Tax Authority recognizes people’s right to apply for a reduction or exemption for UAE tax law violation penalties

The Federal Tax Authority (FTA) has announced that any person or group has the right to apply to the FTA to reduce or exempt them from the penalty imposed for the violation of the provisions of tax legislation, provided that there is an excuse acceptable to the FTA.

The FTA clarified that according to Cabinet Decision No. 51 of 2021 on amending the Executive Regulation of Federal Law on Tax Procedures, any person or group who is found to have violated the provisions of the law or the tax law may submit such a request to the FTA to reduce or exempt from the penalties imposed by the FTA in accordance with a set of conditions.

The FTA indicated that the conditions require that the person has an excuse that is acceptable to the FTA, along with evidence that justifies the excuse and the violation it caused which led to the imposition of administrative penalties, provided that the FTA is notified of the request for reduction or exemption within 40 business days from the end of the acceptable excuse, in accordance with the mechanism specified by the FTA. 

The FTA confirmed that, according to the amendments that came into effect on 28 April 2021, an excuse shall not be considered acceptable if the act that led to the violation was deliberate. An excuse can only be deemed acceptable based on a decision made by a tripartite committee to be formed by a decision issued by the Director-General of the FTA. This committee is concerned with studying the excuse and accepting or rejecting it and will issue its decision to reduce or exempt administrative penalties within 40 business days from the date of receiving the application. Applicants shall be notified of this decision within 10 business days from the date of its issuance.

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News Courtesy : Gulf News

UAE scales down penalty regime and encourages voluntary disclosures

Cabinet Resolution No. (49) of 2021 revises administrative penalties imposed for violations of tax laws in the United Arab Emirates.

Among the changes to the penalty regime are the following:

• The late-payment penalty has been revised to be imposed at a rate of 4% monthly (instead of 1% daily) with a cap of 300%.
• Concerning voluntary disclosures, the payment deadline has been re-set to 20 business days from receipt of the voluntary disclosure submission date (instead of the payment deadline of the underlying tax return for which the underpayment arose).
• The amounts of “fixed penalties” in respect to late registration, deregistration or failure to issue tax invoices or tax credit notes are reduced.

The measures are expected to be effective beginning from 27 June 2021 (60 days from the date of publication).

There is a mechanism for obtaining relief from penalties imposed under the current system, with the amount of penalties to be reduced to 30% of the amount previously imposed as long as certain conditions are met by 31 December 2021. The procedure for claiming this relief has not yet been announced.

News Courtesy : KPMG

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UAE VAT update on reduction in Penalties imposed for VAT and Excise Non-Compliances

Some of the key highlights of Cabinet Resolution No. (49) Of 2021 amending/replacing some provisions of Cabinet Resolution No. (40) Of 2017 are as follows:

• Cabinet Decision 49 of 2021 has been issued to reduce penalties imposed for VAT and Excise Non Compliances by Federal Tax Authority (“FTA”) under the earlier Cabinet Decision 40 of 2017.

·        Reduction in the penalties related to late payment of Tax to the FTA:

·        Reduction in the penalties related to Voluntary disclosure:

·        Reduction in the other penalties:

• The new provisions will be effective 60 days as from April 28, 2021.
• Relief for the outstanding penalties

 FTA has the right to reduce previously unpaid penalties to 30% of the total of such penalties under the new cabinet decision subject to following two conditions are met:

1. Administrative penalties under previous legislation were imposed on registrant and it is unpaid.
2. Taxable person has paid due and tax payable up to December 31, 2021 and also has paid 30% of the total unpaid administrative penalty up to December 31, 2021.

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UAE: VAT obligations of real estate management entities in Dubai

The tax authority of the United Arab Emirates (UAE) issued guidance informing owners associations and management entities in Dubai of their obligations under the value added tax (VAT) law that reflects changes in Dubai real estate legislation.

Law No. 6 of 2019 provided that the rights and obligations of owners associations were to be transferred to management entities. The recent guidance confirms that owners’ associations are no longer considered to be legal persons and thus not able to register for VAT purposes.

Management entities (for these purposes) are identified as developers, management companies or hotel project management companies that manage common facilities and areas for property owners. In turn, the responsibility for charging and accounting for VAT due on the related management fees falls on these management entities.

When management entities are registered for VAT purposes, the tax authority expects that the previously charged VAT (charged the property owners by an owner’s association) for any management fees must now be accounted for by the management entities, which are now responsible for issuing tax invoices for these taxable supplies. Management entities can recover any VAT incurred in relation to making taxable supplies on receipt of valid tax invoices in their own names, subject to the normal rules for input VAT recovery.

Penalties can be imposed for noncompliance.

Source : KPMG

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Covid impact: UAE reduces penalties on VAT, excise tax

The UAE has reduced old penalties on value-added tax (VAT) and excise tax in order to help companies and individuals better cope with the impact of the Covid-19 pandemic. According to newly-released Cabinet Decision No. 49 of 2021, tax payers who currently have penalties pending can see those reduced to 30 per cent, provided they settle them before December 31, 2021.

Going forward, late payment penalties will be reduced to four per cent per month, a substantial reduction from one per cent per day while an overall cap stays at 300 per cent.

The new provisions will be applicable 60 days as from April 28, 2021.

Thomas Vanhee, founding partner of Aurifer Middle East, said technical provisions now determine that late payment penalties should only be calculated as from 20 weekdays after submitting the voluntary disclosure.

He said the Cabinet decision constitutes a very important reduction in the penalties and provides an excellent opportunity for tax payers to get a fresh start.

Anurag Chaturvedi, managing director of Chartered House, said this is a best relief provided by the government to the pandemic-hit businesses in the UAE.

“A number of businesses in the UAE succumbed to administrative penalties on account of delay in submission of the due tax. The new regime of administrative penalties are at par with global standards. The most relieving change is maximum penalty of four per cent of unpaid tax per month compared to one per cent of unpaid tax for each day of delay as per the old provisions,” said Chaturvedi.

News Courtesy : khaleejtimes.com

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Rules to Follow to Determine VAT on E-commerce Transactions in the UAE

To Determining VAT on e-commerce sales is challenging due to the uniqueness of the mode of transaction. Gleaning insights from the VAT clarifications, we guide you about the rules to follow while determining VAT on e-commerce transactions in the UAE.

VAT on Online Purchase of Goods

Any good or services purchased through online shopping sites are generally subject to five per cent VAT. However, the critical condition here is that the place of supply should be in the UAE. The standard VAT rate is also applicable to most of the goods sold inside the UAE, subject to exceptions granted to medicines sold through websites. Apart from that the import of goods is also is subject to VAT in the UAE.

VAT on Export of Goods in E-commerce Sector

Export of goods from the UAE under e-commerce is eligible for zero VAT rate as per Article 30 of Executive Regulation. However, zero-rating is subject to certain conditions. The VAT treatment differs according to the party who is contractually responsible for the delivery of goods. Consider the following requirements to check if your exports are eligible for zero-rating:

1. If the supplier is responsible for arranging transport of sold goods from the UAE or appoints an agent to do so on its behalf (direct export), the supply may be zero-rated
2. The supply of goods is zero-rated if the customer from an overseas country is arranging the collection of the goods from the supplier in the UAE and then exporting the goods. The zero-rating is also eligible if the customer has appointed an agent to do so on his behalf (indirect export)

Also, exports to the GCC countries are eligible for zero-rated VAT. The businesses, however, must obtain and retain official and commercial evidence for the exports. The official evidence could be a certificate issued by the relevant Customs Department that confirms the exit of goods from the UAE. Acceptable commercial evidence includes airway bills, bills of lading, consignment notes, and certificate of shipments.

Accounting for VAT in the UAE

The FTA deems that accounting for VAT in the UAE as the responsibility of the taxable supplier. However, in certain situations, the responsibility of accounting for VAT may be transferred to the recipient under ‘Reverse Charge Mechanism’. Reverse Charge Mechanism applies in the following cases:

1. If the supplier is not having a place of residence in the UAE
2. The supplier doesn’t charge VAT on the supply (supplier not registered for VAT in the UAE)
3. The recipient is a taxable entity that has a place of residence in the UAE

In case, the Reverse Charge Mechanism applies, the recipient is required to account for VAT to the FTA at the applicable VAT rate. The agreed price of the goods will be treated as VAT exclusive, which means the recipient should charge VAT on top of the agreed price. Consult with the best VAT consultants in Dubai for efficient advice on applying Reverse Charge Mechanism on e-commerce supplies.

E-platforms as Principal or Agent

The tax treatment of the goods & services made through electronic platforms, websites, or markets is dependent upon whether the electronic market functions as the principal or agent. In case, the electronic platform operates as the principal, such online markets are considered as a supplier of goods or services that is responsible for accounting for VAT. If the online market is functioning as an agent on behalf of another supplier, the tax treatment entirely depends on whether the online market is acting as a disclosed or undisclosed agent. For further guidance, seek advice from registered tax agents in Dubai, UAE.

VAT Treatment of Electronic Services

The FTA defines e-commerce services as the services that are automatically delivered over the internet, an electronic network or an electronic market place. Such services include

• Domain names & web hosting services
• Software & updating of software
• Images, text, screensavers, e-books
• Music, films, games on demand
• Supply of online magazines
• Supply of advertising space on a website and any rights associated with it
• Political, cultural, artistic, sporting, scientific, educational or entertainment broadcasts
• Live streaming via the internet
• Distance learning through online services

A service doesn’t meet the definition of electronic services if it is not any one of the services listed by the FTA. Supply of services in which the parties use the internet only to communicate with each other or to facilitate bookings won’t be termed as electronic services for VAT purposes. In this respect, services such as the supply of legal or financial advice, transport services, or hotel accommodation will not constitute an electronic service. Taxable persons get in-depth knowledge about e-commerce services from the best tax agents in Dubai, UAE.

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Penalties for VAT Deregistration In UAE

VAT deregistration in UAE is the cancellation of a taxable entity’s registration for VAT. When the Federal Tax Authority or FTA in UAE approves of the application for VAT cancellation, then the registration will be rescinded.

As per the FTA’s regulations, businesses can apply for either voluntary deregistration for VAT or mandatory VAT deregistration. Whether the VAT cancellation is non-mandatory or mandatory, a taxable entity has to comply with a set of eligibility criteria and conditions in order for the local tax authority to approve of the deregistration.

For compulsory or mandatory VAT deregistration in UAE, the business has to have stopped dealing in any taxable supply or its expenses and/or supplies for the previous twelve months, including in the next thirty days, no longer exceed the threshold for mandatory registration – currently at AED 375,000. A business can voluntarily deregister for VAT in UAE when it’s past twelve months and its supplies and/or expenses already dropped lower than the current threshold for voluntary VAT registration, which is at AED 187,500.

Potential Penalties with VAT Deregistration in UAE

There are a number of penalties that a business can occur when processing its VAT cancellation as the authorities will have to conduct several reviews prior to allowing the taxable entity to cease its registration. Here are the most noteworthy penalties for violations that are best avoided:

• Failure in processing VAT deregistration on time or within the specified timeframe set by the local authority on taxation – the penalty is AED 10,000
• Failure in keeping records that are requested by the tax authorities – AED 10,000 penalty for a first offense or AED 50,000 for a repeated violation
• Failure in providing the authority requested records in the Arabic language – a penalty of AED 20,000
• Failure in informing FTA of an amendment with the tax records, which are requested for VAT deregistration – AED 5,000 if the offense is a first or AED 15,000 if the taxable entity has made the same mistake before of not notifying the authority of tax record amendments
• Failure in notifying FTA a legal representative was appointed by the business in the specified timeframe – penalty imposed on the legal representative will be AED 20,000
• Failure of an appointed legal representative in filing the tax return requested by the local tax authority within a specified timeframe – penalty will be charged onto the appointed representative with the amount of AED 1,000 if it’s the first offense or AED 2,000 for a repeated offense in the span of twenty-four months
• Submission of incorrect final tax return – there will be two penalties for the violation. The fixed penalty can either be AED 3,000 if it’s the first offense or AED 5,000 for a repeated violation. For the percentage-based penalty, it will be applied to the amount that’s unpaid on the FTA because of an error(s). Fifty percent of the amount owed by the business will be due to the FTA if it doesn’t voluntarily disclose the error to the tax authority or when it’s already asked by the FTA to provide information regarding the error. Thirty percent of the amount owed by the business to the FTA will be the percentage-based penalty if the business chooses to make a voluntary disclosure following the receipt of notification of the FTA regarding the error. Five percent of the money owed to FTA will be the percentage-based penalty when the voluntary disclosure is done prior to receiving any notification from the FTA regarding an error.
• Voluntary disclosure of a business regarding errors on any of its previous tax returns, refund applications, or tax assessments – the fixed penalty is either AED 3,000 (for a first offense) or AED 5,000 for a repeated offense. The percentage-based penalty will either be 50 percent (for making a disclosure following FTA review), 30 percent (for voluntary disclosure following receipt of notification from FTA, or 5 percent (for voluntary disclosure prior to getting any notification from the FTA.
• Failure of a taxable entity in facilitating an FTA auditor’s work or review – a penalty of AED 20,000
• Failure of the taxable entity in complying with conditions and processes relevant to the issuance of e-tax invoices and e-tax credit notes – AED 5,000 for every incorrect document
• Failure by taxable business in issuing tax credit notes or the alternative documents – a penalty of AED 5,000 will be imposed on the business for each document that is missing
• Failure by taxable business in issuing a document for a supply – AED 5,000 for the missing tax invoice

When processing your VAT deregistration in UAE, you have to follow the appropriate steps including fulfilling all conditions for VAT cancellation, submitting a final tax return, and paying the dues, especially fines for violations. For assistance with VAT deregistration, call us here in VAT Registration UAE today!

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UAE plans to include 10 new sectors to the company’s law, allowing for 100% foreign ownership

The UAE’s Ministry of Economy is working on new legislation to include 10 sectors to the commercial company’s law, which allows 100 per cent foreign ownership of onshore companies in the country, a senior official has said.

The legislation, which will enable investors and business in ’10 new sectors of strategic importance’ to come under the purview of the law, is in its final stages of formation.

The list of sectors and the regulations associated with their entry into the local market will be announced by the UAE Cabinet soon, confirmed Abdulla Al Saleh, undersecretary of the Ministry of Economy for Foreign Trade and Industry said at the Sharjah Economic Ramadan Majlis.

Al Saleh added that the cancellation of the national service agent requirement came into force on April 1.

He also stated that all current and previously licensed businesses in the UAE can amend their statuses according to the new amendments to the commercial company’s law.

“Legislations that have been issued or those that will be enacted soon seek to increase the country’s competitiveness for both local and international investors, and advance business performance,” he said.

“These legislations are not the outcome of a crisis but follow a clear vision of the country’s economic future envisioned collaboratively by federal, local, and private sector stakeholders. The future depends primarily on attracting innovative talents who will lay the foundations of economies of the future.”

He added: “A comprehensive strategy to attract bright minds from around the region and the world will be announced soon.”

The UAE announced in November that foreign nationals would be allowed to own 100 per cent of commercial companies within the country, eliminating the need for a UAE national to hold the majority share.

Under new legal amendments, businesses can be fully established by non-Emiratis of all nationalities.

Meanwhile a new industrial law is also set to be announced soon, in line with the UAE’s recently unveiled industrial strategy ‘Operation 300bn’, confirmed another official at the Sharjah Economic Ramadan Majlis.

“A new industrial law will soon come into force and will be instrumental to promoting a conducive environment for industry in the UAE,” said Omar Ahmed Suwaina Al Suwaidi, undersecretary of the Ministry of Industry and Advanced Technology.

“We have also tackled financing issues startups face in order to boost their performance. A National Added Value Program will be launched soon to support national products, enhance their competitiveness and find new markets for them”, he added.

Under Operation 300bn, the UAE is aiming to raise the manufacturing sector’s contribution to national GDP to Dhs300bn by 2031.

“We have held meetings and workshops with our industry partners to identify their challenges and discussed priority sectors under three pillars – the UAE’s competitive industries, including the chemical, petrochemical, pharmaceutical, defense and heavy industries; the national food and healthcare security industries; and industries of the future, including space and renewable energy, among others,” said Al Suwaidi.

News Courtesy : Gulf News

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UAE adopts guidelines to combat money laundering and financial crimes

The National Committee for Combating Money Laundering and Financing of Terrorism and Illegal Organizations (NAMLCFTC) of the UAE adopted anti-money laundering and countering the financing of terrorism (AML/CFT) guidelines for financial institutions, designated non-financial businesses and professions.

A set of AML/CFT guidelines have been issued to raise awareness of the importance of adhering to legislation related to financial crimes, and the risks and penalties resulted from the violation. The guidelines will be published on the websites of the NAMLCFTC and other regulatory bodies to ensure circulation and action by licensed entities.

NAMLCFTC held its 3rd meeting for the year 2021 chaired by Khaled Mohamed Balama, Governor of the Central Bank of the UAE (CBUAE) and Chairman of the NAMLCFTC to discuss the latest developments in countering money laundering and combating the financing of terrorism in the UAE.

The meeting was attended by Ahmed Ali Al Sayegh, Minister of State (UAE) and Chairman of Abu Dhabi Global Market.

“Through periodic meetings, we seek to discuss with our strategic partners the latest initiatives of the National Committee for Anti-Money Laundering and Countering the Financing of Terrorism and Illegal Organizations, to strengthening our joint efforts to combat financial crimes,” said Khaled Mohamed Balama, Governor of CBUAE and Chairman of NAMLCFTC.

The National Committee noted the progress made by represented federal entities on the implementation of various actions envisaged in the UAE National Action Plan for anti-money laundering and countering the financing of terrorism (AML/CFT) and decided on further actions.

Assessment reports

The Committee approved six-risk assessment reports related to terrorism financing, trade-based money laundering, misuse of legal persons, non-profit organizations, lawyers and the gold sector. The reports will help to align the legislative and operational frameworks and priorities with the current risks and enhance understanding of risks and to boost cooperation among the competent authorities.

The NAMLCFTC endorsed the initiative of the sub-committee for money laundering crimes investigative authorities regarding the implementation plan of the National Strategy for Combating Money Laundering and Combating the Financing of Terrorism, which aims to define responsibilities of all concerned entities and strengthen cooperation to limit money laundering.

Financial inclusion

During the meeting, the committee discussed an updated national action plan for strengthening financial inclusion efforts through measures that aim at improving the access to all segments of society to financial institutions under the supervision of the Central Bank and minimize the reliance on Hawala providers or informal money transfer services providers.

The Central Bank presented the efforts to enhance financial inclusion in the UAE by developing a Wage Protection System, adopting a risk matrix of product developed by exchange houses and remittance intermediaries, in addition to raising the awareness of and commitment to AML/CFT measures by exchange houses.

News Courtesy : Gulf News

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