Reduction of tax administrative penalties & amnesty for prior penalties from Federal Tax Authority (FTA)
June 04, 2021
Everything you need to know : Reduction of tax administrative penalties & amnesty for prior penalties from Federal Tax Authority (FTA)
We would like to summarize the recent updates released by the Federal Tax Authority (FTA) with respect to certain significant amendments to the existing tax legislations in the UAE.
The recent updates covering the following:- Cabinet Decision No. 49 of 2021 – Amending the provisions of Cabinet Decision No. 40 of 2017 on administrative penalties for tax violations.
- Cabinet Decision No. 51 of 2021 – Modifying some provisions of Cabinet Decision No. 36 of 2017 on the Executive Regulations of Federal Law No. 7 on Tax Procedures
- Tax Procedures Public Clarification (TAXP001) – Explains amendments to the existing penalties regime.
- Tax Procedures Public Clarification (TAXP002) – Explains redetermination of administrative penalties levied prior to effective date of cabinet decision No.49 of 2021
- Cabinet Decision No. 49 of 2021
UAE Government also introduced an amnesty scheme through this Decision where unpaid penalties that were levied under previous Cabinet Decision No. 40/2017 can be reduced by 70 % provided that tax payer clear the unpaid tax and 30% of the total administrative penalties by 31 Dec 2021. FTA has also released two public clarifications explaining the scheme and its application.
- Cabinet Decision No. 51 of 2021
Based on the New Cabinet Decision No. 51 of 2021, the UAE Federal Tax Authority (FTA) announced that any person or group proven to have violated the provisions of tax legislation has the right to apply to the FTA to reduce or be exempted from an administrative penalty subject to the following conditions in accordance with Cabinet Resolution No. (51) Of 2021 modifying some provisions of Cabinet Resolution No. (36) Of 2017 on the Executive Resolutions of Federal Law No. (7) Of 2017 on Tax Procedures.
- There is an excuse acceptable to the FTA
- Evidence available justifying the excuse and the violation thereof, which led to the imposition of an administrative penalty.
Any person, or group whose violation of the provisions of the TAX Law is proven may apply to the FTA to reduce or be exempted from the penalties imposed by the FTA if the following set of controls are met:
- There is an excuse acceptable to the FTA;
- There is evidence available justifying the excuse and the violation related thereto, which led to the imposition of administrative penalties;
- The person notifies the FTA of the request for the reduction or exemption according to the mechanism defined by the FTA within 40 business days from the end of the acceptable excuse;
- The person proves that it has rectified its violation;
- The request for reduction or exemption is submitted in accordance with the form specified by the FTA.
Please note that the excuse shall not be acceptable if it is proven that the person committed the violation intentionally. A tripartite committee to be formed by a decision issued by the Director General of the FTA and will decide whether the excuse mentioned on the application will be acceptable. Such committee shall be concerned with examining, accepting or rejecting the excuse. The FTA shall issue its decision to reduce or exempt the administrative penalties within (40) business days as from the date of receiving the application, if any, and the applicant shall be notified of such decision within (10) days as from the date of the issuance thereof.
This is a major development in the UAE tax landscape, as the new amendments may affect the upcoming decisions to be issued by the various Tax Dispute Resolution Committees (TDRC) and Federal Courts and may also affect the existing avenues to settle tax disputes.
- Tax Procedures Public Clarification (TAXP001)
This Public Clarification provides detailed information on the amendments in administrative penalties introduced by Cabinet Decision no. 49 of 2021. This clarification lists all the administrative penalties and its amendments where the mechanism of calculation has been changed with some hypothetical examples for easy understanding.
- Tax Procedures Public Clarification (TAXP002)
UAE Government introduced an amnesty scheme through Cabinet Decision no 49 of 2021, where unpaid penalties that were levied under previous Cabinet Decision No. 40/2017 can be reduced by 70 % provided that tax payer clear the unpaid tax and 30% of the total administrative penalties by 31 Dec 2021.This Public Clarification provides detailed information on the redetermination of penalties which have been imposed under previous penalty provisions & mechanism. Through this clarification, FTA clarified that redetermination mechanism would be applicable for all the administrative penalties levied in accordance with Cabinet Decision 40 of 2017 whether in respect of tax procedures, VAT or Excise tax subject to certain conditions are met as Federal tax Procedures apply to all Federal taxes under the jurisdiction of the FTA.
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 the effective date of Cabinet Decision No. 49 of 2021 (i.e. before 28 June 2021);
- The person has not settled all the administrative penalties imposed on it as per Cabinet Decision No. 40 of 2017 in full before 28 June 2021;
- The taxable person has undertaken all of the following:
- Settled all payable tax, i.e. the registrant shall ensure that by 31 December 2021, no payable tax is still outstanding whether such tax was payable before or after 28 June 2021, and that all such amounts have been received by the FTA by 31 December 2021; and
- Settled 30% of the total unsettled administrative penalties referenced above which were imposed before 28 June 2021, no later than 31 December 2021
Where the above conditions are met, the FTA will, at the end of 2021, redetermine that the administrative penalties payable and not settled by 28 June 2021 equal 30% of that unsettled part. Hence, the Person shall not be required to pay the remaining part (i.e. 70%).
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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Vipin Kumar Ahuja
Designation: Director – Taxation (VAT, Excise & Customs)
About Author:Chartered Accountant, DISA, Dip. in IFRS.
Having over 12 years of experience in advising clients on Direct & Indirect tax and regulatory issues across India, UAE, KSA & Bahrain.
Areas of Specialization:
- Value Added Tax (VAT)
- Excise Tax
- Custom
- Transfer Pricing
- Project Management
- Process Improvement
- Risk Management