In a much welcome move, the Federal Tax Authority in UAE has announced revisions/reductions in Administrative Penalties applied for VAT non-compliance by issuing a new Cabinet Decision No. 49/2021. This was a much needed and awaited move from the part of the Tax Authority to provide relief to VAT registrants during these testing times.
The main aim of the new law is to enhance the competitiveness of the country by creating suitable conditions for both individuals and businesses. This law will also ensure continuation of businesses which are facing hiccups owing to huge penalties imposed on them for past non-compliances and give them an opportunity to correct themselves .
There were many changes in the new decision and some of the major changes are discussed below:
I. Calculation of Penalties
This is one of the most important amendments in the Cabinet decision 49 of 2021. which has revised the penalties for late payment of VAT from 1% per day to 4% every month. This is a very big change and can be very beneficial for both individuals as well as businesses. The cap which was applied to the penalties is still kept at 300 Percent.
Where a taxable person has failed to pay the VAT due as per return, voluntary disclosure or a tax assessment notice within the due dates applicable, penalties would be imposed as below which can go upto a maxmum of 300% of the payable tax:
- 2% of the unpaid tax will be applicable to the entity after the due date is passed; and
- 4% monthly penalty will be applied on the unpaid tax after expiry of one month from due date.
The penalty as above was previously 1% per day after expirty of one month which has been brought down to a mere 4% per month. This will cause significant reduction in the amount of penalty.
II. Start and Due date of penalties
Another aspect of the previous Cabinet Decision on penalties which needed a review and change was the lack of clarity on the due dates based on which penalties should be imposed. Owing to this, penalties were being imposed on retrospective basis which increased the quantum of the penalty amount significantly. The Tax Authority has now addressed this concern and have clarified the same.
The due dates for the purpose of applying the penalties in the event of a voluntary disclosure and tax assessment are defined as follows:
- In the case of voluntary disclosure, 20 business days from date of submission; and
- In the case of tax assessment, 20 business days from the date of receipt.
The above ensures that penalty applied in the above scenarios are calculated only after the above events and will not be calculated from prior periods.
III. Discounts on the Penalties previously imposed
This decision offering discounts is a significant one made with the intention of provide ease of VAT registrants who have already been imposed huge penalties and are unable to settle the same. This is instrumental to ensure that businesses are not burdened by due to their past faults and to provide them an opportunity to redeem themselves.
The new cabinet decision states that the Federal Tax Authority (FTA) has the right to reduce the penalties imposed prior to the effective date of the new Cabinet Decision, which have remained unpaid, by 70%. To avail this benefit of reduction in penalties the VAT registrants MUST comply with the below conditions:
- The penalties eligible for the reduction were imposed prior the changes as per this new Decision; and
- The registrant has paid
- all his tax dues by the 31st of December 2021; and
- 30% of penalties which were imposed previously, by December 31, 2021.
On complying with the above, the FTA will waive off the balance 70% penalties.
Points to note here are:
- The reduction is only on the old penalties before this Cabinet Decision;
- The VAT registrant should not have any unpaid Tax left by December 31, 2021; and
- The VAT registrant should pay 30% of the penalty by December 31, 2021 ie the portion that will not be waived off the FTA.
The above were the some of the major changes made in the new Cabinet Decision which will have a significant impact in reducing the debt burden of VAT registrants. Apart from the above the FTA has also reduced the quantum of penalty for many of the non-compliances such as late registration, late de-registration etc.
The Covid-19 epidemic has affected all the businesses in the world and everyone is looking for hope and this change will help the taxpayers to start a new chapter in their life.
To have a detailed understanding of the new Cabinet Decision No. 49 of 2021 and how it can affect your business, feel free to consult with the experts of JAXA Chartered Accountants.
JAXA Chartered Accountants is a certified firm and comprises a number of experts who will answer all the needs of your business. They also provide a number of services that will assist you in your business journey. To know more about the services, feel free to Contact Us. We will be happy to help.
Disclaimer: Content posted is for informational & knowledge sharing purposes only, and is not intended to be a substitute for professional advice related to tax, finance or accounting. The view/interpretation of the publisher is based on the available Law, guidelines and information and the unofficial translations of the related Regulations which are available. Each reader should take due professional care before you act after reading the contents of that article/post. No warranty whatsoever is made that any of the articles are accurate and is not intended to provide, and should not be relied on for tax or accounting advice