Other BriefingsForeign Investors In the UAE: Non-Compliance Tax Rules – Compliance and Non-Compliance Penalties
With the UAE Ministry of Finance setting the penalty structure for non-compliance on corporate tax, all UAE businesses, including foreign investors, have a nine-month window to make sure that all their submissions are in order.
The nine-month window has been synchronized with your businesses declared financial year. For example, if the company has set its annual financials in the January 1 to December 31 timeframe, then it has until September 2024 to complete its tax returns. If the company’s financial year runs from June 1, 2023, to May 31, 2024, then the submission deadline is February 2025. The UAE has also issued non-compliance fines. We explain these implications.
In terms of the nine-month window to get into tax compliance, most tax jurisdictions give an average of 6-10 months to submit the corporate tax returns, meaning that the UAE’s 9-month window for tax filing is quite generous.
What are the new non-compliance penalties?
In the announcements made on Saturday (July 29), the UAE finance ministry specified the administrative penalties on corporate tax violations. They become effective from August 1, 2023.
In the statement, the ministry said that the penalties have been ‘carefully designed and benchmarked to ensure successful implementation and compliance.
At the same time, it’s done ‘without burdening UAE businesses. “Adhering to corporate tax compliance is a responsibility of all taxable persons to support the implementation of the system in the UAE” according to Younis Haji Al Khoori, Undersecretary of the Ministry of Finance.
“The penalties on compliance with prescribed tax procedures – maintaining records, timely payment, submission of returns and so on, are expected to be similar across all tax regimes. The penalties for specific offences and/or non-compliance under a particular tax regime would be individually prescribed.
For instance, when it comes to VAT, the non-issuance of a tax invoice or the display of VAT-inclusive prices under the VAT regime have still to be considered. Such specific penalties for corporate tax will be specified in the near future.
Size of penalties and scope
The penalties for non-compliance with the annual UAE tax audit is expected to be in the range of Dh1,000-Dh2,000 (US$270-500) for each offense. Businesses should be aware that if non-compliant, this applies to each specific mistake. An audit failure therefore could result in multiple issues and fines running into thousands of dollars.
There have also been discussions of imposing fines of between 2-4% of the total taxes due. The UAE Ministry of Finance will release details of its tax penalty values soon.
* Penalties will be imposed on ‘taxable persons’, whether an individual or a legal entity, who do not comply with their obligations under the UAE law.
* Penalties will be applied in cases of failure to file and pay corporate tax due on time, including the failure of the registrant to inform the Federal Tax Authority of any case that may require the amendment of the information pertaining to his Tax record kept by the Federal Tax Authority.
* A new structure has also been introduced for voluntary disclosure penalties.
* Penalties also apply in cases of failing to properly keep records or submitting the required records and other information specified in the law.
Filing appeals
If a penalty is imposed, the impacted business can submit a reconsideration request against a tax assessment, including penalties. Based on the decision of the reconsideration request, the taxpayer can submit an objection to Tax Dispute Resolution Committee (TDRC). The next stage is to appeal in the competent courts based on the facts of each individual case. The tax procedure laws prescribe the process and conditions for each appellate forum.
UAE tax registrations procedures
The UAE opened its corporate tax registrations on June 1, 2023, and to date, the progress has gone as expected. It is a mandatory obligation for all businesses in the UAE, while there is no cut-off deadline given for the registration. However, it must be completed by the date required to submit the corporate tax returns at the end of your business’s financial year. It is strongly recommended that businesses register as soon as possible.
For assistance with UAE tax registration and compliance procedures, please contact Maria Kotova at dubai@dezshira.com
Related Reading
- Foreign Investors In UAE FTZ Must Pay Attention To Upcoming Tax Regulatory Changes
- UAE Corporate Tax: Non-Resident Entities Tax Obligations: Clarifications
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Middle East Briefing is one of five regional publications under the Asia Briefing brand. It is supported by Dezan Shira & Associates, a pan-Asia, multi-disciplinary professional services firm that assists foreign investors throughout Asia, including through offices in Dubai (UAE), China, India, Vietnam, Singapore, Indonesia, Italy, Germany, and USA. We also have partner firms in Malaysia, Bangladesh, the Philippines, Thailand, and Australia.
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