On the Administrative Penalties for Violations Related to Corporate Tax

PGP Tax Consultancy advises that the Prime Minister of the UAE Mohammed bin Rashid Al Maktoum has issued Cabinet Decision No. 75 of 2023 on the Administrative Penalties for Violations Related to the Application of Federal Decree-Law No. (47) of 2022 on the Taxation of Corporations and Businesses. This Decision came into effect on 1 August 2023.

The new Decision provides a list of penalties for Corporate Tax related offences.

As prescribed by Article 2 of Decision No. 75, the Administrative Penalties included in the table annexed to this Decision shall apply to violations related to the application of the Corporate Tax Law (notwithstanding the provisions of Cabinet Decision No. (40) of 2017). For offenses related to Excise Tax and VAT, the provisions apply of Cabinet Decision No. 40 of 2017 on Administrative Penalties for Violations of Tax Laws in the UAE amended by Cabinet Decision No. 49 of 2021.
We would like to draw attention to the list of administrative penalties related to Corporate Tax compared with the penalties for offenses related to Excise Tax and VAT.

Description of an offense

Penalty related to Corporate Tax

Penalty related to Excise Duty and VAT

PGP Tax Consultancy NOTES

The failure of the obligated person to keep the required records and other information

AED 10k for the first time AED 20k for the repeated violation (within 24 months from the date of the last violation)

AED 10k for the first time
AED 20k in case of repetition

For Corporate Tax this may also include the maintenance of transfer pricing-related documentation (Article 55 of the CT Law – Transfer Pricing Documentation).

The failure to submit data, records and documents related to Tax in Arabic, when requested

AED 5k

AED 20k

According to the newly issued Cabinet Decision No. 74 of 2023 on the Executive Regulations of Federal Decree-Law No. 28 of 2022 on Tax Procedures (the “New Executive Regulation”), the FTA may accept data, information, records and any other documents related to any Tax that are submitted to the Authority in English. At the same time, the FTA may, at its discretion, request the Person to have some or all of them translated into Arabic

In our view, the penalties cannot be applied if the Person submitted data in English and the FTA has not explicitly requested the Person to have this data translated into Arabic

The failure to submit a deregistration application

AED 1k per month, up to AED 10k

AED 1k per month, up to AED 10

According to Article 52 of the CT Law, a Person shall file a Tax Deregistration application where there is a cessation of its Business or Business Activity, whether by dissolution, liquidation, or otherwise, within 3 months of the date of cessation (the FTA’s Decision No. 6 of 2023 on the timelines for Tax Deregistration under the UAE CT Law).

The failure by a Taxpayer to inform the Authority of information change that should be notified

AED 1k for each violation AED 5k for the repeated violation (if within 24 months)

AED 5k for the first time AED 10k in case of repetition

According to the New Executive Regulation, the instances in which a registrant is required to inform the FTA of a change of information have been extended to include instances of a change in the email address, trade license activities, legal entity type and partnership agreement for unincorporated partnerships.

The failure of the Legal Representative to notify the Authority about the appointment (the penalties will be due from the Legal Representative’s own funds)

AED 1k

AED 10k

 

The failure of the Legal Representative or the Taxable Person to submit a tax return on time

AED 500 for each month (for the first 12 months)AED 1000 for each month from the 13th month onwards

AED 1k
AED 2k for the repeated violation (if within 24 months)

Article 53 of the CT Law provides that a Tax Return has to be submitted no later than 9 months from the end of the relevant Tax Period.

The failure of the Taxable Person to settle the Payable Tax on time

A penalty of 14% per annum, for each month or part thereof (1.2% of the payable tax monthly)

2% of the payable tax if settled within one month
4% of the payable tax monthly afterward, up to 300%

According to Article 23 of the Tax Procedure Law, the due date of payment in a case of Voluntary Disclosure and Tax Assessment is as follows:
a. 20 Business Days from the date of submission, in the case of a Voluntary Disclosure.
b. 20 Business Days from the date of receipt, in the case of a Tax Assessment.

If a Person corrects his Tax Return prior to the due date of payment, it shall be excluded from the penalty.

Submission of incorrect tax return

AED 500

AED 1k for the first time
AED 2k in case of repetition

1. If a Person corrects his Tax Return prior to the due date of payment it shall be excluded from the penalty.
2. However, if the incorrect Tax Return results in a Tax difference of less than the fixed penalty of 1 000/2 000, a penalty equal to the Tax difference shall be imposed subject to a minimum of 500.

Submission of the Voluntary Disclosure in relation to errors in the Tax Return, Tax Assessment or Tax refund
Application

1% of the tax difference monthly, calculated from the due date until the VD is submitted

5% of the tax difference (if VD is submitted within one year from the due date)
10% of the tax difference (if VD is submitted within the second year from the due date)
20% of the tax difference (if VD is submitted within the third year from the due date)
30% of the tax difference (if VD is submitted within the fourth year from the due date)
40% of the tax difference (if VD is submitted after the fourth year from the due date)

1. On 14 October 2020, the UAE Federal Supreme Court ruled that voluntary disclosure triggers not only a fixed penalty for the error in the tax return and a “tax benefit” penalty specified for VD but also a “late payment” penalty. The latter applies from the due date of the tax return and not from the date of voluntary disclosure. This judgment covered VAT but its rationale seems a fit for the newly published Corporate Tax table.
2. Before 1st of March 2023 errors within 10 000 AED shall be corrected in a tax return for the period in which the error has been discovered. This exemption hasn’t been included in the New Tax Procedure Law effective from the above date. New Executive Regulations (effective since this August) resumed this 10K exemption with slight modifications. Since errors resulted 10K tax difference or less don’t require VD, correspondent (tax benefit) penalty is not applicable. Again.

Failure to submit Voluntary Disclosure before being notified by the Authority that the Taxpayer will be subject to an audit

A fixed penalty of 15% on the tax difference and 1% monthly on the tax difference (counted until the date of submission of the VD or issuance of the tax assessment, if no VD was filed)

A fixed penalty of 50% on the tax difference and 4% monthly on the tax difference (counted until the date of receipt of the Tax Assessment)

 

Failure of a Person who is subject to Tax Audit, his Tax Agent or Legal Representative to offer facilitation to the Tax Auditor. The penalties will be due from the Person’s, Legal Representative’s or Tax Agent’s own funds, as applicable.

AED 20k

AED 20k

 

Failure of a Person to submit, or late submission of a Declaration to the Authority.

AED 500 for each month (for the first 12 months) AED 1000 for each month from the 13th month onwards

 

This penalty applies to a Declaration that has to be submitted by:

 

  • A Qualifying Public Benefit Entity

  • A Qualifying Investment Fund

  • A public/private pension or social security fund

  • A juridical person wholly owned and controlled by an Exempt Person

  • The authorized partner in an Unincorporated Partnership and Transfer Pricing Documentation (Article 55 of the CT Law)

 

 

Failure of the Taxable Person to submit a registration application within the timeframe specified in the Tax Law

?

AED 10k

Cabinet Decision No. 75 of 2023 on the Administrative Penalties for Corporate Tax does not contain a description of such a violation as the failure of the Taxable Person to submit a registration application. It is obvious that, when the amount of penalties imposed on the taxpayer for a violation related to Corporate Tax contradicts the regular amount of penalties in the provisions of Cabinet Decision No. 40 of 2017 (amended by Cabinet Decision No. 49 of 2021), Cabinet Decision No. 75 of 2023 has to be applied. Less obvious is the penalty amount that has to be applied in a case when the Cabinet Decision does not contain such a violation, but Cabinet Decision No. 40 of 2017 explicitly provides the penalty for this violation regardless of the tax in relation to which the offense was committed. Taxpayers need to be more careful and, despite the ambiguity in this matter, must not miss the timeframe specified in the CT Law for the submitting a registration application.

Conclusions

The Ministry of Finance is continuing working on the rules of the Corporate Tax regime. Apparently, the penalties for Corporate Tax-related offenses are lower than those for other taxes, i.e. excise duty or VAT. 
But since the penalties have been quantified, it is crucial for business to maintain and submit records, to apply to the FTA for deregistration or with amendments to CT registration, to correctly calculate the amount of tax due and to ensure compliance with all other CT Law provisions.

Contacts

Maria Nikonova
Head of PGP Tax Consultancy in the UAE, PhD in Law
m.nikonova@pgplaw.ae

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