Introduction
Periods of geopolitical uncertainty often prompt businesses to reassess how external disruptions may affect their legal and operational obligations. Recent regional tensions in the Middle East have therefore renewed questions among businesses operating in the United Arab Emirates (“UAE”) regarding whether extraordinary circumstances may impact their regulatory responsibilities, including obligations arising under the UAE tax framework.
In commercial relationships, businesses commonly examine whether doctrines such as force majeure or hardship may excuse or delay contractual performance when unforeseen events disrupt operations. However, the position is materially different in the context of taxation. Tax obligations arise directly from legislation rather than from agreement between parties. As a result, statutory duties such as filing tax returns, paying tax liabilities, and maintaining records generally remain legally binding even where external disruptions affect a taxpayer’s commercial activities.
Nevertheless, the UAE tax framework contains several mechanisms designed to mitigate the consequences of non-compliance where taxpayers face exceptional circumstances. These mechanisms operate both through powers granted to the Federal Tax Authority (“FTA”) and other competent authorities, as well as through procedural rights available to taxpayers. In light of current regional developments, this article examines these legislative tools and considers their potential relevance for businesses navigating the current periods of heightened uncertainty.
Force Majeure and Hardship in the Context of Taxation
A key distinction arises when force majeure or hardship principles are applied in the context of taxation. Unlike contractual obligations, which arise from agreement between parties, tax obligations arise directly from legislation.
In this regard, the Federal Supreme Court affirmed in Appeal No. 227 of 2020 (Administrative Tax) that “It is well-established that the relationship between the Federal Tax Authority and the taxable person is not of a contractual nature; rather, it is a regulatory relationship governed by mandatory legal provisions. Accordingly, the obligation to pay the tax debt due and payable always derives from the law”.
Consequently, statutory duties such as filing tax returns, paying tax liabilities, and maintaining accounting records generally remain legally binding irrespective of disruptions affecting a taxpayer’s commercial activities. External events that might excuse contractual non-performance will therefore not ordinarily suspend statutory tax obligations.
However, the UAE tax system incorporates procedural mechanisms through which the consequences of non-compliance may be mitigated. These mechanisms may be understood from two complementary perspectives:
- Powers granted by the legislation to the FTA and other competent Entities; and
- Rights granted by the legislation to taxpayers.
Before examining these mechanisms, it is useful to briefly consider a related issue that has recently attracted attention, namely the potential tax residency implications for natural persons whose physical presence in the UAE may be affected by travel disruptions or other exceptional circumstances.
Tax Residency Considerations in Exceptional Circumstances
Recent developments have raised questions regarding the potential tax residency implications for individuals who may temporarily leave the UAE in light of the ongoing regional tensions. In particular, individuals may be concerned about whether a temporary departure from the UAE could affect their ability to meet the relevant tax residency requirements under UAE law.
The UAE legislative framework governing tax residency already recognises that exceptional circumstances may affect the application of physical presence thresholds. Cabinet Decision No. 85 of 2022 on the Determination of Tax Residence establishes the criteria under which a natural person may be considered a tax resident in the UAE, including the requirement that an individual be physically present in the UAE for a specified number of days during a relevant twelve-month period. Ministerial Decision No. 27 of 2023, which implements certain provisions of that Decision, further provides that: “Any day that the natural person’s presence in the State was due to exceptional circumstances may be disregarded by the Authority in determining whether the (183) one hundred and eighty-three day or (90) ninety-day period has been met during the relevant consecutive (12) twelve-month period.”
However, questions may arise in the converse situation, namely where individuals who are currently outside the UAE may be unable to return due to travel disruptions and may therefore risk not meeting the relevant physical presence thresholds. In this regard, it should be noted that the existing legislative provisions are primarily framed to disregard days of presence in the UAE arising due to exceptional circumstances, rather than to deem presence where an individual is involuntarily absent. As such, the application of these provisions to individuals who are unable to return to the UAE remains uncertain in the absence of formal guidance.
Accordingly, while the current legislative framework acknowledges that exceptional circumstances may affect the application of physical presence requirements, it does not expressly address situations where individuals are unable to return to the UAE. In practice, the determination of tax residency may therefore depend on the approach adopted by the relevant UAE authorities in assessing such circumstances. In addition, it should be noted that the determination of an individual’s tax residency position may also be influenced by the domestic laws and interpretation of other jurisdictions, which may not adopt a corresponding approach.
Powers Granted by the Legislation to the FTA and other competent Entities
Under the tax legislation governing the application of federal taxes in the UAE, several powers are conferred upon both the FTA and other competent Entities to alleviate hardship arising from extraordinary events and circumstances that may affect a taxpayer’s ability to comply with their tax obligations. A few key examples of such mechanisms are outlined below.
Administrative Penalty Redetermination
Article 24(3) of the Federal Decree-Law No. 28 of 2022 on Tax Procedures, and its amendments, empowers the Cabinet to “issue a decision that specifies the Administrative Penalties for each of [tax violation]”. Pursuant to this provision, and consistent with the Cabinet’s power to initially determine the value of administrative penalties for each tax violation, the Cabinet is likewise entitled to redetermine such penalty amounts where it considers this appropriate, including in response to unforeseen or exceptional circumstances.
This power has been exercised by the Cabinet previously to mitigate the hardship resulting from the COVID-19 pandemic. In that context, the Cabinet issued Cabinet Decision No. 49 of 2021, which, according to the FTA’s Public Clarification TAXP002, “gives the FTA ability to redetermine the amounts of unsettled payable administrative penalties”. Under this measure, eligible administrative penalties were redetermined to 30% of their original value, reflecting the significant challenges faced by businesses in meeting their tax compliance obligations amid lockdowns and other governmental disease control measures.
However, to date, the Cabinet has not exercised such powers in respect of the heightened tensions in the Middle East, and no official guidance has been issued indicating that such powers may be exercised.
Blanket Administrative Penalty Waiver
Article 10 of Cabinet Decision No. 105 of 2021 empowers a competent Committee to issue blanket waivers of administrative penalties, wherein it specifically states that “the Director-General may present any of the cases specified in Clause (3) of Article (4) of this Decision to the Committee for the purpose of the Waiver of Administrative Penalties imposed on a Category of Persons, provided that the reasons for raising such case is specified including the extent to which the case is in line with the controls and procedures”.
This mechanism enables the competent authorities to address exceptional circumstances affecting entire categories of taxpayers, rather than limiting relief to individual cases.
To date, it appears that the Committee has exercised this power only once. In that instance, the AED 10,000 administrative penalties imposed for late registration for Corporate Tax purposes were waived for eligible taxpayers, as further detailed in an article published by Gulf News.
Under Article 4(3) of the same Decision, the following circumstances are recognised as acceptable grounds for the waiver of administrative penalties, some of which could potentially become relevant in the context of heightened regional tensions:
- Death, illnesses, and resignations of key individuals;
- “Restrictions, or precautionary or preventive procedures imposed by government authorities in the State, if these restrictions or procedures were a direct cause for not fulfilling the tax obligation.”;
- “A general malfunction in the Authority’s systems, payment gateways or used telecommunication services, where that was a direct cause for not fulfilling the tax obligations of a Category of Persons on time.”; and
- “Any other cases assessed by the Committee”.
However, to date, no such measure appears to have been adopted in response to the heightened tensions in the Middle East, and no official guidance has been issued indicating that such powers may be exercised.
Extension of Tax Return Filing and Payment Deadlines
Under the UAE’s tax legislation, the FTA is granted certain powers to extend the durations of tax periods or adjust deadlines for the submission of tax returns and payment of due tax. These mechanisms allow the FTA to respond, where necessary, to exceptional circumstances that may affect taxpayers’ ability to comply with their obligations.
From a VAT perspective, Article 71 of Federal Decree-Law No. 8 of 2017 on Value-Added Tax, and its amendments, states that “The Executive Regulation of this Decree-Law shall specify the Tax Period for which the Taxable Person shall calculate and pay Tax as well as the exceptional circumstances in which the Authority may amend the Tax Period”.
Pursuant to this provision, Cabinet Decision No. 52 of 2017 on the Executive Regulation of Federal Decree-Law No. 8 of 2017 on Value-Added Tax, and its amendments, contains several relevant provisions:
- Article 62(2)(c):“As an exception to [the standard length of a tax period], the Authority may assign a Person or class of Persons a […] longer Tax Period where it considers that a non-standard Tax Period length is necessary or beneficial to […] Reduce the […] compliance burden on a Person or class of Persons”.
- Article 64(1): “A Tax Return must be received by the Authority no later than the 28th (twenty eighth) day following the end of the Tax Period concerned or by such other date as directed by the Authority”.
- Article 64(3): “A Taxable Person shall settle Payable Tax in relation to a Tax Return using the means specified by the Authority so that it is received by the Authority no later than the date specified in [Article 64(1)]”.
From an Excise Tax perspective, Article 17 of the Federal Decree-Law No. 7 of 2017 on Excise Tax, and its amendments, provides that “The Executive Regulation of this Decree-Law shall specify the Tax Period and the exceptional circumstances under which the Authority may amend the Tax Period”. Pursuant to this reference, Article 17(3) of Cabinet Decision No. 37 of 2017 on the Executive Regulation of Federal Decree-Law No. 7 of 2017 on Excise Tax, and its amendments, states that “As an exception to [the standard length of a tax period], the Authority may direct a Taxable Person to submit Tax Returns by reference to a longer period than aforesaid, or approve his request to do so”.
These powers have been exercised by the FTA previously to mitigate the hardship resulting from the COVID-19 pandemic. For example, in respect of VAT, the FTA extended the deadline of “submitting VAT returns and the payment of due tax for the tax period ended 31 March 2020” to 28 May 2020 instead of the original deadline of 28 April 2020, effectively granting a one-month extension, as reported by Emirates News Agency – WAM.
Similarly, for Excise Tax, the FTA issued a decision extending the Excise Tax period that commenced on 01 March 2020 by one month. As a result, the March 2020 tax period covered both March and April 2020 with the deadline to submit Excise Tax returns and pay the due tax set for 17 May 2020, as reported by Emirates News Agency – WAM.
However, to date, the FTA has not exercised such powers in respect of the heightened tensions in the Middle East, and no official guidance has been issued indicating that such powers may be exercised.
Rights Granted by the Legislation to Taxpayers
In addition to the powers granted to the FTA and other competent Entities, UAE tax legislation also provides taxpayers with certain procedural rights designed to alleviate hardship arising from circumstances beyond their control. Broadly, two key mechanisms are available to taxpayers in this regard, each of which is discussed below.
Administrative Penalty Waiver and Payment in Instalments
Articles 4 – 6 of Cabinet Decision No. 105 of 2021 allow taxpayers to submit requests to a competent Committee seeking the waiver of administrative penalties in specific circumstances. These provisions recognise that certain events may prevent taxpayers from fulfilling their tax obligations despite reasonable efforts to comply.
Among the circumstances identified under the legislation are the following instances, some of which could potentially arise in the context of heightened regional tensions:
- Death, illnesses, and resignations of key individuals;
- “Restrictions, or precautionary or preventive procedures imposed by government authorities in the State, if these restrictions or procedures were a direct cause for not fulfilling the tax obligation.”;
- “A general malfunction in the Authority’s systems, payment gateways or used telecommunication services, where that was a direct cause for not fulfilling the tax obligations of a Category of Persons on time.”; and
- “Any other cases assessed by the Committee”.
In addition to penalty waivers, the same Cabinet Decision permits eligible taxpayers to request that administrative penalties be settled in instalments, thereby easing the financial burden associated with immediate payment.
Such requests may be submitted to the competent Committee through the FTA’s EmaraTax portal, as further detailed in the Requests for Installment, Waiver, and Refund of Administrative Penalties service card published on the FTA’s website.
Extension of Dispute Resolution Timelines
Under Article 35(2) of the Federal Decree-Law No. 28 of 2022 on Tax Procedures, and its amendments, taxpayers may request an extension of the timelines applicable to tax dispute procedures. In particular, the provision allows taxpayers to submit a request to either the FTA or the Tax Disputes Resolution Committee (“TDRC”) seeking additional time to file certain dispute-related applications or objections.
The provision explicitly states that “The [FTA] or the [TDRC], as the case may be, may at a request of a Person for any of the reasons specified in the Executive Regulation grant that Person an extension of any of the periods specified in Clause 2 of Article 28, Clause 1 of Article 29 and Clause 1 of Article 32 of this Decree-Law”.
At the FTA stage, further clarification has been provided through Federal Tax Authority Decision No. 1 of 2025 on Cases of Extension of the Deadlines for Accepting the Submission of a Tax Assessment Review Request or a Request for Reconsideration. This Decision confirms that the FTA may extend the relevant timelines in several circumstances.
Among the instances identified in the Decision that could potentially become relevant in the context of ongoing regional tensions are:
- Accidents, illnesses, and death;
- Temporary business disruptions beyond control;
- Damage of records due to disasters;
- Malfunction of the FTA’s systems; and
- “A force majeure to be determined at the Authority’s discretion”.
By contrast, at the TDRC stage, the relevant framework is set out in Article 25(4) of Cabinet Decision No. 74 of 2023 on the Executive Regulation of the Tax Procedures Law, which provides that: “The [TDRC] may, upon the request of the Persons concerned, extend the deadline for accepting the submission a Tax objection if there is a reason beyond their control, sudden accident, emergency circumstances or force majeure that prevented them from submitting the Tax objection within the specified deadline”.
Accordingly, while both the FTA and the TDRC may extend certain procedural deadlines in exceptional circumstances, the legal basis and scope of these powers differ depending on the stage of the dispute resolution process. The availability and scope of these extensions therefore depend on the stage of the dispute resolution process and the authority before which the matter is being considered.
Federal Supreme Court Precedents
Notwithstanding the Federal Supreme Court’s judgment in Appeal No. 227 of 2020 (Administrative Tax), which confirms that tax obligations arise directly from legislation rather than contractual arrangements, it is notable that, in a judicial and tax dispute resolution context, the Court has in several cases recognised that administrative penalties imposed for reasons beyond a taxpayer’s control may warrant cancellation, particularly where the delay or non-compliance is attributable to issues within the FTA’s electronic systems.
For example, in Appeal No. 792 of 2025 (Administrative – Tax), the FTA appealed against a judgment that had been issued in favour of a taxpayer. The Federal Supreme Court dismissed the appeal, holding that:
“The said report incorporated the documents submitted by the respondent against the appellant, including bank transfer documents evidencing payment of the tax dues, as well as email correspondence sent by the appellant explaining that it had encountered an issue in paying the tax liabilities and requesting assistance in completing the financial transfers for the amount due, attributable to the EmaraTax electronic system (which the appellant did not dispute).
The appellant did not provide any response to the respondent’s email correspondence. Thereafter, the respondent proceeded with the tax transfer within the legally prescribed period of fifteen (15) days from the end of the tax period; however, the completion of the transfer process was delayed for technical reasons beyond its control.
It is further established with certainty that the appellant did not delay the submission of the tax return nor the payment of the tax liabilities within the legally prescribed period. Rather, the delay occurred as a result of an administrative error attributable to the Authority (the appellant), which constituted the cause of the delay occurring in the manner described above.
Accordingly, no liability may be attributed to the respondent, and therefore the appellant is not entitled to impose a penalty for late submission of the tax return”.
Nevertheless, disputes involving force majeure or hardship considerations in the tax context should be approached with caution. In practice, taxpayers may wish to first pursue the procedural and administrative remedies available under the legislation, resorting to judicial proceedings only where such avenues prove unsuccessful, subject to such judicial proceedings remaining accessible.
Recommendations
In light of the above, businesses operating in the UAE should continue to approach their tax compliance obligations with caution during periods of regional uncertainty. While UAE tax legislation provides mechanisms that may mitigate the consequences of non-compliance in exceptional circumstances, these mechanisms generally operate on a discretionary or case-by-case basis and do not automatically suspend statutory obligations.
First, taxpayers should prioritise maintaining timely compliance with their tax obligations wherever possible, including the submission of tax returns, payment of tax liabilities, and maintenance of records. Businesses should also ensure that internal compliance processes remain operational even where broader business activities are disrupted.
Second, where operational disruptions occur that may affect a taxpayer’s ability to comply with tax obligations, businesses should maintain appropriate documentation evidencing the circumstances giving rise to the disruption. Such documentation may prove important if taxpayers later need to rely on administrative remedies such as penalty waiver requests, instalment applications, or requests for extensions of procedural timelines.
Finally, taxpayers should closely monitor official announcements and guidance issued by the FTA or other competent authorities. As demonstrated during the COVID-19 pandemic, authorities may introduce relief measures or temporary compliance accommodations where widespread disruptions affect taxpayers’ ability to meet their obligations.
Where uncertainty arises, seeking professional advice at an early stage may assist businesses in navigating available relief mechanisms while ensuring that compliance risks are appropriately managed.
Conclusion
Whilst periods of regional instability may disrupt commercial operations, the UAE tax framework remains grounded in statutory obligations that generally continue to apply irrespective of external circumstances.
Nevertheless, UAE tax legislation provides several procedural mechanisms through which the consequences of non-compliance may be mitigated in exceptional circumstances, whether through discretionary powers exercised by competent authorities or through rights available to taxpayers to seek relief. In this context, businesses should continue to prioritise compliance, carefully document any operational disruptions, and remain attentive to potential guidance or relief measures that may be introduced by the FTA or other authorities as regional developments evolve.
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