“Adhering to corporate tax compliance is a responsibility of all taxable persons to support the implementation of the corporate tax system in the UAE,” said Younis Haji Al Khoori, Undersecretary of the Ministry of Finance. Image Credit: Shutterstock

Dubai: The UAE Ministry of Finance has made significant announcements concerning tax procedures and penalties, aiming to enhance compliance and foster the country’s position as an attractive investment destination.

In a recent update, the Ministry introduced Cabinet Decision No. (74) of 2023, which focuses on the Executive Regulation of Federal Decree-Law No. (28) of 2022 on Tax Procedures, known as the New Tax Procedures Law. This cabinet decision replaces the existing Executive Regulation, aligning definitions, procedures, and processes with the new law that became effective on March 1, 2023.

Among the key provisions, the cabinet decision outlines the requirements for maintaining accounting records and commercial books, specifying the period and manner of record-keeping. It also introduces updates related to tax agent registration and de-listing procedures, emphasizing the need for communication in Arabic or English.

Additionally, the rights and responsibilities of tax agents, procedures for reconciliation in tax evasion crimes, and conditions for tax payment and refunds are addressed. The decision further highlights the obligations of a trustee in cases of bankruptcy.

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Qualifying investment funds

The Ministry on Saturday outlined additional conditions for qualifying investment funds under Federal Decree-Law No. (47) of 2022 on the Taxation of Corporations and Businesses. Investment funds must meet specific criteria to be treated as qualifying investment funds and be exempt from corporate tax. The decision allows flexibility in ownership criteria for the first two financial years of the fund’s establishment, encouraging diversified ownership beyond this period.

The cabinet decision outlines additional conditions for investment funds, excluding Real Estate Investment Trusts (REITs), to qualify for exemption from corporate tax. To be eligible, these funds must primarily engage in investment business activities, with ancillary or incidental activities not exceeding 5 per cent of their total annual revenue.

Furthermore, the share of ownership interests held by a single investor and related parties must not exceed 30 per cent or 50 per cent, depending on the number of investors in the fund. Additionally, these funds should be overseen by an investment manager employing a minimum of three investment professionals, and the day-to-day management of the fund should not be controlled by investors.

To provide flexibility within the corporate tax system, ownership criteria for investment funds (excluding REITs) will not be binding for the first two financial years after the fund’s establishment. However, the fund must substantiate its intent to diversify its ownership after this initial period.

As for REITs, specific exemption conditions apply. These include the requirement for real estate assets (excluding land held by the REIT) to exceed Dh100 million in value. Moreover, a minimum of 20 per cent of the REIT’s share capital should be publicly listed or wholly owned by two or more institutional investors, and an average real estate asset percentage of at least 70 per cent must be maintained annually.

Administrative penalties

The UAE Ministry of Finance issued another critical Cabinet Decision, No. (75) of 2023, related to administrative penalties for violations concerning the corporate tax law. The decision specifies penalties that will be imposed by the Federal Tax Authority, effective from August 1, 2023, to ensure smooth implementation and compliance with the Corporate Tax Law.

“Adhering to corporate tax compliance is a responsibility of all taxable persons to support the implementation of the corporate tax system in the UAE, which is in line with the highest global standards,” said Younis Haji Al Khoori, Undersecretary of the Ministry of Finance. “It also drives sustainable economic growth in the UAE by providing a conducive legislative environment that promotes tax compliance.”

According to Cabinet Decision No. (75) of 2023, taxable persons, whether individuals or legal entities, who fail to comply with their obligations under the UAE corporate tax law will face penalties. These penalties will be enforced in cases of failure to file and pay corporate tax on time. Additionally, penalties will apply if the registrant fails to inform the Federal Tax Authority of any changes that may require amending the information in their tax record maintained by the Authority. To encourage voluntary compliance, a new structure for voluntary disclosure penalties has been introduced.

Furthermore, penalties will be applicable for inadequate record-keeping or the failure to submit the required records and other information specified in the tax law. The aim of these penalties is to ensure adherence to the corporate tax regulations and promote a culture of proper tax compliance in the UAE.