Redetermination of Administrative Penalties
Unlike the other public tax clarification, TAXP004 is the replacement of already published public tax clarification TAXP002 with amendments to administrative penalties. The cabinet decision No.49 of 2021 was amended by cabinet decision No.108 of 2021 on administrative penalties for violation of tax laws in the UAE with effect from 1 January 2022.
Re determination of Administrative Penalties Imposed on Person
To redetermine the amounts of unsettled payable penalties which were imposed on registrants based on penalty rules listed in cabinet decision no 40 of 2017, all the following conditions must be satisfied.
The person has not fully settled the administrative penalties before 28 June 2021.
The taxable person has undertaken any of the following.
All payable tax up to 31 December 2021, regardless of whether such tax was payable before or after June 28, 2021. And, 30% of the total unsettled administrative penalties imposed were before 28 June 2021.
All payable tax up to 31 December 2022, regardless of whether such tax was payable before or after June 28, 2021. And, 30% of the total unsettled administrative penalties imposed were before 28 June 2021.
If all the above conditions are fulfilled, the Federal Tax Authority will redetermine the amount of administrative penalties payable and not settled by 28 June 2021 to equal 30% of that unsettled part. As a result, the person need not have to pay the remaining 70%.
Redetermination of Penalties on Registrant’s Account
The same condition applied to a person should be satisfied for a registrant account in which the registrant satisfied the conditions by 31 December 2021. In that case, FTA will redetermine the penalty within 30 business days from 31 December 2021.
However, if the conditions were not satisfied on 31 December 2021 but were able to satisfy on 31 December 2022, the FTA will redetermine the penalty within 30 business days from 31 December 2022.
Case Study 1 (Person)
At the beginning of April 2021, a penalty of AED 12,000 was imposed on a Registrant as per Cabinet Decision No. 40 of 2017. The Registrant settled AED 2,000 of this penalty on 15 April 2021.
On 28 June 2021, AED 10,000 penalties remained unsettled. The Registrant settled all payable tax, including that relating to the last return due in 2021, and 30% of the penalties unsettled (i.e., AED 3,000) by 31 December 2021
.In this case, the Registrant qualified for redetermination, and the FTA will redetermine the penalty within 30 business days from 31 December 2021. Consequently, the Registrant will no longer be required to pay the remaining AED 7,000 of the administrative penalties, and the administrative penalty imposed before 28 June2021 shall equal AED 3,000 that was already settled by the Registrant.
Case Study 2 (Registrant Account)
In May 2020, an administrative penalty of AED 24,000 was imposed on a Registrant as per Cabinet Decision No. 40 of 2017. The Registrant settled AED 4,000 of this penalty on 21 September 2020.
On 28 June 2021, AED 20,000 penalties remained unsettled. The Registrant did not settle all payable tax in 2021, nor have the Registrant settle 30% of the penalties by 31 December 2021.
In this case, the Registrant did not qualify for the redetermination by 31 December 2021. However, the Registrant settles, within 2022, all payable tax, including that relating to the last return due in 2022, and 30% of the penalties imposed before 28 June 2021 on 15 July 2022 (i.e., AED 6,000).
Hence, the Registrant qualifies for the redetermination, and the FTA will redetermine the penalty within 30 business days from 31 December 2022. Consequently, the Registrant will no longer be required to pay the remaining AED 14,000 of the administrative penalties, as the re-determined administrative penalty imposed before 28 June 2021 shall equal AED 6,000, and this amount was already settled by the Registrant.
Procedure Related to the Redetermination of Administrative Penalties
The FTA has linked the redetermination process and the relevant data to the registrant’s e-service accounts. The procedure should be as explained below, satisfying the criteria.
Cabinet Decision No. 49 of 2021 as published on the FTA’s website www.tax.gov.ae. Article 25 of the FTP Law stated that:
- The failure of the Person conducting Business to keep the required records and other information specified in this Law and the Tax Law.
- The failure of the Person conducting Business to submit the data, records and documents related to Tax in Arabic to the Authority when requested.
- The failure of the Taxable Person to submit a registration application within the timeframe specified in the Tax Law.
- The failure of the Registrant to submit a deregistration application within the timeframe specified in the Tax Law.
- 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 the Authority.
- 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, in which case, the penalties will be due from the Legal Representative’s own funds.
- The failure of the Person appointed as a Legal Representative for the Taxable Person to file a Tax Return within the specified timeframe, in which case the penalties will be due from the Legal Representative’s own funds.
- The failure of the Registrant to submit the Tax Return within the timeframe specified in the Tax Law.
- 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.
- The submittal of an incorrect Tax Return by the Registrant.
- The voluntary disclosure by the Person of errors occurring in the Tax Return, Tax Assessment or Refund Application pursuant to Article 10 (1) and (2) of this Law.
- 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 Law before being notified that he will be subject to a Tax Audit.
- The failure of the Person conducting Business to facilitate the work of the Tax Auditor in violation of the provisions of Article (21) of this Law.
- The failure of the Registrant to calculate Tax on behalf of another Person when the registered Taxable Person is obligated to do so under the Tax Law.
The Executive Regulation of this Law shall specify the information and data that must be included in the Administrative Penalties Assessment.
The Cabinet shall issue a resolution that specifies the Administrative Penalties for each of the violations listed in Clause (1) of this Article. Such Administrative Penalties shall be no less than 500 Dirhams for any violation and shall not exceed three times the amount of Tax in respect of which the Administrative Penalty was levied.
The imposition of any Administrative Penalty pursuant to the provisions of this Law or any other law shall not exempt any Person of his liability to settle the Due Tax in accordance with the provisions of this Law or the Tax Law.
The Third Article of the Cabinet Decision No. 49 of 2021 states that:
The Authority shall determine the Administrative Penalties levied on the Registrant prior to 28 June 2021 in accordance with Cabinet Decision No. 40 of 2017, which have not been settled, to equal 30% of the total of such unsettled penalties where all of the following conditions are met:
- The Registrant settles payable tax in full no later than 31 December 2021.
- The Registrant settles 30% of the total unsettled Administrative Penalties no later than 31 December 2021.
The Authority shall determine the procedures for implementing the provisions of this Article, taking into consideration that the Administrative Penalties levied on the Registrant are redetermined by Clause 1 of this Article within a maximum of 30 business days from the dates specified in Clauses 1 or 2 above, depending on the date the conditions are met.
Discount of 70% on Tax Penalties
According to the Tax Consultants in UAE, taxable persons who have been subject to penalties imposed before 28 June 2021 can benefit from a 70% discount on penalties. The timeframe to benefit from the discount on penalties has been extended up until 31 December 2022. So the top accounting firms in UAE consider the public clarification VATP004 is a great boon for the business community to overcome the Covid Pandemic recession and market pressure.
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