UAE VAT: Penalty reduction and tax amnesty

It has now been three and a half years since the introduction of VAT in UAE, the law has evolved to gain more maturity and clarity. Like every taxation system, noncompliance provision of the VAT law, results in hefty penalties to taxpayers. Due to the ongoing pandemic which has badly hit many businesses and caused difficult time, the government has extended a helping hand by providing a great relief in various penalties. 

On 28 April 2021, the U.A.E. Cabinet of Ministers issued Decision No. 49/2021, applicable from 28 June 2021, amending the existing provisions of Cabinet Decision No. 40/2017 regulating Tax Penalties. In order to reduce the impact of pandemic, the Federal Tax Authority has provided a major tax relief by substantially reducing the Administrative Penalties for non-compliance as well as decided to provide Amnesty (up to 70% waiver) of the unpaid penalties. 

The highlights of some major reliefs are listed below: 

1. Amnesty / Reduction of up to 70% of the penalties. The waiver shall be applied only on the penalties that are imposed until 27.06.2021 under the Cabinet Decision No. 40/2017 (old Administrative Penalty provisions) and which are still unpaid as on 27.06.2021. An amount equivalent to 30% of these outstanding penalties, along with 100% of the outstanding tax amount must be settled on or before 31.12.2021 to get advantage / relief of this 70% reduction. 
2. The late payment penalty has been reduced to 4% per month from 1% per day (the cap of 300% still applies). 
3. The late registration penalty has been reduced to AED 10,000/- from AED 20,000/-. 
4. The late de-registration penalty has been reduced to AED 1,000/- per month of delay (maximum penalty AED 10,000/-) from flat AED 10,000/-. 
5. The starting date for calculating penalties in case of Voluntary Disclosure (VD) will now be 20 days from the date of its submission instead of the last date of submission of the original return. 
6. The fixed penalty for submitting a VD has been reduced to AED 1,000/- from AED 3,000/- for the first time and AED 2,000/- from AED 5,000/- in case of repetition. 

The Federal Tax Authority has taken this great initiative to help taxpayers settle their outstanding penalties by waiving 70% as well as reducing the existing penalties which will help businesses in coping with the impact of pandemic. By these initiatives the UAE which is a top 20 global business destination in terms of ease of doing business will further attract more global investments.