Cabinet Resolution No. (49) of 2021 has been announced to revise the administrative penalties imposed for violations of tax laws in the UAE. We have briefly summarized below the most important amendments:
- The key change seems to be that late payment penalties have been revised, whereby the 1% daily penalty has been replaced with a 4% monthly penalty, with a cap of 300%.
- Another important update is in relation to Voluntary Disclosures (VD) submitted by taxpayers and tax assessments issued by the Federal Tax Authority (FTA). The payment deadline has been set at 20 business days from the VD submission date/tax assessment receipt date (as opposed to the payment deadline of the underlying tax return where the underpayment arose).
- The percentage-based “error” penalty, has also been revised to a range of 5% – 40%, depending on the timing when a VD is submitted after the due date of the corresponding return.
- Similarly, fixed penalties in respect to late registration, deregistration or failure to issue tax invoices or tax credit notes have also been reduced.
- The Resolution is expected to become effective after 60 days from the date of its publication, i.e. from 27 June 2021.
- The Resolution also sets out a mechanism for alteration of penalties imposed under the current system to be reduced to 30% of the amount previously imposed provided certain conditions are met by 31 December 2021. The FTA is yet to clarify the procedures for implementing this relief.
- Prior to the Resolution becoming effective, we would expect the current penalty system to remain in force. Therefore, taxpayers submitting VDs and paying these within the period prior to implementation of the Cabinet Resolution should not expect to receive any penalty reductions based on this law change.
We are still awaiting further guidance from the FTA on how this Resolution will be implemented and how they expect taxpayers to proceed during the transition period. In the meantime, if you would like to discuss the amendments, please get in touch with your usual KPMG contact, or any of the contacts below.