Reduction in the Penalties for non-compliances of VAT & Excise Tax – Updates
May 10, 2021
Big relief in a time of crisis: Reduction in the Penalties for non-compliances of VAT & Excise Tax in the UAE
Following the recent series of amendments to the VAT & Excise Tax legislations aimed at revising the punitive measures for certain tax infringements and for remittance of Administrative Penalties, the UAE Federal Government recently published a new Cabinet Decision that give effect to a reduction in the penalty rate that falls due upon the late payment of VAT & Excise Tax.Through the new Cabinet Decision no 49 of 2021 on Administrative Penalties, the UAE Federal Government has established that the penalty incurred on the late payment of VAT & Excise Tax is reduced from 1% per day to 2% per month up to one month & 4% per month thereafter for the period in which the tax remains unpaid with a maximum cap of 300%.
The reduction in the fixed penalties for submitting Voluntary Disclosures for incorrect VAT and Excise Tax Returns is another measure aimed to review downwards additional VAT related payments and to alleviate the burdens on taxpayers. According to this amendments, fixed penalties for submitting Voluntary Disclosures for incorrect VAT and Excise Returns has been reduced to AED 1,000 for the first VD submission and AED 2,000 in case of repetition.
Percentage based penalties for difference in Tax Amounts resulting from Voluntary Disclosures has also been reduced to:
- 5% if Voluntary Disclosure submitted within 1st year of due date of Tax Return
- 10% if Voluntary Disclosure submitted during 2nd year from the due date of Tax Return
- 20% if Voluntary Disclosure submitted during 3rd year from the due date of Tax Return
- 30% if Voluntary Disclosure submitted during 4th year from the due date of Tax Return
- 40% if Voluntary Disclosure submitted after 4th year from the due date of Tax Return.
Another significant change is that the late payment penalties would be applicable only from 20 business days after the submission of Voluntary Disclosure rather than from the original return due date. This is a positive move that will encourage businesses to submit Voluntary Disclosures in respect of the submitted VAT Returns.
Amnesty for Administrative Penalties Imposed before Effective date (i.e. 60 days from 28 April 2021)
The new Decision grants the Federal Tax Authority the right to reduce previously unpaid penalties to 30% of the total of such penalties if all of the following conditions are met:
- Administrative penalties imposed on the Registrant under the Cabinet Decision No. 40/2017 prior to the effective date hereof and has not been fully paid;
- The registrant has paid all payable tax up to 31 December 2021 at most.
- The registrant must have paid 30% of the total administrative penalties unpaid until the effective date of the new Cabinet Decision by 31 December 2021 at most.
FTA shall determine the procedures for implementing this provisions.
Takeaway: Mitigating risks with timely corrections & resolving tax disputes with a strategic approach
The FTA encourages the submission of Voluntary Disclosure by taxpayers who may have violated the provision or who believe that a mistake was made. Proactive approach for failures or mistakes is necessary for avoiding a penalty. A Voluntary Disclosure should be made by a taxable person to notify the FTA of an error or omission in their tax return, tax assessment or tax refund application.
It is a matter of concern, how a business can find errors/mistakes in a submitted VAT & Excise Tax Returns. A business can opt for a Tax Audit Review/ Tax Health Check to understand the non-compliances/ mistakes done in already filed returns. A Tax Audit Review/ Health Check by a FTA Approved Tax Agent can help you to find the errors, mistakes or omissions in your VAT/excise Tax returns. Eventually, this exercise will minimize the risk of fines and penalties in case of a Tax Audit initiated by the FTA. It will also ensure that you do not create VAT issues for your customers which can adversely affect your commercial relationship.
Our professionals will provide you with in-depth insights into the intricate procedures of the legal provisions. We can help you draft expert legal and procedural submissions to the Federal Tax Authority.
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