UAE Corporate Tax Violation Penalties

The UAE Cabinet of Ministers has enacted Cabinet Decision No. 75 of 2023, which supersedes specific provisions of Cabinet Decision No. 40 of 2017 concerning administrative penalties for breaches of the Corporate Tax (CT) Law in the UAE. This new decision comes into effect on 1 August 2023.

Detailed Overview

All businesses operating within the UAE are bound by the nation’s tax laws. With the introduction of new CT regulations, it is imperative for companies to seek professional consultations to ensure compliance. Failure to adhere to these regulations can result in substantial penalties enforced by the Federal Tax FTA (FTA).

Historically, penalties for violations related to VAT have been significant, and with the new corporate tax framework, fines can range from AED 500 to several thousand dirhams for non-compliance. The recent legislative update outlined in Cabinet Decision No. 75 of 2023 specifies the administrative penalties for various infringements under the Corporate Tax Law. This guidance aims to provide businesses with a clear understanding of the potential financial implications of non-compliance. The administrative penalties listed in the new Cabinet Decision No. 75 of 2023 are as follows:

1. Fixed Penalties:

Juridical persons classified as Resident Persons, incorporated or established before the decision’s effective date, must submit their Tax Registration application based on the month of license issuance, irrespective of the year. The deadline for submission varies from 31 May 2024 to 31 December 2024, depending on the issuance month. Please refer to the table below for specific deadlines:

Violation	Penalty (AED)
Failure to submit the data, records and documents related to Tax in Arabic to the FTA when requested.	5,000.00
Failure to submit a registration application within the specified timeframe.	10,000.00
Failure of the Legal Representative to inform the FTA of his appointment within the specified timeframe. Note: (The penalties will be due from the Legal Representative’s own funds.)	1,000.00
The registrant submitted an incorrect Tax Return. Note: (No penalty if the Registrant corrects the Tax Return before the deadline)	500.00

2. Other penalties imposed on late filing/submission within a specified period:

Violation	Penalty (AED)
The Taxable Person failed to submit, or late submission of a Declaration to the FTA.	500.00 per month for the first 12 months 1,000.00 per month from the 13^th month onwards
Failure of the Legal Representative to file a Tax Return within the specified timeframe.
The registrant failed to submit the Tax Return within the timeframe specified.
The registrant failed to submit a deregistration application within the timeframe specified.	1,000 per month (capped at AED 10,000).

3. Late payment penalty

For failure to settle the payable tax in the submitted tax return or tax assessment within the timeframe specified shall incur a monthly penalty of (14%) per annum on the unsettled Payable Tax amount from the day after the due date and on the same date monthly thereafter.
The due date for the calculation of the late payment penalties in this instance would be as follows:

Twenty business days following the submission of a voluntary disclosure; or,
Twenty business days following the receipt of a Tax Assessment.

4. Penalty imposed on voluntary disclosure of errors in the Tax Return, Tax Assessment or Refund Application

Where a voluntary disclosure is submitted before the taxpayer is notified of an audit by the FTA, a monthly penalty of 1% on the tax difference shall be applied as of the day after the due date of the relevant Tax Return, the submission of the Tax refund application, or the Notification of the Tax Assessment and until the date the Voluntary Disclosure is submitted.
On the other hand, where the taxable person failed to submit a voluntary disclosure of the errors before being notified of an audit by the FTA, the following penalties shall be imposed:
- A fixed penalty of 15% on the tax difference; and,
- A monthly penalty of 1% on the tax difference in the following instances:
  1. Where the Voluntary Disclosure was submitted after being notified, the penalty shall be imposed from the day following the due date of the relevant Tax Return (or the submission of the Tax refund application or Notification of the Tax Assessment) and until the date the Voluntary Disclosure is submitted; or,
  2. Where the Taxable Person fails to submit a Voluntary Disclosure, the penalty shall be imposed as of the date following the due date of the relevant Tax Return (or the submission of the Tax refund application or Notification of the Tax Assessment) and until the date of issuance of the Tax Assessment.

5. Penalties imposed on repeated violations

Failure to comply with the registration timelines results in administrative penalties of AED 10k.

Violation	Penalty (AED)
Failure to keep the required records.	10,000.00 per violation 20,000.00 if repeated within 24 months from last violation
Failure to amend the information pertaining to the tax records with the FTA.

All registered business owners and taxpayers must be aware of UAE Corporate Tax laws and penalties imposed by the FTA. Penalties will be effective from 1 August 2023.

Comparison of administrative penalties for VAT and Corporate Tax

SR#	Description of Violation	CT penalty (AED)	VAT penalty (AED)
1	The failure of the person conducting Business to keep the required records and other information specified in the Tax Procedures Law and the Tax Law	(10,000) for each violation. (20,000) in case of repetition within (24) months.	(10,000) for the first time. (20,000) in case of repetition.
2	The failure of the person conducting Business to submit the data, records and documents related to Tax in Arabic to the Authority when requested.	(5,000)	(20,000)
3	The failure of the Taxable Person to submit a registration application within the timeframe specified in the Tax Law	(10,000)	(10,000)
5	The failure of the Registrant to submit a deregistration application within the timeframe specified in the Tax Law	(1,000) upon delay in submitting the application and on the same date per month, with a maximum of (10,000)	(1,000) upon delay in submitting the application and on the same date per month, with a maximum of (10,000)
6	The failure of the Registrant to inform the Authority of any circumstance that requires the amendment of the information pertaining to his tax record kept by Authority.	(1,000) for each violation. (5,000) in case of repetition within (24) months.	(5,000) for the first time. (10,000) in case of repetition.
7	The failure of the person appointed as a Legal Representative for the Taxable Person to inform the Authority of his appointment within the specified timeframe. The penalties will be due from the Legal Representative’s own funds.	(1,000)	(10,000)
8	The failure of the person appointed as a Legal Representative for the Taxable Person to file a Tax Return within the specified timeframe. The penalties will be due from the Legal Representative’s own funds.	(500) for each month for the first twelve months. (1,000) for each month from the thirteenth month onwards.	(1,000) for the first time. (2,000) in case of repetition within (24) months.
9	The failure of the Registrant to submit the Tax Return within the timeframe specified in the Tax Law.	(500) for each month for the first twelve months. (1,000) for each month from the thirteenth month onwards.	(1,000) for the first time. (2,000) in case of repetition within (24) months.
10	The failure of the Taxable Person to settle the Payable Tax stated in the submitted Tax Return or Tax Assessment he was notified of, within the timeframe specified in the Tax Law.	A monthly penalty of (14%) per annum, for each month or part thereof, on the unsettled Payable Tax amount from the day following the due date of payment and on the same date monthly thereafter. For the purposes of this penalty, the due date for payment in the event of voluntary declaration and tax assessment is as follows: In the case of the voluntary declaration, (20) business days from the date of its submission. In the case of tax assessment, (20) business days from the date of its receipt.	The taxable person shall pay the penalty applicable to the late payment of the payable tax, with a maximum of (300%), in accordance with the following: (2%) of the unpaid tax due on the day following the due date for payment, upon late payment of the payable tax. (4%) monthly penalty due after one month from the payment due date, and on the same date every month after that, on the amount of tax that has not been paid to date. For the purposes of this penalty, the due date for payment in the event of voluntary declaration and tax assessment is as follows: In the case of the voluntary declaration, (20) business days from the date of its submission. In the case of tax assessment, (20) business days from the date of its receipt.
11	The submittal of an incorrect Tax Return by the Registrant.	Fixed penalty of (500). Unless the Registrant corrects his Tax Return before the expiry of the deadline for the submission of the Tax Return according to the Corporate Tax Law.	A fixed penalty is imposed: (1,000) for the first time. (2,000) in case of repetition. As an exception to Clause (1) of this penalty, if the incorrect tax return results in a tax difference less than the fixed fine mentioned in Clause (1) of this penalty, a fine equal to the tax difference shall be imposed, provided it is not less than AED (500). Whoever corrects its tax return before the payment due date shall be exempted from the penalty specified in Clauses (1) and (2) of this penalty.
12	The Voluntary Disclosure by the Person/Taxpayer of errors in the Tax Return, Tax Assessment or Refund Application pursuant to Article 10 (1) and (2) of the Tax Procedures Law.	A monthly penalty of (1%) on the Tax Difference, for each month or part thereof, to be applied as of the date following the due date of the relevant Tax Return, the submission of the Tax refund application, or the Notification of the Tax Assessment and until the date the Voluntary Disclosure is submitted.	Without prejudice to the consequences of the penalty mentioned in Clause (10) hereof, a proportional penalty shall be imposed on the amount of the difference between the tax calculated and the tax that should have been calculated, in accordance with the following: (5%) on the difference amount in the event that the voluntary declaration was submitted within one year of the due date of the tax return, tax assessment, or related refund application. (10%) on the difference amount in the event that the voluntary declaration was submitted during the second year from the due date of the tax return, tax assessment, or related refund application. (20%) on the difference amount in the event that the voluntary declaration was submitted during the third year from the due date of the tax return, tax assessment, or related refund application. (30%) on the difference amount in the event that the voluntary declaration was submitted during the fourth year from the due date of the tax return, tax assessment, or related refund application. (40%) on the difference amount in the event that the voluntary declaration was submitted after the fourth year from the due date of the tax return, tax assessment, or related refund application
13	The failure of the Taxable Person to voluntarily disclose errors in the Tax Return, Tax Assessment or Refund Application pursuant to Article 10 (1) and (2) of this the Tax Procedures Law before being notified that he will be subject to a Tax Audit.	Two penalties are applied: A fixed penalty of (15%) on the Tax Difference. A monthly penalty of (1%) on the Tax Difference to be applied as follows: Where the Taxable Person submits a Voluntary Disclosure after being notified that it will be subject to a Tax Audit by the Authority, the penalty shall be imposed for the period from the day following the due date of the relevant Tax Return, or the submission of the Tax refund application or Notification of the Tax Assessment and until the date the Voluntary Disclosure is submitted. Where the Taxable Person fails to submit a Voluntary Disclosure, the penalty shall be imposed as of the date following the due date of the relevant Tax Return, or the submission of the Tax refund application or Notification of the Tax Assessment and until the date of issuance of the Tax Assessment.	Without prejudice to the consequences of the penalty mentioned in Clause (10) hereof, shall be imposed a person: A penalty of (50%) on the amount of error; A penalty of (4%) for each month or part of the month from any of the following: Tax unpaid to FTA, from the date that payment is due for the relevant tax period until the date of receipt of the tax assessment. The tax that has not been refunded to FTA due to an unjust tax refund, from the date of the tax refund from FTA until the date of receiving the tax assessment.

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