FTA Published UAE New Tax Procedures Law & Penalty Regime
07 Aug, 2023 / Haroon Juma / VAT & Tax Services
The UAE Ministry of Finance has issued new announcements to harmonise and UAE tax framework and set a consistent model for both the Corporate and VAT Legislation. The legislation specifically outlines new procedures and penalties designed to boost compliance and clarity to taxpayers in managing their tax obligations.
Cabinet Decision No. (74) of 2023 on the Executive Regulation of Federal Decree-Law No. (28) of 2022 on Tax Procedures – also known as the New Tax Procedures Law, repeals the existing Executive Regulation and aligns with the New Tax Procedures Law which came into effect on March 1, 2023. This Decision is further added to under Tax Procedures Public Clarification TAXP006 – Issuance of a New Tax Procedures Executive Regulation and comes into effect on 1 August 2023.
In summary, some of the important updates and provisions details the guidelines for the proper maintenance of accounting records and commercial books, providing sufficient of the accounting period and record-keeping requirements. The Decision also seeks to expand and bolster the Tax Agency programme with clarity on rights and responsibilities of tax agents, registration and de-listing procedures of tax agents and emphasising the need for effective communication in either English or Arabic.
In addition, conditions for tax payment and refunds, tax audit procedures and obligations of a trustee in cases of bankruptcy are further detailed.
New Tax Procedures Law
The Cabinet Decision addresses a wide range of updates to the Tax Procedures affecting taxpayer obligations and processes subject to FTA enforcement. Several seek to harmonise the Corporate Tax and VAT regimes and should be reviewed in full to assess impacts to taxpayer obligations.
The below are material extracts affecting most taxpayers and is not an exhaustive list. Taxpayers are urged to seek professional advice and/or assess the revised procedural Law and determine impacts affecting your specific operations.
|Accounting records and commercial books|
Taxpayers must maintain relevant correspondence, invoices and tax invoices, licenses and agreements/contracts related to the business and record payments and receipts, purchases and sales, revenues and expenditures, as well as any matters as may be required under the Tax Law including but not limited to:
(1) Balance sheet and profit and loss accounts.
(2) Records of wages and salaries.
(3) Records of fixed assets.
(4) Inventory records and statements (including quantities and values) at the end of any relevant Tax Period and records of stock counts related to inventory statements.
All documents supporting the entries in the accounting records and commercial books, including but not limited to:
(1) Correspondence, invoices, licences and contracts related to the Business.
(2) Documents containing details of any election, assessment, determination or calculation made by a Taxpayer in relation to the Tax affairs of its Business, including the basis, or method of assessment, determination or calculation made.
|Period of Record Keeping|
All accounting records, commercial books and information shall be retained and maintained in a way that enables the Authority or any employee authorised by it to verify the Tax obligations imposed on the Person concerned for the following periods, unless the Tax Law states otherwise:
a. A period of (5) five years following the Tax Period to which they relate in respect of a Taxable Person.
b. A period of (5) five years from the end of the calendar year in which the concerned document was created in respect of all Persons other than Taxable Persons.
c. A period of (7) seven years from the end of the calendar year in which the concerned document was created for real estate records.
In addition to the periods specified, the Person shall retain the books and records for the following additional periods, in the following cases:
a) For an additional period of (4) four years or until the dispute is finally settled, whichever is later in case of dispute between the Person and the Authority in respect of the Person’s Tax obligations.
b) b. For an additional period of (4) four years in case the Person is subject to an ongoing Tax Audit.
c) For an additional period of (4) four years in case the Authority notified the Person of its intention to conduct a Tax Audit prior to the expiry of the period set out.
d) For an additional period of (1) one year starting from the date of submission of a Voluntary Disclosure in respect of the Taxable Person that submits a Voluntary Disclosure in the fifth year from the end of the relevant Tax Period.
Subject to this update, the Legal Representative shall retain the books and records of the Person he is representing for a period of (1) one year from the date on which such legal representation expires.
|Obligations of Licensing Authorities||The government entities that grant licences to Persons carrying out Business shall, within (20) twenty Business Days of the issuance or renewal of the licence, notify the Authority in the manner specified by it.|
Under the New Executive Regulation, the FTA may now accept the tax return, data, information, records and any other documents related to tax to be submitted in English or Arabic.
If the documents were submitted in English, the FTA may, at its discretion, request to translate some or all documents into Arabic within a period that the FTA will specify in its request.
|Amendment of Registration Data|
Under the New Executive Regulation, the list of instances is expanded in which registrants are required to notify the FTA of changes to their business data within (20) twenty Business Days of any change to its data kept with the Authority to include notification of the following:
A Registrant shall notify the Authority, in the form and manner approved by it, , including:
a. Name, address and email address.
b. Trade licence activities.
c. Legal entity type, partnership agreement for unincorporated partnerships and articles of association or its equivalent.
d. Nature of the Business of the Registrant.
e. The address from which any Business is conducted by the Registrant.
|Submission of Voluntary Disclosure|
If a Taxable Person becomes aware that a Tax Return submitted to the Authority or a Tax Assessment issued to the Taxable Person by the Authority is incorrect, resulting in a calculation of the Payable Tax according to the Tax Law being less than it should have been, the following shall apply:
a. If the amount is more than (10,000) ten thousand Dirhams, the Taxable Person shall submit a Voluntary Disclosure to the Authority within (20) twenty Business Days from the date when the Taxable Person became aware of the error.
b. If the amount is equal to (10,000) ten thousand Dirhams or less, the Taxable Person shall do the following:
(1) If the Taxable Person is obligated to submit a Tax Return to the Authority, correct the error in the Tax Return that has not become due for submission for a previous Tax Period or in the Tax Return for the Tax Period in which the error has been discovered, whichever is earlier.
(2) Submit a Voluntary Disclosure to the Authority within (20) twenty Business Days from the date of becoming aware of the error, in the event that there is no Tax Return through which the error can be corrected according to subparagraph (1) of this paragraph.
If a taxpayer becomes aware of an error or omission in a tax return submitted to the FTA that did not impact on the due tax for that tax period, the person is required to submit a voluntary disclosure to rectify the error.
Errors with no impact on due tax include:
– Failing to report imported services, where the business is entitled to full input tax recovery in respect of the supply.
– Reporting supplies in Box 1 of the VAT return against an Emirate other than the Emirate in which supplies should have been recorded.
Extensive sections of Tax Audit Procedures are detailed providing clarity on:
1. Notice of Audits
2. Tax Audit Procedures
3. Seizure and Retain of Documents and Assets
4. Results of the Tax Audit
5. Tax Assessments
6. Administrative Penalties Assessment
7. Procedures and Measures
8. Reconciliation in Tax Evasion Crimes
9. Conditions, Controls and Procedures for Reconciliation
10. Extension of Deadlines
|Reconciliation process – Tax Evasion crimes||For tax evasion crimes and the deliberate failure to settle administrative penalties, a person may submit a reconciliation application to the FTA before the initiation of the criminal case, provided that the person undertakes to settle the full amounts of payable tax and administrative penalties to the FTA as consideration for the reconciliation. the person must first make a payment of AED 50,000 before the FTA may reconcile.|
The existing procedures to notify FTA within 20 business days of materials changes affecting their eligibility to retain a VAT TRN. In cases where the Registrant does not submit a deregistration application when required to do so, the Authority may deregister the registrant.
Further changes are introduced to the Tax Agency scheme
Tax agents will be listed separately as Corporate Tax and Indirect tax (VAT and Excise Tax) agents. Separate training and qualifying examinations will be specified or prescribed.
It is no longer a requirement for the tax agent to be able to communicate in both Arabic and English as fluency in either of these languages is acceptable. Tax agents have to meet continuing professional development (CPD) requirements, as specified by the FTA.
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