With the introduction of corporate tax in the UAE, there is a need to understand how it impacts businesses. One important aspect is how non-compliance will affect the companies. Yes, we are talking about penalties. While the UAE is renowned for its business-friendly policies, it equally emphasizes the importance of adherence to tax regulations. Corporate tax penalties are designed to foster a culture of compliance, ensuring the tax system operates smoothly and supports the nation’s economic objectives. The tax system applies penalties to reduce instances of violations. This indicates the seriousness and will of the UAE government, as they are not only concerned about tax collection. They want to keep the overall tax system compliant. Businesses are welcome in the UAE, but they must keep up with the tax laws.
Corporate Tax Penalties
Various corporate tax penalties depend on the nature of the violation. There can be a fixed amount of penalty or a variable that applies in the form of a percentage. Cabinet Decision No. 75 of 2023 and Cabinet Decision No. 10 of 2024 highlight various corporate tax penalties.
1. Failure to submit information in Arabic when requested by the Authority:
AED 5,000 applies to the taxable person who fails to provide tax documents, data, and records in Arabic when requested by the Authority.
2. Failure to maintain records and other information:
AED 10,000 penalty applies to the taxable person who fails to maintain proper records and information as per corporate tax law and tax procedures law. However, if a second violation occurs within 24 months of the first, the penalty increases to AED 20,000.
3. Failure to submit a deregistration application within the applicable timeframe:
AED 1,000 applies to the registrant if there is a late deregistration application as per the corporate tax law. However, the penalty increases every month by AED 1,000, up to a maximum of AED 10,000.
4. Failure to inform authorities about any information that requires amendment in tax records:
An AED 1,000 penalty applies if the registrant fails to inform the Authority about any event that requires a change in tax records. However, a subsequent failure, within 24 months of the last violation, will result in a charge of AED 5,000.
5. Failure to inform the Authority about the appointment of a legal representative:
AED 1,000 if the taxable person’s legal representative fails to inform the Authority about their appointment within the applicable timeframe. The penalty is, however, due to the legal representative’s funds.
6. Failure of a legal representative to file a tax return within the timeframe:
AED 500 per month, or part thereof, applies up to the first 12 months if the legal representative fails to file a tax return on behalf of a taxable person within the timeframe. However, AED 1,000 per month or part applies from the 13th month onwards. The penalty is due from the legal representative’s pocket. The penalty applies from the date following the expiration date of the timeframe and on the same date monthly thereafter.
7. Failure of the registrant to file a tax return within the timeframe:
AED 500 per month, or part thereof, applies up to the first 12 months if the registrant fails to file a tax return within the timeframe as per corporate tax law. However, AED 1,000 per month or part applies from the 13th month onwards. This penalty applies from the date following the expiration date of the applicable timeframe and on the same date monthly.
8. Failure to settle tax liability within the timeframe:
14% (per annum) of unpaid tax is due monthly on the day following the due date and on the same day every month. In the case of voluntary disclosure, the due date for this penalty is 20 business days from the date of submission. In a tax assessment, the due date will be 20 business days from the date of receipt.
9. Submitting an incorrect tax return:
AED 500 applies if a registrant submits an incorrect tax return. However, correcting the tax return before the due date, as per the tax law, results in no penalty.
10. Submitting voluntary disclosures on errors in the tax return, tax assessment, or refund:
1% of the tax difference applies every month if a taxable person submits a voluntary disclosure concerning errors in the tax return, assessment, or refund. The penalty is due from the date following the due date of the relevant tax return, refund application, or tax assessment and until the date the voluntary disclosure is submitted.
11. Failure to submit voluntary disclosure on errors in the tax return, tax assessment, or refund:
A 15% fixed penalty applies to the tax difference if a taxable person fails to submit a voluntary disclosure of errors. Furthermore, there is a 1% monthly penalty on the tax difference that applies as follows:
a) If a taxable person submits a voluntary disclosure after receiving a tax audit notice, the penalty starts the day following the deadline for a tax return, refund, or tax assessment. Penalties cease on the voluntary disclosure submission date.
b) If a taxable person fails to provide a voluntary disclosure, penalties begin the day following the deadline for a tax return, refund, or tax assessment notification. Penalties end upon tax assessment issuance.
12. Failure to cope with the tax auditor:
The AED 20,000 penalty applies to the taxable person or legal representative who does not facilitate the tax auditor.
13. Failure to submit a declaration to the Authority:
AED 500 per month applies up to the first twelve months in case there is a failure (or lateness) in the submission of the declaration to the Authority as per the corporate tax law. The penalty rises to AED 1,000 per month or part from the thirteenth month onwards. This penalty applies from the day following the expiry date of the timeframe within which the declaration is due and on the same date monthly thereafter.
14. Failure to submit the corporate tax registration application within the timeframe:
As per Cabinet Decision No. 10 of 2024, a penalty of AED 10,000 applies when a taxable person fails to submit a corporate tax registration application within the stipulated timeframe.
Conclusion:
Understanding and adhering to the corporate tax laws in the UAE is essential for businesses operating within the region. Therefore, the UAE government has implemented a range of corporate tax penalties to enforce compliance and ensure the smooth functioning of the tax system. These penalties, which vary in severity based on the nature of the violation, highlight the seriousness with which the UAE approaches tax regulation. However, by maintaining accurate records, submitting timely reports, and complying with all tax procedures, businesses can avoid hefty fines and contribute positively to the country’s economic growth. As the corporate tax landscape evolves, staying informed and proactive about compliance will be crucial for any business.
Creative Zone Tax & Accounting (CZTA):
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