UAE corporate tax: What you need to know about penalties

It is important to manage information in the tax submission and keep proper records

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The Federal Tax Authority is the arbiter of penalties for non-compliance with regulations falling within its remit. These include value-added tax, excise duty, economic substance reporting and, since June of this year, corporate tax.

If you were penalised under the earlier regimes, launched between 2018 and 2019, you can expect a similar approach going forward with corporate tax.

With many decisions to come from the three branches of government – the Cabinet, the Ministry of Finance and the FTA – it can be useful to read through supplementary information, such as the recently-released penalty schedule, to see if you can glean any direction of thought.

The penalties schedule for VAT was an FTA document. For corporate tax, it comes from Cabinet Decision No 75 of 2023.

Does this matter? That depends on whether you are proficient in Arabic. The FTA penalty schedule shows information in English and Arabic side by side, but the others are stand-alone documents.

Keep in mind that anything legal can be a matter of interpretation. The UAE's commercial environment accommodates many languages, generally accepting English alongside the national language of Arabic.

With regard to these different regimes, competent authorities maintain the right to request information, in part or whole, in Arabic alone.

Judgements will be in Arabic. As many of you will likely depend on English, before you get into a discussion of what a phrase might mean, remember that you are likely attempting to shape the English to your perspective.

The more you wish it to bend, the more imperative it is that the Arabic original is equally reviewed to prevent you from straying too far from the drafter’s intent.

Having both language versions of the penalties schedules side by side has its value.

Cabinet Decision No 75 continues to expand the list of new named persons. Alongside the person conducting business and their tax agent (if appointed), we now have the legal representative.

A reasonable assumption is that this is a person, natural or juridical, appointed through power of attorney.

UAE corporate tax: What you need to know

UAE corporate tax: What you need to know

While the extent of their empowerment would be as defined therein, there is now a legal responsibility to register their appointment. Failure to do so will incur a penalty payable by the appointed representative.

Having completed many corporate tax registrations on the Emarat portal, I believe this may be a page four declaration.

I am unsure at what degree of task assignment such an appointment switches the responsibility to the legal representative from the person conducting a business, who is typically named on a trade licence.

Does the VAT registration also need to be updated on the Emarat portal? It has the same information requirement.

Following the logic through, if there is a change in the ownership structure, does this need to be updated? What’s the time frame to do so?

In 2019, the old portal would ask for an updated trade licence. Are document updates the direction of travel?

Just as you need to deregister for VAT, you are also required to deregister for corporate tax.

I would imagine the process will be similar and, unlike VAT, I can only see one circumstance where differences would arise: the closing of the business.

Documented proof will likely be required to support your request.

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If an entity closes down mid-financial year, can we assume it will still need to report for a partial year and the final deregistration will not be approved until the corporate tax return has been lodged and any liability settled?

Could this process be expedited or would the full reporting year need to pass before the process could begin? In a country where 90 per cent of the population are foreigners, I would hope for the former.

Filing returns after departing the country, or indeed region, might prove difficult for some.

The most surprising part for me was the penalty for non-payment. It is 14 per cent per annum charged monthly.

Compared with the original VAT penalty for the same, which has since been revised downwards, in a time of fast-rising interest rates, it’s lower than one may have expected.

Here’s some good news. If you submit your return before the reporting deadline and then discover an error, it appears that you can correct the return without a penalty.

It always pays to do today calmly what may panic you tomorrow. The same applies for VAT. In this situation, it would not constitute a voluntary disclosure.

The relevant authorities commit to responding within communicated time periods. They expect you to do the same. Failure to do so will mean a facilitation penalty; currently Dh20,000 ($5,445).

These are some of the lessons from the penalties schedule. The key is to properly manage information in your corporate tax submission. Keep proper records and have a suitable software solution in place.

You have time. Prepare now so you do not pay later.

David Daly is a partner at the Gulf Tax Accounting Group in the UAE

Updated: August 28, 2023, 3:30 AM