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UAE: New decisions on tax procedures, penalties and exemptions announced

Penalties apply for late filing and payment of corporate taxes, as well as for not maintaining proper records or providing required tax information

The UAE Cabinet has issued new decisions related to tax procedures, penalties and exemptions. Under the Cabinet Decision No. (75) of 2023, administrative penalties will be imposed by the Federal Tax Authority (FTA) for violations related to corporate tax law from August 1, 2023, on taxable persons, whether an individual or a legal entity, who does not comply with the corporate tax law.

The 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 FTA of any case that may require the amendment of the information on his tax record kept by the FTA. A new structure has also been introduced for voluntary disclosure penalties.

The ministry added that penalties would also apply when failing to properly keep records or submitting the required records and other information specified in the tax law.

The ministry explained that penalties had been carefully designed and benchmarked to ensure successful implementation and compliance with the corporate tax law without burdening UAE businesses that comply with the new regulations.

“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, under-secretary of the Ministry of Finance.

Mayank Sawhney, managing director, MaxGrowth Consulting, said the new Executive Regulations on tax procedures applicable in relation to VAT, Excise Tax and Corporate Tax in UAE were issued via Cabinet Decision No. (74) of 2023, effective on all businesses from August 1, 2023.

Under this law, 11 key changes have been made, including the definition of the term 'Assets' now expanded to include 'Intangible Assets'; businesses are now obligated to retain all documents that support all accounting entries; and books of accounts and supporting documents for real estate Transactions are required to be maintained for seven years from the end of the tax year in which such transaction was conducted (instead of 15 Years prescribed earlier).

In addition, the other changes include requirement for any documents related to tax to be submitted to FTA is now allowed to be either English or Arabic (instead of only Arabic prescribed earlier); businesses having tax registration with FTA are now obligated to notify FTA of any change in their e-mail address, trade license or legal status within the prescribed timeline; FTA can now at its own discretion do tax de-registration of any tax registrant, who does not anymore meet the various tax registration criteria, even if such tax registrant, has not submitted tax de-registration application to FTA; and all licensing bodies who issue trade licenses to businesses in UAE are now obligated to notify to FTA, the basic data and information on each business within 20 business days of any issuance or renewal of trade license by them.

Moreover, taxable persons are now obligated to submit a voluntary disclosure to rectify any error in the tax return, even if such error does not result in any impact on 'Due Tax' for such tax period.

Mayank Sawhney added that the condition of tax agents registered with FTA to have proficiency in Arabic has been removed, and now tax professionals with proficiency in either English or Arabic can be registered as tax agents with FTA.

Also, a juridical person, i.e. a legal entity, can now be registered as a tax agent with FTA instead of the old condition that only a natural person can be registered as a tax agent with FTA.

Under the amendment, he said, FTA must give at least ten business days' notice to the taxable person before conducting a tax audit instead of the 5-day notice prescribed earlier.

Exemption

The ministry further revealed that Cabinet Decision No. (81) of 2023 was issued, which outlined additional conditions for qualifying investment funds under the Federal Decree-Law No. (47) of 2022 on the Taxation of Corporations and Businesses.

The Cabinet Decision stipulated additional conditions that investment funds must meet to be treated as a qualifying investment fund and be exempted from corporate tax.

The additional conditions for investment funds, other than Real Estate Investment Trusts (REITs), to be exempt from Corporate Tax, include being primarily engaged in investment business activities, with ancillary or incidental activities not exceeding 5 per cent of their total annual revenue; the share of ownership interests in the investment fund held by a single investor and its related parties not exceeding 30 per cent or 50 per cent, depending on the number of investors in the investment fund; being overseen by an investment manager employing a minimum of three investment professionals; and the day-to-day management of the fund not being controlled by investors.

It elaborated that the diversity of ownership criteria for investment funds other than Reits will be non-binding for the first two financial years of the fund's establishment, provided that the intent to diversify its ownership after the first two financial years is substantiated.

Regarding REITs, the exemption conditions include the necessity for real estate assets, excluding land held by the Reit, to exceed Dh100 million in value, a minimum of 20 per cent of its share capital being publicly listed or wholly owned by two or more institutional investors, and an average real estate asset percentage of at least 70 per cent maintained annually.

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