UAE Tax Authority Announces Grace Period for Updating Tax Records: Key Details

The UAE Federal Tax Authority (FTA) has introduced a grace period from January 1, 2024, to March 31, 2025, allowing businesses to update their tax records without incurring administrative penalties.

By Melissa Cyrill

The UAE Federal Tax Authority (FTA) has introduced a special grace period, effective from January 1, 2024, to March 31, 2025, allowing businesses to update their tax records without incurring administrative penalties. This initiative reflects the FTA’s commitment to supporting accurate tax compliance and encouraging transparency among registrants. By waiving penalties for delayed reporting of changes, the FTA aims to make it easier for businesses to maintain current and compliant tax records.

Issue and compliance requirements

In alignment with Federal Decree-Law No. 28 of 2022 on Tax Procedures, UAE-based registrants—defined as entities holding an FTA-issued tax registration number—are legally obligated to notify the FTA of any changes to specific details within their tax records within 20 business days. This includes changes in:

• Legal name, address, and email: Any official communication detail changes must be updated to avoid miscommunication.
• Trade license activities: Updates in the scope or nature of the trade license, reflecting changes in business activities, should be reported.
• Legal entity type or partnership agreements: Changes such as amendments to the legal structure, partnerships, or articles of association need timely updates.
• Nature of the business: Any shifts in business type or purpose should be conveyed to the FTA.
• Business address: Any relocation or expansion to a new address from which business operations are conducted must be updated.

Failing to meet this 20-business-day deadline results in a tax violation and exposes the registrant to administrative penalties.

Grace period overview

To encourage proactive compliance and alleviate the administrative burden on businesses, the FTA has introduced a grace period that will last from January 1, 2024, through March 31, 2025. During this time, businesses updating their tax information will not be subject to penalties for previously delayed updates. Furthermore, any penalties imposed on registrants for failing to update records before the start of the grace period will be automatically reversed if the update is completed within this grace period. Businesses do not need to contact the FTA to initiate these reversals; instead, the refunded amounts will automatically be credited to the registrant’s tax account.

Examples of non-compliance scenarios covered by the grace period

To help clarify eligible scenarios, the following are common situations where businesses may have previously faced penalties for failing to update tax records within the required period. Under the grace period, these instances can be rectified without penalty:

1. New branch registration: If a business opens a new branch and fails to upload the new trade license within 20 business days, this omission can now be corrected during the grace period without incurring penalties.
2. Change of business address: When a business moves to a new location and doesn’t update the FTA with the new address on time, this oversight can now be rectified within the grace period.
3. VAT or excise tax registered person delays corporate tax registration: Businesses registered for value added tax (VAT) or excise tax that didn’t update their records before registering for corporate tax can address this lapse during the grace period without penalty.
4. Incorrect corporate tax registration details: If a business registers for corporate tax with incorrect information and fails to make corrections within the required timeframe, it can now amend these details without facing penalties during the grace period.

Legislative context and implications

The FTA’s grace period policy operates within several UAE tax compliance frameworks:

• Federal Decree-Law No. 28 of 2022 on Tax Procedures: This law governs UAE tax procedures, including requirements for maintaining accurate records. Article 6(4) of the Executive Regulation mandates that registrants must report relevant changes within 20 business days.
• Cabinet Decision No. 74 of 2023: This decision serves as an executive regulation for compliance with Federal Decree-Law No. 28, detailing further obligations for tax registrants.
• Administrative Penalties for Non-compliance: Penalties for non-compliance are outlined in Cabinet Decisions No. 40 of 2017 and No. 75 of 2023. The first violation incurs a fine of AED 5,000, while repeated violations may lead to AED 10,000 fines for general tax records. For corporate tax-related records, penalties range from AED 1,000 to AED 5,000 if repeated within 24 months.
• Refund of Penalties (Cabinet Decision No. 105 of 2021): Under this provision, if a penalty is reversed during the grace period, the refunded amount will be processed to the registrant’s tax account within 90 days of approval.

The FTA clarifies that the grace period is a temporary relief measure designed to ease compliance burdens on businesses, not an amendment to existing tax legislation. The grace period’s objective is to provide a limited timeframe for registrants to rectify any non-compliance without facing punitive financial consequences.

Key takeaways

This FTA grace period represents a valuable opportunity for UAE-based businesses to align their tax records without the risk of administrative penalties. Registrants should take proactive steps to review and, if necessary, update their records, ensuring all details are current and compliant. By addressing potential discrepancies within this timeframe, businesses can avoid future penalties and improve their compliance posture. – Jacob Thomas

Taking full advantage of this grace period could ultimately support better financial planning and help build stronger, more transparent relationships with the UAE tax authority, benefiting both businesses and the tax ecosystem.

Also Read

• UAE Corporate Tax Rules for Free Zone Persons
• VAT in the UAE: Registration, Rates, and Compliance
• UAE Amends VAT Executive Regulations, Effective November 15

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