Background
It has been some time since the last initiative in the United Arab Emirates (“UAE”) was rolled out to minimize the impact of non-compliance with tax legislation, particularly regarding administrative penalties.
In the past few years, the UAE Cabinet of Ministers (“Cabinet”) has rolled out several initiatives to reduce liabilities arising from the imposition of administrative penalties under tax laws. Examples of such initiatives include:
- Reductions of the values of tax-related administrative penalties specified in Cabinet Decision No. 40 of 2017.
- Introduction of a temporary administrative penalty redetermination scheme.
- Issuance of a decision enabling the waiver of tax-related administrative penalties or allowing such penalties to be settled in instalments.
On 6 November 2024, the UAE’s Federal Tax Authority (“FTA”) announced a new initiative by the Cabinet, aimed at reversing certain administrative penalties imposed (or to be imposed) for a limited period of time.
This Article aims to shed further light on the new initiative by the Cabinet, hence providing further clarity on the applicability of such reversal of administrative penalties to taxpayers. As the new Cabinet Decision is not yet circulated in public, the contents of this Article are largely extracted from the Public Clarification TAXP007 issued by the FTA on 6 November 2024 in that regard.
Time Period for which Administrative Penalties will be Reversed
According to the FTA’s Public Clarification TAXP007, the new initiative for the reversal of certain administrative penalties will only apply throughout a limited time period, starting from 1 January 2024 up to 31 March 2025 (i.e., for a period of 15 calendar months).
This time-limited approach is similar to the initiative of redetermination of administrative penalties previously rolled out as part of the amendments to Cabinet Decision No. 40 of 2017 via Cabinet Decision No. 49 of 2021.
As the time period within which the new initiative will be effective spans both historical and futuristic time periods, it must be noted that previously levied administrative penalties will be reversed, and those to be levied during the futuristic time period will not be levied (or will be levied and subsequently reversed).
Nature of Violations for which Administrative Penalties will be Reversed
Unlike the former initiative on administrative penalties redetermination introduced via Cabinet Decision No. 49 of 2021, the newly introduced initiative does not apply to all administrative penalties.
Instead, the scope of the new initiative is limited to penalties imposed only for the violation specified in Article 24(1)(e) of Federal Decree-Law No. 28 of 2022 on Tax Procedures, i.e., “The Registrant failing to inform the Authority of any case that requires the amendment of the information pertaining to his Tax record kept by the Authority”.
According to the FTA’s Public Clarification TAXP007, such violation extends to the following amendments:
- Name, address and email address.
- Trade license activities.
- Legal entity type, partnership agreement for unincorporated partnerships and articles of association or its equivalent.
- Nature of the business of the registrant.
- The address from which any business is conducted by the registrant.
Accordingly, where any taxpayer failed (or fails) within the specified time period to duly notify the FTA of any of the abovementioned amendments, they will not be subject to any administrative penalties in that regard.
Value of Reversal of Administrative Penalties
In accordance with Line Item 5 of Table 1 of Cabinet Decision No. 40 of 2017 on the Administrative Penalties for Violation of Tax Laws in the UAE, “[t]he failure of the Registrant to inform the Authority of any circumstance that requires the amendment of the information pertaining to its Tax record kept by Authority” is a violation punishable with administrative penalties amounting to AED 5,000 for the first time and AED 10,000 in case of repetition.
The FTA’s Public Clarification TAXP007 highlights that any such administrative penalties will be reversed (or not imposed) in full, i.e., 100% reversal. There appears to be no differentiation between penalties imposed the first time compared to penalties imposed in case of repetition.
Required Action
According to the FTA’s Public Clarification TAXP007, no action is required from taxpayers for the purposes of benefiting from the reversal of administrative penalties. However, eligible taxpayers are encouraged to monitor the status of the imposed penalties on their EmaraTax portal and escalate to the FTA if such administrative penalties have not been automatically reversed within a few weeks.
Conclusion
The UAE’s recent initiative to reverse certain tax-related administrative penalties provides a welcome opportunity for taxpayers to minimize their liabilities. By reversing penalties associated with specific violations, such as failing to update certain tax records, the FTA aims to streamline compliance and reduce the financial burden on taxpayers who may have unintentionally missed such obligations. This measure is part of the broader efforts by the UAE government to foster a tax environment that supports compliance and fairness.
Taxpayers should remain aware during the period of this initiative, which runs from 1 January 2024 to 31 March 2025, and monitor their EmaraTax portal for any applicable penalties. Although no direct action is required from taxpayers to benefit from this reversal, they are encouraged to ensure that penalties are automatically reversed and report any discrepancies to the FTA in a timely manner.
This Article is prepared by Mohamed El Baghdady, Partner, Head of Tax and Financial Crimes, and Marwan Alnooryani, Senior Tax Associate, at Habib Al Mulla & Partners Law Firm.
Seek Legal Counsel
Our expertise in tax law and regulations allows us to provide clients with effective and accurate tax advice, taking into consideration their unique circumstances and needs. Additionally, our experience and knowledge in handling tax disputes enable us to represent clients in discussions with tax authorities, as well as in court proceedings.
Our track record of successfully resolving tax disputes and helping clients minimize their tax liabilities has likely earned us a reputation as a trusted and reliable tax advisor. Our tax and financial crimes team, led by our Head of Tax and Financial Crimes, Mohamed El Baghdady, has successfully advised and represented clients across various industries, including, but not limited to, consumer goods and retail, services, real estate, oil & gas and banking and finance, before the government authorities, tax tribunals and courts. Our clients have been successful in multiple tax disputes before the committees and courts.
For further information, please contact, Mohamed El Baghdady, Partner, Head of Tax and Financial Crimes, on mohamed.elbaghdady@habibalmulla.com or any of the members of our team.
