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VAT Update: Cabinet Decision No. 105 – Tax Penalty Settlement Scheme

Jan 19, 2022 / Haroon Juma / VAT & Tax Blog

Tax Penalty

The Federal Tax Authority (FTA) introduces administrative penalties installments and waivers scheme under the Cabinet Decision no. 105 of 2021 – Procedures of Administrative Penalty Installments and Waivers.

The decision is effective from 1st March 2022.

The new scheme allows taxpayers flexibility to settle administrative penalties through installments under defined conditions and eligibility. A request should be submitted, the FTA will approve any requests when all of the following conditions are met:

  • Any request can only be submitted affecting unpaid penalties;
  • The unpaid penalties under installment request are not less than AED 50,000;
  • Tax amounts related to the penalty installments should be completely paid;
  • Installment request for unpaid penalties is not subject to or under dispute in front of the Tax Dispute Resolution Committee (TDRC) or the Federal Court.

Administrative Penalties Waivers

In addition, The FTA has also introduced a penalty waiver scheme. Under this scheme, a separate request can be submitted. The FTA may approve the request and grant the waiver under the following conditions:

  • Penalties submitted for a waiver cannot be related to tax evasion cases.
  • Penalty waiver requests are submitted within the FTA set timeframes.
  • The applicant’s request can be connected to any of the following:
    • Death or sickness – of the authorized signatory or the sole owner taxpayer. Death or sickness is a principal reason the company is unable to settle the tax administrative penalties.
    • Death, sickness, or resignation –  of a key employee whose absence led to the inability of settling the penalties.
    • Introduction of restrictions, any measures (specifically precautionary or preventive) by UAE governmental bodies that affected the ability to settle the penalties.
    • Failure in the payment or communication systems of the FTA leads to an inability to settle penalties.
    • Resulting from restriction of liberty or freedom of the sole owner or the authorized signatory.
    • Proving tax dues have been paid from the tax portal of another registrant.
    • Bankruptcy where all tax dues and payments before going bankrupt have been cleared previously, and insolvency or bankruptcy is not for tax evasion.

Timelines

The FTA can take:

–  Up to 40 working days from date of submission to review the penalty installment and waiver requests,
–  Additional 20 working days to issue a decision subject to the review,
–  Another 10 working days to communicate the decision to the applicant.

Where no communication is received within the timeline, the request will be considered rejected.

The FTA has sole determination for assigning the installment plan and request for a payment guarantee via bank etc. where the penalty installment request has been approved. The FTA can also amend approved penalty installments where the applicant fails to comply with installment requests on time.

The FTA can also assess the penalty percentage waived if approved.

The decision also details that the FTA can set the circumstances and rules in respect of the waiving of penalties previously paid (within the last 5 years). Where a waiver request has been approved and the penalty is paid, the waived amount will be credited into the registrant portal or returned in cash if the taxpayer is no longer registered for tax.

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