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Criminal Liability for Tax Evasion in UAE

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In the United Arab Emirates (UAE), tax evasion is a serious offense that carries significant legal consequences. The UAE has implemented stringent laws and regulations to combat tax evasion and ensure compliance with tax obligations. Individuals or entities found guilty of tax evasion may face criminal prosecution, along with severe penalties, including fines and imprisonment.

This article examines the criminal responsibility for tax evasion in the UAE taking into consideration the efforts made lately by the authorities to detect and prosecute these cases, exploring the legal provisions, penalties, and enforcement measures in place to combat this offense. It highlights the importance of tax compliance, and the consequences individuals or entities may face if found guilty of engaging in tax evasion practices.

Definition

Tax evasion is defined the act of an individual employing unlawful methods to avoid paying the required taxes or to wrongfully obtain a tax refund that they are not entitled to according to the applicable legislation related to taxes pursuant to Tax Procedures Law no. 28/2022.

Criminal Penalties

Tax evasion is considered a serious criminal offence which is penalized by a combination of imprisonment and a fine, with the fine being equal to or greater than the evaded tax amount, and not exceeding three times that amount. They may be subject to either imprisonment or the fine, or both penalties concurrently.

The application of the said penalty shall not prejudice the application of a more severe penalty. This is applicable when tax evasion is committed in conjunction with other offenses like document forgery or money laundering.

Tax Evasion acts

Article 25 of the Tax Procedures Law has outlined specific actions that would constitute instances of tax evasion, which are as follows:

  • Intentionally refraining from paying any tax obligation.
  • Intentionally decreasing the true worth of one’s business or income, or neglecting to disclose associated activities, with the intention of avoiding the registration threshold, a specific tax rate, or any other tax requirement outlined in the tax legislation.
  • Intentionally imposing and collecting monetary amounts as taxes without being officially registered.
  • Intentionally reducing the amount of tax owed or participating in any form of tax evasion.
  • Intentionally undertaking or omitting any action that could potentially constitute tax evasion as defined by this Decree-Law or tax legislation.

Additionally, in the context of Value-added tax, an unregistered person who acquires goods pursuant to article 48.3 shall be deemed a tax evader.

Independence of tax evasion Crime.

It is prudent to mention that imposing a fine, regardless of its amount, on an individual who has committed tax evasion does not exempt them from the responsibility of paying the outstanding tax amount and any associated administrative penalties as stipulated by the applicable Tax Law.

The accomplice to tax evasion crimes.

Criminal Courts have the authority to apply tax evasion penalties to convicted tax evasion accomplices as defined in the provisions of Penal law. This aligns with the general provision in UAE criminal law which states that an accomplice is punishable with the same penalty as the perpetrator unless stipulated otherwise by the law.

If an accomplice is found criminally responsible for a tax evasion offense, they will be held jointly and severally liable with the principal perpetrator of tax evasion for the payment of the outstanding tax and any applicable administrative penalties.

Tax Evasion and Tax Audit

The Tax Auditor may enter any place where the Person under audit conducts his Business, or where goods are stored, or where records are kept, without prior notice, and he shall have the right to temporarily close the said location in order to conduct the Tax Audit process for a period not exceeding seventy-two (72) hours in the event that the relevant authority possesses sufficient grounds to suspect that the individual undergoing the tax audit is involved in or contributing to tax evasion, either pertaining to their own obligations or the obligations of another individual as imposed by this Decree-Law or Tax Law.

Tax Evasion and Tax Assessment

The authority shall not carry out a tax assessment after the lapse of 5 years from the expiry of the relevant tax period.

Exceptionally, in cases of tax evasion, the authority is entitled pursuant to article 46.6 of tax procedures law to carry out a tax assessment within 15 years from the expiry of the tax period through which the evasion took place.

Prosecuting Tax evasion

The criminal complaint for tax crimes must be initiated at a request from the director-general of the Tax Authority. According to the applicable laws, it is the responsibility of the Tax Authority to provide evidence establishing the commission of tax evasion.

Case Precedents

The Federal Supreme Court in cassation appeal 227/2020 has stated “the taxpayer is obliged to rectify mistakes in his tax return to maintain the interests of the state or else will be criminally liable for tax evasion crime and thus the voluntary disclosure by the taxpayer is to rectify his personal mistake shielding him from criminal liability”.

In light of the above judgement, it can be assumed that where a taxpayer may be criminally liable for tax evasion crime, he can avoid his liability by submitting a voluntary disclosure as per the judgment’s reasoning. Thus, the benefit of submitting a voluntary disclosure would be for the purpose of avoiding tax evasion prosecution as per the above judgment’s reasoning.

This critical implication for the voluntary disclosure in regard to tax evasion is still open for interpretation as we are yet to see a criminal prosecution for tax evasion in UAE on the grounds failing to rectify tax returns by lack of voluntary disclosure submission.

Takeaways

In order to comply with the Tax Procedures law and avoid potential prosecution for tax evasion, both individuals and entities are strongly encouraged to refrain from engaging in any acts of tax evasion. This recommendation is driven by the authorities’ intensified efforts to combat tax evasion, as well as the severe penalties imposed on those found guilty of such offenses, as explicitly stated in Article 25.

We are happy to support you whenever you need tax advice, consultation, or representation in a legal dispute. For further information, please contact Basem Ehab, on basem.ehab@habibalmulla.com.

Contacts

Principal Partner – Head of Disputes

Mohamed Al Khatib

+971 4 4230000 / Email

Associate

Basem Ehab

+971 4 4230000 / Email

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