2021. In this case, the Registrant qualified for redetermination, and the FTA will redetermine the penalty within 30 business days from 31 December 2021. Consequently, the Registrant will no longer be required to pay the remaining AED 7,000 of the administrative penalties, and the administrative penalty imposed before 28 June2021 shall equal AED 3,000 that was already settled by the Registrant.

Example 2:

At beginning of April 2021, a penalty of AED 12,000 was imposed on a Registrant as per Cabinet Decision No. 40 of 2017. The Registrant settled AED 2,000 of this penalty on 15 April 2021. On 28 June 2021, AED 10,000 penalties remain unsettled. The Registrant settled 30% of the penalties unsettled (i.e. AED 3,000) but did not settle all payable tax. In this case, the Registrant does not qualify for redetermination as it has not settled all payable tax. Consequently, the Registrant is still required to pay the remaining AED 7,000 of the administrative penalties.

Example 3:

In December 2019, an administrative penalty of AED 15,000 was imposed on a Registrant as per Cabinet Decision No. 40 of 2017. The Registrant settled AED 1,000 of this penalty on 11 November 2020. On 28 June 2021, AED 14,000 penalties remained unsettled. The Registrant settled all payable tax including the tax that related to the last return due in 2021 and 10% of the penalties unsettled (i.e. AED 1,400) by 31 December 2021. In this case, the Registrant did not qualify for the redetermination by 31 December 2021 as less than 30% of the outstanding penalties were paid. However, the Registrant settles the remainder of the 30% of the penalties imposed before 28 June 2021 on 25March 2022 (i.e. AED 2,800). The Registrant also settles all payable tax including that relating to the last return due in 2022. Hence, the Registrant qualifies for the redetermination, and the FTA will redetermine the penalty within 30 business days from 31 December 2022. Consequently, the Registrant will no longer be required to pay the remaining AED 9,800 of the administrative penalties, as the re-determined administrative penalty which was imposed before 28 June 2021 shall equal AED 4,200, and this amount was already settled by the Registrant.

Example 4:

In May 2020, an administrative penalty of AED 24,000 was imposed on a Registrant as per Cabinet Decision No. 40 of 2017. The Registrant settled AED 4,000 of this penalty on 21 September 2020. On 28 June 2021, AED 20,000 penalties remain unsettled. The Registrant did not settle all payable tax in 2021 nor have the Registrant settled 30% of the penalties by 31 December 2021. In this case, the Registrant did not qualify for the redetermination by 31 December 2021. However, the Registrant settles, within 2022, all payable tax including that relating to the last return due in 2022 and 30% of the penalties imposed before 28 June 2021 on 15 July 2022 (i.e. AED 6,000). Hence, the Registrant qualifies for the redetermination, and the FTA will redetermine the penalty within 30 business days from 31 December 2022. Consequently, the Registrant will no longer be required to pay the remaining AED 14,000 of the administrative penalties, as the re-determined administrative penalty which was imposed before 28 June 2021 shall equal AED 6,000, and this amount was already settled by the Registrant.

Procedures Relating to the Redetermination of Administrative Penalties

To facilitate the procedures for registrants, the FTA linked the redetermination process and the relevant data to the registrants’ e-Services accounts. Registrants are be able to view further information relating to the process on their account’s dashboard.

This Public Clarification issued by the FTA is meant to clarify certain aspects related to the implementation of Cabinet Decision No. 49 of 2021 on Amending some Provisions of Cabinet Decision No. 40 of 2017 on Administrative Penalties for Violations of Tax Laws in the UAE as amended by Cabinet Decision No. 108 of 2021 On the Amendment of Cabinet Decision No. 40 of 2017 On Administrative Penalties for Violations of Tax Laws in the UAE.

This Public Clarification states the position of the FTA and neither amends nor seeks to amend any provision of the aforementioned legislation. Therefore, it is effective as of the date of implementation of the relevant legislation, unless stated otherwise.

Cabinet Decision No. 49 of 2021 as published on the FTA’s website www.tax.gov.ae.
Article 25 of the FTP Law stated that:
1. The Authority shall issue an Administrative Penalties Assessment for a Person and notify him within (5) five business days for any of the following violations:
  - The failure of the Person conducting Business to keep the required records and other information specified in this Law and the Tax Law.
  - The failure of the Person conducting Business to submit the data, records and documents related to Tax in Arabic to the Authority when requested.
  - The failure of the Taxable Person to submit a registration application within the timeframe specified in the Tax Law.
  - The failure of the Registrant to submit a deregistration application within the timeframe specified in the Tax Law.
  - The failure of the Registrant to inform the Authority of any circumstance that requires the amendment of the information pertaining to his tax record kept by the Authority.
  - The failure of the Person appointed as a Legal Representative for the Taxable Person to inform the Authority of his appointment within the specified timeframe, in which case, the penalties will be due from the Legal Representative’s own funds.
  - The failure of the Person appointed as a Legal Representative for the Taxable Person to file a Tax Return within the specified timeframe, in which case the penalties will be due from the Legal Representative’s own funds.
  - The failure of the Registrant to submit the Tax Return within the timeframe specified in the Tax Law.
  - The failure of the Taxable Person to settle the Payable Tax stated in the submitted Tax Return or Tax Assessment he was notified of, within the timeframe specified in the Tax Law.
  - The submittal of an incorrect Tax Return by the Registrant.
  - The voluntarily disclosure by the Person of errors occurring in the Tax Return, Tax Assessment or Refund Application pursuant to Article 10 (1) and (2) of this Law.
  - The failure of the Taxable Person to voluntarily disclose errors in the Tax Return, Tax Assessment or Refund Application pursuant to Article 10 (1) and (2) of this Law before being notified that he will be subject to a Tax Audit.
  - The failure of the Person conducting Business to facilitate the work of the Tax Auditor in violation of the provisions of Article (21) of this Law.
  - The failure of the Registrant to calculate Tax on behalf of another Person when the registered Taxable Person is obligated to do so under the Tax Law.
2. The Executive Regulation of this Law shall specify the information and data that must be included in the Administrative Penalties Assessment.
3. The Cabinet shall issue a resolution that specifies the Administrative Penalties for each of the violations listed in Clause (1) of this Article. Such Administrative Penalties shall be no less than 500 Dirhams for any violation and shall not exceed three times the amount of Tax in respect of which the Administrative Penalty was levied.
4. The imposition of any Administrative Penalty pursuant to the provisions of this Law or any other law shall not exempt any Person of his liability to settle the Due Tax in accordance with the provisions of this Law or the Tax Law.
The Third Article of the Cabinet Decision No. 49 of 2021 states that:
1. The Authority shall determine the Administrative Penalties levied on the Registrant prior to 28 June 2021 in accordance with Cabinet Decision No. 40 of 2017, which have not been settled, to equal 30% of the total of such unsettled penalties where all of the following conditions are met:
  - The Registrant settles payable tax in full, no later than 31 December 2021.
  - The Registrant settles 30% of the total unsettled Administrative Penalties, no later than 31 December 2021.
2. In the event that the Registrant fails to meet the requirements of Clause 1 on or before 31 December 2021, the Registrant may meet the requirements no later than 31 December 2022.
3. The Authority shall determine the procedures for implementing the provisions of this Article, taking into consideration that the Administrative Penalties levied on the Registrant are redetermined in accordance with Clause 1 of this Article within a maximum of 30 business days from the dates specified in Clauses 1 or 2 above, depending on the date the conditions are met.

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