In a groundbreaking move, the UAE Cabinet has announced a substantial decrease in penalties for most instances of VAT and Excise non-compliance, with reductions of up to 80% for certain infractions. These new guidelines also provide for the waiver of any accrued penalties up to 70% (Article 3), subject to the condition that taxpayers settle, by December 31, 2021, 100% of outstanding VAT dues and 30% of assessed VAT liabilities until June 28, 2021. It remains unclear whether this amnesty will extend to ongoing tax audits if assessments are not finalized by the aforementioned date.
Applying for Penalty Reduction or Exemption
According to the latest press release from the FTA, individuals or groups subjected to penalties for violations can seek a reduction or exemption by presenting a valid excuse along with supporting evidence to the FTA. To qualify for relief, the taxpayer must:
- Present a valid excuse to the FTA, supported by evidence justifying its validity.
- Submit the request for reduction or exemption within 40 working days from the acceptance of the valid excuse.
- Demonstrate that the infringement in question has been rectified.
- File the application for exemption or reduction in the prescribed format determined by the FTA.
A pardon will not be considered acceptable if the action leading to the violation was deemed deliberate.
Pardon Redressal Process
A three-member committee, appointed by the Director-General of the FTA, will review pardon requests and decide whether to accept or reject them. The committee will issue a decision within 40 days of receiving the application, and the applicant will be notified within 10 working days from the date of issuance.
Analysis by Crowe
It remains unclear whether the 40-day timeframe commences from the day the error occurred or the day it was identified/notified by the FTA, upon which the penalty is imposed. Furthermore, clarification is needed regarding whether this can be construed as additional relief from fixed penalties imposed due to Voluntary Disclosure and/or Tax Audits. While this does not imply a cessation of tax audits, it may reduce overall risk.
The FTA is expected to provide detailed performance measures, forms, and eligibility criteria for availing the aforementioned relief soon, as some questions remain unanswered.
Tax Procedures Public Clarification: Taxpayers’ Obligations under CR 49
Revisions to the Penalties Regime
The mechanism for specifying the date of penalty imposition for infractions such as deregistration, failure to settle payable taxes, and submission of Voluntary Disclosure has been clarified as follows:
- The date of penalty imposition remains the same for both the current month and the following month. For example, if a penalty was imposed on January 1st, the penalty for February will also be imposed on February 1st and every subsequent month accordingly.
- However, in cases where the following month lacks a corresponding date to that of the current month, the penalty will be imposed on the following month’s equivalent date. For instance, if a penalty was imposed on January 30th, the penalty for February will be imposed on March 1st, as February does not have a 30th day.
Eligibility Criteria for Redetermination
Taxpayers seeking a redetermination (i.e., amnesty provisions) must fulfill the following conditions to qualify for the reduction of any outstanding penalties imposed before June 28, 2021:
- The individual must not have settled all administrative penalties in full before June 28, 2021.
- No payable tax should remain outstanding by December 31, 2021*, irrespective of whether such tax was due before or after June 28, 2021.
- Settlement of 30% of the total outstanding penalties imposed before June 28, 2021, by no later than December 31, 2021.