Taxes are one of the most vital sources of revenue for any government. Therefore, efficient tax collection is necessary for the smooth functioning and betterment of the overall economy. The UAE government has always made policies that are in favor of both businesses and the country’s economy. However, the UAE has always been a place where there is a rule of law. Consequently, there are various tax penalties for violations of tax laws in the UAE. The idea is to keep a compliant environment in the country that ultimately achieves the collection targets. In this blog, we are discussing tax penalties in the UAE for businesses as a result of violations of corporate tax law and tax procedures law.
Various Tax Penalties in the UAE
There are various tax penalties for businesses, depending on the nature of the violation. Some penalties apply as a percentage of the unpaid tax, while others apply as a lump-sum payment. Cabinet Decision No. 75 of 2023 highlights the penalties that businesses face in violation of tax laws.
1. 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. A subsequent violation, within 24 months of the last violation, will result in a penalty of AED 20,000.
2. 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.
3. Failure to submit a deregistration application within the 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 from the legal representative’s own funds.
6. Failure of a legal representative to file a tax return within the timeframe:
AED 500 per month or part 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 own pocket.
This penalty applies from the date following the expiration date of the applicable 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 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 thereafter.
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 on a monthly basis if a taxable person submits a voluntary disclosure in relation to 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 on 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:
A penalty of AED 10,000 applies when a taxable person fails to submit a corporate tax registration application within the stipulated timeframe.
Conclusion:
In conclusion, the tax system in the UAE puts in place a crucial mechanism for maintaining compliance with tax laws and ensuring the integrity of the revenue system. By imposing penalties for various violations, such as failure to maintain records, late submission of tax returns, and inaccurate reporting, the government aims to create a culture of tax compliance. These penalties act as deterrents against tax evasion and encourage timely and accurate tax reporting. Moreover, penalties are structured to escalate based on the severity and frequency of the violation, emphasizing the importance of prompt correction and cooperation with tax authorities. Overall, the stringent framework underscores the UAE’s commitment to fostering a transparent and accountable tax environment.
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Disclaimer:
Tax laws and regulations are subject to continuous updating. Therefore, the information provided cannot be used as a tax advice. Please contact your lawyer or consult a tax consultant for further guidance.
