By Julia | December 6th, 2017 | VAT
From January 1, 2018, UAE is going to witness the implementation of VAT (a taxation system focused on consumers). But before that big event, the government is making sure all the countrymen have adequate knowledge about the new tax regulations. In a press conference, a government spokesperson revealed that Cabinet Resolution No. 40 of 2017 on the penalties for infringement of tax laws in the country had been adopted by the UAE Council of Ministers along with the Cabinet Decision No. 39 of 2017 on the fees for services offered by the Federal Tax Authority (FTA).
The resolution No. 40 of 2017 gives a broad overview of the scope of the resolution, general provision of administrative fine or penalty, systems of amending those administrative penalties, the issuance responsibility of Executive Decisions and the objections framework. The Resolution consists of three tables of infringement and administrative penalties appendix to the respective cabinet decision (i.e. Cabinet Decision No. 40). The table one (among three) of the resolution has been implemented with effect from September 24, 2017, while table two came to effect on October 1, 2017. The third table, however, will be implemented from January 1, 2018.
In the unofficial transcript of the Resolution, which is available on UAE’s Ministry of Finance (MOF)’s official website, it is mentioned that the Cabinet has reviewed a number of significant documents and observations before deciding upon the administrative penalties for violation of the tax laws in UAE. Those documents and observations include:
The transcript also gives a thorough understanding of the meanings and definitions of particular terms that are mentioned in the Resolution so that no one gets confused while learning about the violations and administrative penalties of Tax Laws. The transcript has also given a brief description of the other components of the Resolution including its scope, general provisions, amending administrative penalties, objections and issuance of executive decisions.
According to the transcript published on the MOF’s official website, the obligation of administrative Penalties under the provisions of the decision (mentioned in Cabinet Resolution no. 40) shall not excuse any free person from his liability to pay the Payable Tax in accordance with the provisions of the existing Federal Tax Laws. The amendments to the mentioned administrative penalties can only be modified by the Cabinet. If a person wants he can object to the administrative penalties imposed on him in accordance with the procedures mentioned in the Federal Law no. 7 of 2017 on Tax Procedures.
The Violations and Administrative Penalties Related to the Implementation of Federal Law No. (7) on Tax Procedures in the UAE
| Sl. No. | Description of the violation | Administrative penalty or fine (in Dirhams) |
| 1. | The failure of an individual conducting business in the UAE to keep the necessary records and other crucial information mentioned in the Tax Procedures Law and Tax Law. | · 10,000 for the first instance.
· 50,000 for repetition of such action. |
| 2. | The incompetence of an individual, who conducts business in the UAE, to present the tax-related information, records and documents to the Authority in Arabic when requested. | 20,000 |
| 3. | The incompetence of a taxable individual to submit an application for registration within the timeframe mentioned in the Tax Law. | 20,000 |
| 4. | The incompetence of a Registrant to submit an application for deregistration within the timeframe mentioned in the Tax Law. | 10,000 |
| 5. | The incompetence of a Registrant to inform the Authority of any situation that seeks the amendment of the information relating to the individual’s tax record kept by the Authority. |
· 5,000 for the first instance · 15,000 for the repetition of the same. |
| 6. | The incompetence of an individual to inform the Authority of his appointment as a Legal Representative of a taxable individual in the UAE within the mentioned timeframe. The fine will be charged to the Legal Representatives own funds. | 20,000 |
| 7. | The incompetence of an appointed Legal Representative to file a Tax Return within the mentioned time-frame for the taxable individual. The fine will be due from the funds of the Legal Representative. |
· 1,000 for the first instance · 2,000 for the repetition of the same action within next 24 months |
| 8. | The incompetence of a Registrant to submit the Tax Return within the time-frame mentioned in the Tax Law. |
· 1,000 for the first instance · 2,000 for the repetition of the same action within next 24 months |
| 9. | The incompetence of a taxable individual to settle the payable tax specified in the submitted tax return or tax assessment he/she was informed of, within the timeframe stated in the Tax Law. |
· 2% of the due tax is added immediately to the amount of payable tax once the payment is late. · 4% of the unpaid tax is due on the seventh day following the deadline for payment. · 1% of the unpaid tax is charged daily as a penalty on the unpaid amount of payable tax one calendar month following the deadline for payment. It can go up to 300% of the unpaid amount if the tax is avoided. |
| 10. | The submission of an incorrect tax return by the Registrant. |
There are two penalties applicable for such violation of the Tax Law. 1. The first one is a fixed penalty of · 3,000 for the first time · 5,000 for the repeating the action. 2. The remaining penalty is charged based on the following factors. · 50% of the payable tax will be charged as fine, if the Registrant does not disclose the fact voluntarily or makes a voluntary disclosure after being notified of the tax audit and the FTA has begun the tax audit process, or after being requested to submit information relating to the tax audit – whichever occurs first. · 30% of the payable tax will be charged as a penalty if the Registrant makes a voluntary disclosure after being notified of the tax audit and before the Authority starts auditing the tax. · 5% of the payable tax will be charged to the Registrant if he/she makes a voluntary disclosure before being notified of the tax audit by the FTA. |
| 11. | The voluntary disclosure by an individual (taxpayer) of the errors in the tax assessment, tax return or refund application under the Article 10 (1) and (2) of the Tax Procedures Law. |
The individual is charged with two separate penalties for this particular violation as well. 1. A fixed penalty of: · 3,000 for the first instance · 5,000 for the repetition of the deed. 2. A percentage based penalty depending on several factors. · 50% of the payable tax will be charged as fine, if the individual does not disclose the fact voluntarily, or makes a voluntary disclosure after being notified of the tax audit and the Authority has begun the tax audit process, or after being requested to submit information relating to the tax audit – whichever occurs first. · 30% of the payable tax will be charged as a penalty if the taxpayer makes a voluntary disclosure after being notified of the tax audit and before the Authority starts auditing the tax. · 5% of the payable tax will be charged to the individual (taxpayer) if he/she makes a voluntary disclosure before being notified of the tax audit by the Authority. |
| 12. | The failure of a taxable individual to disclose the errors in tax assessment, tax return, or refund application under the Article 10 (1) and (2) of the Tax Procedures Law voluntarily before being notified that it will be subject to a Tax Audit by the Authority. |
Two Penalties are charged for this violation of the Tax Procedures Law. 1. A fixed penalty is charged amounting: · 3,000 for the first instance · 5,000 for the repetition of the action. 2. 50% of the amount that is unpaid to the Authority due to an error leading to a tax benefit for the individual (taxpayer). |
| 13. | The failure to facilitate the job of the Tax Auditor by an individual, who is conducting business in the UAE, in violation of the provisions of the Tax Procedures Law, Article (21). | 20,000 |
| 14. | The incompetence of a Registrant to calculate Tax on behalf of another individual when the registrant taxable individual is bound to do so under the Tax Law. |
· 2% of the due tax is added immediately to the amount of payable tax once the payment is late. · 4% of the unpaid tax is due on the seventh day following the deadline for payment. · 1% of the unpaid tax is charged daily as a penalty on the unpaid amount of payable tax one calendar month following the deadline for payment. It can go up to 300% of the unpaid amount if the tax is avoided. |
| 15. | An individual not accounting for any tax that may be due on the import of goods which is directed by the Tax Law. | 50% of the unpaid or undeclared tax. |
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| Sl. No. | Description of the violation | Fine or administrative penalty (in Dirhams) |
| 1. | Incompetence to display prices of inclusive tax by a Taxable individual. | 15,000 |
| 2. | The failure in complying with the conditions and procedures related to the transfer of the Excise Goods from a designated zone to another designated zone, and the procedure of processing and storing such Excise Goods. | The penalty shall be the higher of 50,000 or 50% of the payable tax, chargeable depending on the goods as the result of the violation. |
| 3. | Failure by a taxable individual to provide the Authority with the price lists for the Excise Goods produced, imported or sold. |
· 50,000 for the first occasion. · 20,000 for repetition of such deed. |
| Sl. No. | Description of the violation | Administrative penalty of fine for the violation |
| 1. | The failure by a taxable individual to display prices inclusive of Tax. | 15,000 |
| 2. | The failure by a tax payable individual to notify the Authority of applying tax based on the margin. | 2,500 |
| 3. | The failure to comply the conditions and procedures related to keeping the goods in a designated zone or transferring them to another designated zone. | The penalty shall be the higher of 50,000 or 50% of the total payable tax, chargeable depending on the goods as the result of the violation. |
| 4. | The failure by a taxable individual to issue the tax invoice or an alternative document while making a supply. | 5,000 for each tax invoice or a substitute document. |
| 5. | The failure by a taxable individual to issue a tax credit note or an alternative document. | 5,000 for each tax credit note or a substitute document. |
| 6. | The failure by a taxable individual to have compliance with the conditions and procedures regarding the issuance of electronic tax invoices and electronic Tax Credit Notes. | 5,000 for every inaccurate document. |
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