Global Tax Alert | 3 August 2017

UAE issues landmark Federal Law on tax procedures

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Executive summary

The United Arab Emirates (UAE) Ministry of Finance (MoF) has issued the landmark Federal Law No. 7 of 2017 (Law No. 7) regarding tax procedures. Law No. 7 “sets the foundations for the planned UAE tax system, regulating the administration and collection of taxes and clearly defining the role of the Federal Tax Authority (FTA).” The MoF has released an unofficial translated copy on its website.

Detailed discussion

Highlights

  • The tax procedures law will form an administrative basis for the application of the Excise Tax and Value-Added Tax (VAT) laws, which are expected to be released shortly.
  • This law will come into effect 30 days after its issuance in the Official Gazette. Companies will have to start keeping business records after this date.
  • The law introduces a tax agent regime.
  • The law sets a range of administrative and tax evasion penalties. Administrative penalties shall be no less than AED500 (US$136) and shall not exceed three times the amount of tax with respect to which the penalty was levied.
  • For tax evasion penalties, the FTA is empowered to impose a prison sentence and monetary penalty not exceeding five times the amount of the evaded tax (or either of these two).
  • A dispute resolution regime will be in place, although it will be necessary to settle the tax and penalty owed before requesting a decision to be reconsidered by the dispute resolution committee.

Additional details on these key provisions are summarized below.

Compliance, payments and record-keeping

Tax returns, data, information and records should be submitted to the FTA in Arabic, although other languages may also be accepted where the taxable person provides a translated Arabic copy.

A tax registration number should be included on all correspondence with the authorities. Changes to accounting records must be communicated to the FTA within 20 days from the date of a change. In addition, appointed legal representatives must inform the FTA within 20 days from the date of their appointment.

The taxable person should submit a ”voluntary disclosure” in the event the person becomes aware that a tax return submitted is incorrect. Communication by the FTA to the taxable person will be sent to the address stated in the correspondence between the FTA and the person.

The FTA will establish a register of tax agents. To practice as a tax agent in the UAE, a person must be listed in the register, and licensed for this purpose by the Ministry of Economy and the competent local authority.

Tax audits and penalties for noncompliance

The FTA has the right to perform tax audits on any person in order to determine their compliance with the relevant law. The FTA must give at least a five-day notice to the taxable person prior to the tax audit. The FTA also has the right to obtain original records and samples from the person.

Any person subject to a tax audit, his tax agent or legal representative must facilitate and offer assistance to the Tax Auditor to enable him to perform his duties.

The FTA shall issue a tax assessment if determines that any tax is payable and notify the taxpayer within five business days of its issuance.

The FTA is entitled to issue administrative penalties to a taxable person for up to three times the amount of tax, which should be paid within five business days of its issuance. An administrative penalties assessment will be applicable on (among other reasons) for failure to keep accounting records, submit data in Arabic when requested, or submit a registration application within the time frame specified by the FTA.

Without prejudice to any more severe applicable penalties under any other law, a prison sentence and/or monetary penalty not exceeding five times the amount of evaded tax shall be imposed in cases where taxpayers deliberately fail to settle either tax payable or administrative penalties levied; or collect tax from clients without being registered for tax (among other offenses).

Tax disputes, requests for reconsideration and tax refunds

A taxable person may submit a request to the FTA to reconsider any of its decisions within 20 business days from notification of the decision.

One or more permanent committees shall be formed known as the “Tax Disputes Resolution Committee.” The committee will be chaired by a member of the judicial authority and two expert members registered as tax experts, and appointed by a decision by the Minister of Justice in coordination with the Minister of Finance.

Objections regarding the FTA’s decision on a reconsideration request shall be submitted within 20 business days from the date of notification. The committee shall review the objection submitted and revert within 20 business days of the receipt of objection. Reconsideration requests will not be accepted if the related taxes and penalties have not been settled.

The FTA and the taxable person may challenge the decision of the committee in the competent court within 20 business days of being notified by the committee.

Tax refunds will be offset against any other tax payable or administrative penalties due from the taxpayer before refunding any amount relating to a particular tax.

The statute of limitations is five years except in cases of proven tax evasion or non-registration for tax purposes. If tax evasion is proven, the tax assessment shall be conducted within 15 years from the end of the tax period in which the tax evasion occurred.

The FTA has the right to reduce the tax assessment or penalties if the taxable person submits proof justifying the reason of noncompliance.

Time limits and due dates are based on the Gregorian calendar.

The law is to be issued in the Official Gazette and will come into force 30 days from date of publication.

For additional information with respect to this Alert, please contact the following:

Ernst & Young Middle East, Dubai Branch, United Arab Emirates
  • David Stevens, EY VAT Implementation Leader
    +971 4 332 4000
    david.stevens@ae.ey.com
  • Nicola Butt
    +971 4 701 0853
    nicola.butt@ae.ey.com
  • Samuel H Jong Lim
    +971 4 701 0659
    hengjong.lim@ae.ey.com
  • Martin Lazaroff
    +971 4 701 0691
    martin.lazaroff@ae.ey.com
  • Mark McKay
    +971 4 701 0812
    mark.mckay@ae.ey.com
  • Engela Wiid
    +971 4 701 0826
    engela.wiid@ae.ey.com
  • Aiki Kuldkepp
    +971 4 701 0893
    aiki.kuldkepp@ae.ey.com
Ernst & Young Middle East, Abu Dhabi Branch, United Arab Emirates
  • Sana Azam
    +971 2417 4562
    sana.azam@ae.ey.com
  • James Bryson
    +971 2417 4400
    james.bryson@ae.ey.com
Ernst & Young, Qatar, MENA VAT Implementation Team
  • Finbarr Sexton
    +974 4457 4200
    finbarr.sexton@qa.ey.com
  • Jennifer O’Sullivan
    +974 4457 4112
    jennifer.osullivan@qa.ey.com
  • Filip Van Driessche
    +974 4457 4271
    filip.vandriessche@qa.ey.com
Ernst & Young LLP, Middle East Tax Desk, Houston
  • Gareth Lewis
    +1 713 750 1163
    gareth.lewis1@ey.com

EYG no. 04547-171Gbl