A new Cabinet Decree No. 105 of 2021 has been issued related to penalty waivers and penalty installments. The new cabinet decision will become effective on March 1, 2022. In accordance with this law, taxable persons can apply for installment payment or a waiver of administrative penalties in whole or in part.
Ever since UAE first introduced the VAT in 2018, many businesses found it difficult to comply or even figuring out how to comply with the regulation. As a result, UAE businesses ended up making mistakes in the process and incurred fines and penalties imposed by the FTA. These fines were no less than AED 1,000 up to AED 50,000. The businesses incur fines for a variety of reasons, such as filing incorrect VAT returns, failing to have a legal tax representative, or not maintaining accounting records.
Administrative Penalties Installments
The following conditions must be met in order for administrative penalties to be paid in installments:
- An installment request may only be for penalties that have not been settled;
- There should not be a penalty amount of less than AED 50,000 for penalties subject to installment;
- If a penalty is subject to installment, it should not be contested before the Tax Disputes Resolution Committee (TDRC) or Federal Courts (excluding the reconsideration process);
- There is no tax due for the tax period for which an installment request is being filed.
Controls and Cases for Waiver of Administrative Penalties
Requests for waiver of administrative penalties are only approved if the penalties are not related to tax evasion. The following reasons can be used to grant waivers of penalty under the new Cabinet Decree.
Requests should relate to any of the following:
- Natural person or owner of a business who dies or falls ill.
- Key employee of a tax registrant dies, becomes ill, or resigns.
- The UAE government has imposed restrictions, precautions or preventative measures on taxpayers.
- There is evidence of a failure in the system of the Federal Tax Authority (FTA), or payment and communication systems that affect a group of taxpayers.
- Taxpayers and establishment owners who are deprived of their rights and freedom due to restrictions on their liberty and freedom.
- A tax account of another taxpayer is used to pay all taxes.
- The penalties may be waived in bankruptcy or insolvency cases if they have been paid prior to the bankruptcy or insolvency, and if it is evident that the bankruptcy or insolvency was not intended to evade taxes.
Procedures for Submitting Requests for Paying by Installment and Waiver
To request the settlement of administrative penalties by installments or the waiver of administrative penalties, you will have to fill out the appropriate forms provided by the Authority (FTA). The request must include the following documents and information:
- Name, address, and details about the Person.
- If applicable, the tax registration number (TRN).
- The penalty amount and violations related to the request.
- Date when the Administrative Penalties were imposed on the business.
- An explanation of why the Request was submitted.
It is the taxpayer’s responsibility to file an undertaking:
- If you are requesting an installment payment schedule, make sure your undertaking specifies that the penalties will be paid according to the schedule accepted by the Committee.
- If a waiver request is made, the undertaking must indicate that the causes of the penalties shall be rectified, and that they will not occur in the future.
The underlying request will be nullified and void if any of the undertakings are violated. There can only be one request for the same penalty per taxpayer.
Timeline for Requests
The FTA shall review the requests submitted by the person, and to verify that the controls and procedures outlined in this cabinet decision have been followed. In 40 business days, the FTA will review the request to ensure compliance with all requirements. A valid request will be referred to the Committee.
It will take the Committee 60 business days to determine whether to consider the request, and it will notify the applicant within 10 business days when it does.
Failure To Comply
Should the Committee fail to collect the installments, it may reverse its decision to pay in installments, and may then take the following actions:
- Assign a new plan to the Person, if the Person submitted and the Committee accepted the reasons for nonpayment.
- Direct the Authority to collect Administrative Penalties using legal action.
In accordance with the Cabinet Decree, the Committee may specify in accordance with the circumstances and rules the provisions of the previous five years in respect of penalties paid.
Taxpayers who have canceled their tax registration will receive a cash refund for any paid penalties waived retrospectively. A taxpayer who pays penalties and the FTA waives them will have them credited to his or her FTA account within 90 business days or refunded in cash if the FTA waives those penalties.
Our tax specialists are experienced and can help you assess your tax situation, provide advice about appropriate tax treatment, make clarification requests, or assist you in dealing with the FTA.
Should you have any questions or concerns regarding tax, we are happy to discuss your specific situation with you and determine the best course of action. You can reach us at firstname.lastname@example.org.