Value Added Tax (VAT) was introduced in the UAE and other gulf countries and came into existence with effect from 1st January 2018. The significance of VAT covering most of the goods has led to the rapid adoption of the tax across the country with the technology and clear guidelines from the Federal Tax Authority (FTA). There are also other taxes levied such as Excise tax and customs duties in the UAE.
When there are two parties involved in a transaction, there may arise disputes between the parties. As with any law of the land, the disputes may be created when the interpretation of one party’s law is different from the interpretation of the other party. The VAT, which also involves multiple parties, face similar issues and have provisions for resolving the tax disputes.
Tax Disputes
The tax disputes will emerge when the taxpayer faces challenges in ensuring compliance with the VAT law. The disputes can happen due to the two reasons, i.e., the incorrect interpretation of the VAT law and unreasonable application of the penalties. It is very important for the taxpayers to understand the rights and the process involved in resolving any tax disputes and litigations in the UAE.
Taxpayers must pay the VAT tax in the provided tax period and file the VAT returns with the FTA. As VAT is a self-assessment tax that the taxpayer declares, the authority may conduct tax audit and may disagree with the taxpayer’s assessment on the amount of the tax paid and may charge penalties.
Resolution of Tax Disputes
Taxpayers are advised to settle the total tax amount and any penalties decided by the Federal Tax Authority (FTA) within the given timescale before making any dispute claims. It will reduce the probability of paying any additional geared taxes in the future when a dispute has been resolved.
‘Application of Reconsideration’ to the FTA
When an FTA decision regarding the total tax amount due, the taxpayer can submit an ‘Application of Reconsideration’ of the tax penalties with the FTA when the taxpayer deems, he has been unjustly penalised by the tax authority. The application to be submitted within 20 days of FTA’s notification and all the reasons for disputing FTA’s claim supported by the legal and regulatory provisions. The application has to be submitted in the Arabic language. Upon successful submission of the application, FTA notifies the taxpayer of its decision within 25 business days.
Tax Disputes Resolution Committee (TDRC)
The taxpayer can submit an objection to the Tax Dispute Resolution Committee (TDRC) when the tax dispute between the taxpayer and FTA has not been resolved. There are three TDRCs in the UAE- Dubai TDRC, Abu Dhabi TDRC and Sharjah TDRC. The taxpayer should approach the TDRCs based on the registered address of the taxpayer with the FTA. There are specific prerequisites required to approach the TDRC.
- The taxpayer should clear all the taxes and penalties.
- The ‘Application of Reconsideration’ should have been submitted to the FTA
- All objections are submitted within the 20 business days
The taxpayer should submit all relevant documents to TDRC. The documents include completed TDRC Objection form (in Arabic & English), a memorandum of objection to the original FTA decision and supporting documents which include original FTA decision, application of reconsideration, all communications with the FTA and payment receipts of all taxes and penalties. It is recommended to get professional assistance with expertise in litigation and tax consultation in the UAE while submitting the documents. TDRC usually takes 25 to a maximum of 45 days to notify the taxpayer of its decisions. If the total tax plus penalty is less than AED100,000, then the TDRC decision is final and cannot be challenged further in any court.
Appeal to the Federal Court
If the total tax and the penalty are above AED100,000, then the taxpayer or FTA can appeal to the Federal Court of First Instance for objections to the TDRCs decision on the tax case. The court will appoint an expert or a committee of experts in the tax domain to evaluate the party’s appeal and make a decision. Further, in case of any objections to the Federal court of First Instance’s decision, either party can appeal to the UAE Federal Court of Appeal, which will further deal with the case as a civil suit.
How can Jaxa Help?
Jaxa Chartered Accountants, with offices in all of the UAE, are experienced tax consultants actively working with many clients in UAE Freezones and Mainland. Our tax experts can guide companies regarding all the pros and cons of tax disputes and other processes. We closely work with our clients in all tax-related matters, including calculating and filing timely tax returns. Please Contact Us for any tax-related queries. We are happy to assist.
Reach us on WhatsApp