UAE: Voluntary disclosure penalties under revised tax-related penalty regime

Taxpayers remain subject to percentage-based penalties for correcting any errors via voluntary disclosure

Revised tax-related penalty regime

Cabinet Resolution No. (49) of 2021 revised administrative penalties imposed for violations of tax laws, including value added tax (VAT) laws, in the United Arab Emirates. The amendments became effective 28 June 2021. Read TaxNewsFlash

Under the new penalty regime, the application of the voluntary disclosure penalties has changed. The penalty calculation now does not depend on the taxpayer’s / tax authority’s overall net balance resulting from the correction, but instead is calculated based on the amount of the correction made in the submitted voluntary disclosure, notwithstanding whether the taxpayer has incurred any tax benefit. Furthermore, if a voluntary disclosure is submitted following notification a tax audit, the penalty is set at 50% of the amount of the disclosed error.

Thus, even if taxpayers are in a refundable position, they remain subject to the percentage-based penalties for correcting any errors via voluntary disclosure. Nonetheless, the availability of the offset mechanism in the UAE VAT regime justifies the applicability of percentage-based penalties on refund amounts not yet claimed by the taxpayer, as theoretically, the taxpayer could have used such amounts to offset any arising tax or administrative liabilities.

Read a May 2022 report prepared by the KPMG member firm in the United Arab Emirates


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