Two Cabinet decisions issued on tax penalties:
1) Extension on the re-determination period on penalties waiver to 31st December 2022
The Cabinet decision No. 49 of 2021 on the Taxpayers can be benefiting from the decision of administrative penalties re-determination, reducing their total amount due to be equal to 30 percent of their total unpaid penalties before 28th June 2021, has been extended for one year initially from 31st December 2021 to 31st December 2022.
2) Tax Administrative Penalties Waiver & Payments of Penalties in Installments
Taxable persons who have been subject to administrative penalties can now request a waiver or installment of penalties. Following the issuance of Federal Decree-Law No. 28 of 2021 to amend the provisions of Federal Decree-Law No. 7 of 2017 on Tax Procedures relating to tax disputes and resolution in the UAE, a new Cabinet Decree No.105 of 2021 was issued on 28th December 2021 covering the controls and procedures related to the waiver and installment of administrative penalties.
The new Cabinet Decree comes into effect on 1st March 2022.
Administrative penalties installments
The approval of requests to pay administrative penalties in installments is subject to the following conditions:
- The installment request must be in respect of unsettled penalties only;
- The amount of penalties subject to installment should not be less than AED 50,000;
- Penalties subject to installment should not be currently disputed in front of the Tax Disputes Resolution Committee (TDRC) or Federal Courts (excluding the reconsideration process);
- The tax due is settled for the tax period subject to the installment request.
Administrative penalties waivers
The approval of requests to waive administrative penalties is subject to penalties not be associated with tax evasion case(s).
The new Cabinet Decree lists the accepted reasons to grant penalty waivers as follows:
The request should be related to any of the following cases:
- The taxpayer’s death or illness if the taxpayer is a natural person or owner of an establishment.
- Death, illness, or resignation of a key employee of the tax registrant.
- Evidence of restrictions, precautionary or preventive measures, applied on the taxpayer by UAE government agencies.
- Evidence of system failure of the Federal Tax Authority (FTA), or payment and communication systems failure that affects a class of persons.
- Causes relating to restrictions on liberty and freedom of a natural person taxpayer or owner of an establishment.
- Payment of all taxes through the tax account of another registered taxpayer.
- In cases of insolvency or bankruptcy, penalties may be waived if they have been paid before the insolvency or bankruptcy and if it is evident that the insolvency or bankruptcy was not for tax evasion purposes.
Procedures related to the submission of installment or waiver requests
- The request for either an installment or waiver request must include the general details, e.g. tax identification number, penalty amounts, reasons, etc.
- The taxpayer should file an undertaking:
- For installment requests, the undertaking should state that the penalties will be paid in accordance with the payment schedule that the Committee accepts.
- For waiver requests, the undertaking should state that the cause of the penalties shall be rectified and that the cause shall not occur again.
- Breach of the undertakings will nullify and void the underlying request.
- A taxpayer may not file more than one request for the same penalty[ies].
- Failing to adhere to an installment payment plan may result in either:
- A new payment plan if there is a justifiable excuse for non-compliance with the schedule, or
- Action by the FTA against the taxpayer to collect the penalties.
- The FTA has 40 business days to review the request for compliance with all requirements. If the request is valid, it shall be referred to the Committee.
- The Committee has 60 business days to decide on the request and ten days to notify the applicant after that.
- Lack of a decision is deemed a final rejection.
The Committee will be responsible for:
- Setting the time limit for filing waiver requests.
- Draw the payment procedures and schedules for installment requests.
- Decide the percentage of penalties to be waived in respect of waiver requests.
- Request any guarantee it sees fit to process an installment request.
Retrospective penalty refund
The Cabinet Decree grants the Committee the authority to stipulate the circumstances and rules regarding paid penalties within the previous five years.
If paid penalties are waived retrospectively, the paid penalties subject to the waiver will be credited to the taxpayer’s account with the FTA within 90 business days or refunded in cash if the taxpayer has cancelled their tax registration.