Penalties on UAE's corporate tax violations come into effect August 1, 2023. But UAE businesses have an ample window to get all their filings done right. Image Credit: Shutterstock

Dubai: Now that the UAE Ministry of Finance has set the penalty structure for non-compliance on corporate tax, businesses have a nine-month window to make sure that all their submissions are in order. The nine-month window will be in sync with the financial year a particular company is following. For instance:

* If the company sets its annual financials in the January 1 to December 31 timeframe, then it will have until September of the following year to do its tax returns.

* If the company’s financial year runs from June 1, 2023 to May 31, 2024, then the submission deadline is February of 2025.

The size of the penalties for each violation will be announced later.

“Most tax jurisdictions give on average 6-10 months to submit the corporate tax returns,” said Pankaj S. Jain, Managing Director at AskPankaj, the tax consultancy. “In this regard, UAE’s 9-month window for tax filing is pretty generous.

"What companies must be careful about how to handle the arrears, as defaults would generally be found on assessments that will take place after a year or more.”


How do the penalties stack up?

In the announcements made Saturday (July 29), the UAE finance ministry specifies the administrative penalties on corporate tax violations. They become effective from August 1.

In the statement, the ministry said that the penalties have been ‘carefully designed and benchmarked to ensure successful implementation and compliance.

At the same time, it’s done ‘without burdening UAE businesses’. “Adhering to corporate tax compliance is a responsibility of all taxable persons to support the implementation of the system in the UAE,” said Younis Haji Al Khoori, Undersecretary of the Ministry of Finance.

Hewing close to the VAT penalty structure?

“The penalties on compliance with prescribed tax procedures - maintaining records, timely payment, submission of returns etc. - are expected to be similar across all tax regimes,” said Jain. (AskPankaj and ‘Gulf News’ are introducing a package to assist companies on corporate tax registration.) “The penalties for specific offences and/or non-compliance under a particular tax regime would be individually prescribed.

“For instance, when it comes to VAT, the non-issuance of a tax invoice or display VAT-inclusive prices under the VAT regime. “Such specific penalties for corporate tax would be specified in the near future.”

Size of penalties

Tax audit sources suggest the penalties could be in the range of Dh1,000-Dh2,000 to 2-4 per cent of the tax dues (which would be akin to VAT-related penalties).

Filing of appeals

If a penalty is imposed, the concerned business can ‘first submit a reconsideration request against a tax assessment, including penalties,” said Jain. “Based on the decision of the reconsideration request, the taxpayer can submit an objection to Tax Dispute Resolution Committee (TDRC).

“The next stage is to appeal in the competent courts based on the facts of each individual case. The tax procedure laws prescribe the process and conditions for each appellate forum.”

Registrations on track

The UAE opened up corporate tax registrations on June 1, 2023, and to date, the progress has gone along expected lines. There is no cut-off deadline given for the registration and can be done until the date to submit the corporate tax returns at the end of the company’s financial year. It is recommended that businesses register before the start of the financial year.

What does the UAE Cabinet Decision No. (75) of 2023 say about corporate tax penalties?
* Penalties will be imposed on ‘taxable persons’, whether an individual or a legal entity, who do not comply with their obligations under the UAE law.

* Penalties will be applied in cases of failure to file and pay corporate tax due on time, including the failure of the registrant to inform the Federal Tax Authority of any case that may require the amendment of the information pertaining to his Tax record kept by the Federal Tax Authority.

* A new structure has also been introduced for voluntary disclosure penalties.

* Penalties also apply in cases of failing to properly keep records or submitting the required records and other information specified in the law.