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Penalties for Violations of Tax Laws in the UAE

Taxes are one of the prime sources of revenue for most economies. Tax compliance is important for the smooth functioning of the overall economy of a country. Governments need to collect taxes timely and completely in order to provide essential services to the citizens. However, the collection of taxes is not as smooth as it should be. Therefore, there are fines and penalties if there are any violations of tax laws. There are a series of penalties for tax law violations in the UAE. The legislative information, in this case, is mainly provided under Cabinet Decision No. 49 of 2021. This Cabinet Decision is an amendment to Cabinet Decision No. 40 of 2017. Let’s outline the penalties for violations as per the tax laws.

Penalties for Violations of Tax Laws; Tax Procedures:

Failure to maintain records:

A penalty of AED 10,000 applies to the business person who fails to maintain proper records and information as specified in the tax laws. A subsequent violation, in this case, will result in a penalty of AED 20,000.

Failure to submit information in Arabic when requested by the authority:

AED 20,000 applies to the business person who fails to provide tax documents and records in Arabic when requested by the authority.

Failure to submit the registration application within the timeframe:

A penalty of AED 10,000 applies when a taxable person fails to submit a registration application within the timeframe as per the tax law.

Failure to submit a deregistration application within the timeframe:

AED 1,000 applies to the registrant if there is a delay in the deregistration application as per the applicable time frame. However, the penalty increases every month by AED 1,000, up to a maximum of AED 10,000.

Failure to inform authorities about any information that requires a change in tax records:

The registrant shall inform the authority of any event that results in a change in tax records held by the authority. AED 5,000 applies for the first failure. However, a subsequent failure will result in a charge of AED 10,000.

Failure to inform the authorities about the appointment of a legal representative within the timeframe:

The failure of the legal representative of the taxable person to inform the authority about its appointment will result in a penalty of AED 10,000. Moreover, the legal representative will have to pay this penalty from their own pocket.

Failure of a legal representative to file a tax return within the timeframe:

A failure to file a tax return by a legal representative on behalf of a taxable person will result in a penalty of AED 1,000 for the first violation. However, AED 2,000 applies if there is a repetition of the violation within 24 months. The legal representative must pay out of his or her own pocket.

Failure of the registrant to file a tax return within the timeframe:

If the registrant fails to submit their tax return in time, there is a charge of AED 1,000. Furthermore, a subsequent violation will result in AED 2,000 if there is a repetition within 24 months.

Failure to settle tax liability within the timeframe:

The penalty structure for late payment of tax liability is as follows:

  • 2% of unpaid tax is due on the day following the due date.
  • 4% of unpaid tax is applied monthly, starting one month after the due date.

However, the maximum penalty can be up to 300% of the tax liability.

Submitting an incorrect tax return:

Submitting an incorrect tax return will result in a fixed penalty of AED 1,000 for the first violation. In case of a subsequent incorrect tax return, AED 2,000 applies. It is worth noting that if the incorrect tax return results in a tax difference of less than the fixed penalty (AED 1,000 or AED 2,000 for a subsequent violation), then a penalty of at least AED 500 applies. However, correcting the tax return before the due date of payment results in no penalty.

Submitting voluntary disclosures on errors in the tax return or tax assessment:

In addition to the fixed penalty for incorrect tax return submission, there is a percentage-based penalty in cases of error in voluntary disclosure, tax assessment, or refund application. It applies to the difference between the calculated tax liability and actual tax liability. The penalties are as follows:

  1.  5% if a voluntary disclosure is made within 1 year of the due date.
  2.  10% if a voluntary disclosure is made within the 2nd year from the due date.
  3.  20% if a voluntary disclosure is made within the 3rd year from the due date.
  4.  30% if a voluntary disclosure is made within the 4th year from the due date.
  5.  40% if a voluntary disclosure is made after the fourth year from the due date.

Failure to voluntarily disclose errors in the tax return, tax assessment, or refund:

Apart from the fixed penalty for incorrect tax return submission, the taxable person is also liable for penalties if a voluntary disclosure is not made for errors in the tax return or tax assessment before notification by the authority.

  • 50% of the amount of error
  • 4% every month or part of the month of the following:
  1. on the unpaid tax from the due date to the date of receipt of the tax assessment.
  2. on an unreturned tax refund due to an ineligible tax refund, from the date of the tax refund to the date of receipt of the tax assessment.

Failure to cope with the tax auditor:

AED 20,000 in penalties applies to the business person who does not facilitate the work of the tax auditor.

Failure to calculate tax on behalf of someone else:

In cases where a registrant is obliged to calculate tax on behalf of another person but fails to do so, they are subject to the following penalties for late payment of their tax liability:

  • 2% of unpaid tax is due on the day following the due date.
  • 4% of unpaid tax is applied monthly, starting one month after the due date.

However, the maximum penalty can be up to 300% of the tax liability.

Failure to account for any tax that may be due on the import of goods:

If a person is unable to account for any tax that is due on the import of goods, a penalty of 50% is applied to the unpaid or undeclared tax.

Penalties for Violations of Tax Laws; Excise Tax:

Failure to display prices inclusive of taxes:

AED 5,000 applies if a taxable person fails to display prices inclusive of taxes.

Failure to comply with conditions related to the transfer of excise goods between designated zones:

Failure to comply with applicable conditions and procedures will result in a penalty. The penalty is higher of:

AED 50,000

Or

50% of the applicable tax on the goods related to the violation.

Failure to provide price lists of excise goods to the authority:

AED 5,000 applies for the first violation, while a subsequent violation results in an AED 10,000 charge.

Penalties for Violations of Tax Laws; Value-Added Tax (VAT):

Failure to Display Tax-Inclusive Prices:

AED 5,000 applies if a taxable person fails to display prices inclusive of taxes.

Failure to notify the authority of the application of tax based on margin:

AED 2,500 applies if a taxable person fails to notify the authority about applying tax based on margin.

Failure to comply with conditions related to transferring the goods between designated zones:

Failure to comply with applicable conditions and procedures will result in a penalty. The penalty is higher of:

AED 50,000

Or

50% of the applicable tax on the goods related to the violation.

Failure to issue a tax invoice:

AED 2,500 applies for each failure to issue a tax invoice or an alternative document.

Failure to issue a tax credit note:

AED 2,500 applies for each failure to issue a tax credit note or an alternative document.

Failure to comply with the conditions of issuing a tax invoice and credit note electronically:

AED 2,500 for each instance of failure to comply with the conditions for issuing electronic tax invoices and tax credit notes.

Creative Zone Tax Accounting:

It is worth noting that penalties for violations of tax laws are subject to change. Therefore, it is always a good idea to consult with a tax professional to avoid any violations and save money. Creative Zone Tax Accounting is thus the right choice for tax-related services. Contact us now to book a consultation.

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