The UAE Ministry of Finance has established administrative penalties for violations related to corporate tax returns. Businesses have a nine-month window to ensure compliance and guarantee the accuracy and completeness of their submissions. This nine-month window aligns with the company’s specific financial year. For example:

• If a company follows the January 1 to December 31 financial year, it must complete its tax returns by September of the following year.
• If a company’s financial year flows from June 1, 2023, to May 31, 2024, the deadline for submission is February 2025.

Later, the authorities will disclose the specific penalties for each violation.

According to Pankaj S. Jain, Managing Director at AskPankaj, a tax consultancy, the UAE’s 9-month tax filing timeframe is notably generous compared to other tax jurisdictions, which typically provide 6-10 months for such submissions.

Companies should exercise caution in managing arrears, as assessments conducted one year or more later will likely identify defaults.

What are the comparative penalties?

In the recent announcements made on Saturday, July 29, the UAE finance ministry has specified the administrative penalties for corporate tax violations, which will take effect from August 1. According to the ministry’s statement, they have meticulously crafted and compared these penalties to guarantee effective implementation while ensuring compliance. Additionally, the ministry has avoided placing excessive burdens on UAE businesses. Younis Haji Al Khoori, the Undersecretary of the Ministry of Finance, emphasized that adhering to corporate tax compliance is the responsibility of all taxable individuals to support the implementation of the taxation system in the UAE.

Adhering closely to the VAT penalty framework?

Jain anticipates that the penalties for adhering to prescribed tax procedures, such as record-keeping, timely payment, and return submission, will be similar across all tax regimes. AskPankaj and ‘Gulf News’ are introducing an assistance package to aid companies in corporate tax registration. However, it is essential to note that the authorities will individually prescribe penalties for specific offenses or non-compliance under a particular tax regime.

For example, under the VAT regime, the authorities may impose specific penalties for non-issuance of a tax invoice or failure to display VAT-inclusive prices. They will announce detailed penalties for corporate tax shortly.

Penalty Magnitude

According to tax audit sources, the penalties will likely fall between Dh1,000 to Dh2,000 or 2-4 percent of the tax dues, similar to VAT penalties.

Appeal Filing

If a penalty is imposed, the concerned business can submit a reconsideration request against the tax assessment, including the penalties, as stated by Jain. Depending on the decision regarding the reconsideration request, the taxpayer can further submit an objection to the Tax Dispute Resolution Committee (TDRC).

The subsequent step involves appealing to the competent courts based on the specific facts of each case. The tax procedure laws outline the process and conditions for each appellate forum.

Registrations are proceeding as planned

The UAE commenced corporate tax registrations on June 1, 2023, and the progress has aligned with expectations. No specified cut-off deadline for registration exists; businesses can complete the registration process until they submit corporate tax returns after the conclusion of the company’s financial year. However, businesses should register before the start of their financial year.

What does UAE Cabinet Decision No. (75) of 2023 state regarding corporate tax penalties?

The decision outlines the following key points:

• Penalties will be levied on “taxable persons,” irrespective of whether they are individuals or legal entities, who fail to fulfill their obligations as per UAE law.
• Penalties will be enforced for non-compliance with timely filing and payment of corporate tax, including failure to notify the Federal Tax Authority of any situation necessitating amendments to the tax information held by the authority.
• The authorities have introduced a new structure for penalties related to voluntary disclosure.
• Penalties will also be applicable for inadequately maintaining records or failing to submit the required records and other information specified by the law.