The UAE Cabinet of Ministers issued Resolution No 49/2021 on 28th April 2021 to amend the administrative penalties of the Tax Law, which came into effect on 28th June 2021.
The Cabinet Decision makes a number of fundamental changes to the Administrative Penalties regime, including regarding the mechanism for calculating the penalties for late payment of taxes and for making errors in tax return, tax assessments or refund applications. The significant among them is that late payment penalties are reduced from 1% per day to 4% per month. It encourages taxpayers to voluntarily correct previous tax declarations, as well as encouraging them to pay due taxes before the tax audit or assessment by the UAE Federal Tax Authority (FTA).
REDETERMINATION OF ADMINISTRATIVE PENALTIES
Cabinet Decision No. 49 of 2021 also provides an opportunity for the businesses to redetermine the amounts of unpaid administrative penalties, which were imposed on taxable person under the old penalty regime. Accordingly, the administrative penalties imposed under the previous resolution will be obtaining 70% reduction which are imposed before the effective date of the new administrative penalties under certain conditions as below:
- The penalties must have been imposed under Cabinet Decision No 40 of 2017 before 28th June 2021.
- The registrant must pay all taxes due by 31st December 2021.
- By 31st December 2021, the registrant must pay 30% of the total administrative penalties due and unpaid by the effective date of the New Resolution.
If the above conditions are met, then FTA will redetermine the administrative penalties payable by the registrant at the end of 2021 and hence shall not be required to pay the remaining 70%.
On 28th June 2021, the Federal Tax Authority (FTA), has introduced a new dashboard for viewing the calculations relating to the re-determination of the administrative penalties in accordance with the same provision. Here, the taxpayer can view the total unpaid administrative penalties imposed before and after 28th June 2021.
UPDATES ON ‘MY PAYMENT’ PAGE
A new feature of the FTA’s ‘My Payment’ page is that the registrants can see the amount of their outstanding balance related to taxes and the amount related to administrative penalties.
Now, the taxpayer can view the following on the updated ‘My Payment’ page:
- Tax Payable – The outstanding tax payable.
- Late Registration Penalty – This is the outstanding late registration penalty.
- Other penalties – The outstanding penalties other than late registration penalty.
- Net payable amount – Total outstanding taxes and penalties
- Total Credit – The total amount of credit the registrants have with the FTA.
Here are a few highlights from FTA’s workshop:
- A person who was in a refund position as of 28 June 2021 but previously subject to administrative penalties will have the settlement automated in the system and shall not be subject to re-determination except for the excess unpaid penalties as on June 28, 2021
- A person can pay 30% of the total penalties as of 28 June 2021 in instalments, and they are not obligated to pay it all at once. However, to benefit from redetermination, the payment of 30% must be made before 31st December 2021.
- If a voluntary disclosure is made after 28 June 2021, the penalty will be calculated and applied based on Cabinet Decision No. (49) of 2021 and not as per the old penalty regime, even if it is to correct errors from past years.
ACTIONS TO TAKE
We recommend all taxpayers to review their new dashboards and make informed decisions by viewing the updated information. Also note that, in order to qualify for a redetermination, the tax payable amount mentioned in ‘My Payment’ page must be paid in full by 31 December 2021.
HOW MSATC CAN HELP?
- Determine the amount of penalty due and suggest the action plan.
- Advice on better compliance in UAE VAT law.
- Detailed VAT Health Check.
