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Voluntary Disclosure for VAT in UAE

CA Rajiv HiraCA Rajiv Hira    18 May 2021
Voluntary Disclosure for VAT in UAE

Voluntary disclosure provides an opportunity offered by tax administration to allow previously non-compliant taxpayers to correct their tax affairs under specified terms, in general voluntary disclosure programmes benefit everyone i.e.:

  • Taxpayers making the disclosure,
  • Compliant taxpayers, and
  • Tax Authorities.

In UAE, a Voluntary Disclosure for VAT can be done through form (VAT Form 211) provided by the Federal Tax Authority (FTA) which enables the taxpayers to voluntarily notify the FTA about the error or omission in a previous Tax Return, Tax Assessment or Tax Refund application.

With the approval of Cabinet Resolution No. (49) of 2021, where administrative penalties were relooked for motivating the taxpayer to be on the right side of compliance. There are considerable relief being provided for taxpayers, looking for voluntarily rectify and correct the tax affairs, which may be on account of interpretation or administrative errors. Cabinet Resolution No. (49) of 2021, may supersede the Cabinet Resolution No. (40) of 2017 on Administrative Penalties for Violations of Tax Law in the UAE.

It is expected that Cabinet Resolution No. (49) of 2021, will be applicable on or before July’2021.

Critical aspects which may be amended are:

The taxable person failed to pay the tax shown as a tax payable in the tax return or voluntary declaration that was submitted, or the tax assessment that was notified within the time limit specified in the tax law.

 

Cabinet Resolution No. (49) of 2021

Cabinet Resolution No. (40) of 2017

The failure of the Taxable Person to settle the Payable Tax stated in the submitted Tax Return or Tax Assessment he was notified of, within the timeframe specified in the Tax Law.

1. The taxable person shall pay the penalty applicable to the late payment of the payable tax, with a maximum of (300%), in accordance with the following:

(a) (2%) of the unpaid tax due on the day following the due date for payment, upon late payment of the payable tax;

(b) (4%) monthly penalty due after one month from the payment due date, and on the same date every month after that, on the amount of tax that has not been paid to date.

2.For the purposes of this penalty, the due date for payment in the event of voluntary declaration and tax assessment is as follows:

(a) In the case of the voluntary declaration, (20) business days from the date of its submission.

(b) In the case of tax assessment, (20) business days from the date of its receipt.

The Taxable Person shall be obligated to pay a late payment penalty consisting of:

- (2%) of the unpaid tax is due immediately once the payment of Payable Tax is late;

- (4%) is due on the seventh day following the deadline for payment, on the amount of tax which is still unpaid.

- (1%) daily penalty charged on any amount that is still unpaid one calendar month following the deadline for payment with upper ceiling of (300%).

Commentary:

There is a considerable impact, where (1%) daily penalty is replaced with (4%) monthly penalty due after one month from the payment due date, and on the same date every month after that, on the amount of tax that has not been paid to date.

Secondly, for the purposes of this penalty, the due date for payment in the event of voluntary declaration and tax assessment is specified as 20 business days.

 

Cabinet Resolution No. (49) of 2021

Cabinet Resolution No. (40) of 2017

The submittal of an incorrect Tax Return by the Registrant.

(Clause 10)

1. A fixed penalty is imposed:

· (1,000) for the first time.

· (2,000) in case of repetition.

2. As an exception to Clause (1) of this penalty, if the incorrect tax return results in a tax difference less than the fixed fine mentioned in Clause (1) of this penalty, a fine equal to the tax difference shall be imposed, provided it is not less than AED (500).

3. Whoever corrects its tax return before the payment due date shall be exempted from the penalty specified in Clauses (1) and (2) of this penalty.

Two penalties are applied:

1. Fixed penalty of:

· (3,000) for the first time. · (5,000) in case of repetition

2. Percentage based penalty shall be applied on the amount unpaid to the Authority due to the error and resulting in a tax benefit as follows: - (50%) if the Registrant does not make a voluntary disclosure or he made the voluntary disclosure after being notified of the tax audit and the Authority has started the tax audit process, or after being asked for information relating to the tax audit, whichever takes place first.

- (30%) if the Registrant makes the voluntary disclosure after being notified of the tax audit and before the Authority starts the tax audit.

- (5%) if the Registrant makes a voluntary disclosure before being notified of the tax audit by the Authority.

Commentary:

There is a considerable reduction of fixed penalty from 3,000/ 5,000 to 1,000/2,000 for first time & in case of repetition respectively, additional benefit is provided in cases where tax difference is less then fixed fine, with a minimum penalty of AED 500.

Secondly, we had noticed instances where, even correction of incorrect return was done before the due date, in those case there will be no penalty under this category.

 

Cabinet Resolution No. (49) of 2021

Cabinet Resolution No. (40) of 2017

The Voluntary Disclosure by the Person/Taxpayer of errors in the Tax Return, Tax Assessment or Refund Application pursuant to Article 10 (1) and (2) of the Tax Procedures Law.

Without prejudice to the consequences of the penalty mentioned in Clause (10) hereof, a proportional penalty shall be imposed on the amount of the difference between the tax calculated and the tax that should have been calculated, in accordance with the following:

1. (5%) on the difference amount in the event that the voluntary declaration was submitted within one year of the due date of the tax return, tax assessment, or related refund application.

2. (10%) on the difference amount in the event that the voluntary declaration was submitted during the second year from the due date of the tax return, tax assessment, or related refund application.

3. (20%) on the difference amount in the event that the voluntary declaration was submitted during the third year from the due date of the tax return, tax assessment, or related refund application.

4. (30%) on the difference amount in the event that the voluntary declaration was submitted during the fourth year from the due date of the tax return, tax assessment, or related refund application.

Two penalties are applied:

1. Fixed penalty of:

· (3,000) for the first time. · (5,000) in case of repetition

2. Percentage based penalty shall be applied on the amount unpaid to the Authority due to the error and resulting in a tax benefit as follows:

- (50%) if the Person/Taxpayer makes a voluntary disclosure after being notified of the tax audit and the Authority starting the tax audit or after being asked for information relating to the tax audit, whichever takes place first.

- (30%) if the Person/Taxpayer makes the voluntary disclosure after being notified of the tax audit but before the start of the tax audit.

- (5%) if the Person/Taxpayer makes voluntary disclosure before being notified of the tax audit by the Authority.

Commentary:

Under this section, set-up approach may be adopted based on timeline, within which correction is initiated. Penalty under the category ranges from 5% (if identified & declared in year one) to 30% (if identified and declared during fourth year from the error).

This section is applicable when error was voluntarily disclosed before being notified or identified by the tax authority.

 

Cabinet Resolution No. (49) of 2021

Cabinet Resolution No. (40) of 2017

The failure of the Taxable Person to voluntarily disclose errors in the Tax Return, Tax Assessment or Refund Application pursuant to Article 10 (1) and (2) of this the Tax Procedures Law before being notified that he will be subject to a Tax Audit.

Without prejudice to the consequences of the penalty mentioned in Clause (10) hereof, shall be imposed a person:

1. A penalty of (50%) on the amount of error;

2. A penalty of (4%) for each month or part of the month from any of the following:

(a) Tax unpaid to FTA, from the date that payment is due for the relevant tax period until the date of receipt of the tax assessment.

(b) The tax that has not been refunded to FTA due to an unjust tax refund, from the date of the tax refund from FTA until the date of receiving the tax assessment.

Two penalties are applied:

1. Fixed penalty of:

· (3,000) for the first time. · (5,000) in case of repetition

2. (50%) of the amount unpaid to the Authority due to the error resulting in a tax benefit for the Person/Taxpayer.

Commentary:

The failure of the Taxable Person to voluntarily disclose errors in the Tax Return, Tax Assessment or Refund Application, will attract additional penalty of 50% on the amount of error & 4% for each month for any unpaid amount to tax authority.

Tax Authorities are working towards, providing benefit to the taxable person by reducing the penalty amount in the event taxable person is willing to disclosure voluntarily the error / omission, in the process of compliance.

Stringent provisions were applied where taxable person is not able to or failed to voluntarily disclose errors, in time. It’s a right opportunity to reassess the tax-positions and operational / accounting aspects for evaluating internal compliance and voluntary disclosure previously non-compliant positions to correct tax affairs and work towards the liberal benefit provided through timely voluntary disclosure scheme.

 

Disclaimer: Content posted is for informational & knowledge sharing purposes only, and is not intended to be a substitute for professional advice related to tax, finance or accounting. The view/interpretation of the publisher is based on the available Law, guidelines and information. Each reader should take due professional care before you act after reading the contents of that article/post. No warranty whatsoever is made that any of the articles are accurate and is not intended to provide, and should not be relied on for tax or accounting advice.

You can access Law including Guidelines, Cabinet & FTA Decisions, Public Clarifications, Forms, Business Bulletins for all taxes (Vat, Excise, Customs, Corporate Tax, Transfer Pricing) for all GCC Countries in the Law Section of GCC FinTax

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