UAE tax penalties reduced and discounts granted

On 28 April 2021, the UAE Cabinet of Ministers issued Decision No. 49/2021 amending provisions of Cabinet Decision No. 40/2017 regulating tax penalties (the “new Decision”).

Important Highlights:

  • Late payment penalties reduced from 1% per day to 4% per month.
  • 300% cap still applies.
  • New starting date for calculating late payment penalties.
  • Reductions for prior penalties to be made.

Fixed penalties for submitting Voluntary Disclosures for incorrect VAT and Excise Returns has been reduced to AED 1,000 for the first VD submission and AED 2,000 in case of repetition.

Percentage based penalties for difference in Tax Amounts resulting from Voluntary Disclosures has also been reduced.

Due date / start of penalties:

The new Decision states that the due date for the purposes of calculating late payment penalties shall be:

  • 20 weekdays as of the date of submission of a voluntary disclosure, or
  • 20 weekdays as of the date of receipt of a tax assessment.

The new Decision grants the Federal Tax Authority the right to reduce previously unpaid penalties to 30% of the total of such penalties where the certain conditions are met.

UAE to implement 100% foreign ownership of companies from June 1

UAE Ministry of Economy has made a very important announcement stating that the new Commercial Company Law with regards to 100% Foreign Ownership will be effective from 1st of June, 2021.

According to the announcement, all the existing business in the mainland can amend their license according to the new Commercial Companies law.

As per the new foreign direct investment regime, several categories of business licenses will no longer require Emirates as sponsors with 51 per cent shareholding rights. Moreover, the mandatory requirement of having the Local Service Agent will also be no longer applicable as per the new Commercial Company Law.

UAE’s Ministry of Economy said it is working on a new legislation to include 10 new sectors to the Commercial Companies Law, which allows 100 per cent foreign ownership of onshore companies in the country.

However, there are exceptions for a few businesses operating in sectors that are strategically important to the UAE. The new decision is not applicable for companies wholly owned by Federal or local Government or their subsidiaries.

UAE Economic Substance Regulations (ESR) Compliance

Under the UAE Ministry of Finance Guidelines on Economic substance Regulation, for businesses engaged in any of the ESR relevant activities, the due date for filing ESR notification is six months from the end of the financial year. If the business has generated income from the relevant activities, (unless exempt) the ESR Report needs to be filed within twelve months from the end of the financial year.

Deadline for ESR compliance:

Financial year endDue date of ESR notification (as applicable)Due date of ESR report (as applicable)
30th June 2020 31st Jan 2021
(Extended Deadline)
30 June 2021
31st Dec 2020 30 June 2021 31st Dec 2021
31st Mar 2021 30th Sept 2021 31 March 2022
30th June 2021 31st Dec 2021 30 June 2022

DMCC Audit deadline 2021: (29 June 2021)

DMCC extended the Audited Financial Statement (AFS) deadline to 29/06/2021.

According to the implementing regulations, a DMCC Member Company has to upload the auditor’s signed and stamped Audited Financial Statements Summary Sheet and the Audited Financial Statements Report via a designated online service request on the member portal.

DMCC has extended the deadline of audit submission from 3 months to 6 months after the end of financial year for all the DMCC member companies.

Companies having end of financial year 31 Dec 2020 will have to submit the audited financials by no later than 29th of June.

Temporary Zero rating of Certain Medical Equipment

The Federal Tax Authority has published VATP025, which replaces Public Clarification VATP023 on “Temporary Zero-rating of Certain Medical Equipment”.

  1. Date extended till 31st December-2021 for VAT at the rate of 0% on certain supplies and import of medical equipment.
  2. After 31st December 2021, if there is any supply then normal procedures shall apply.
Scope of the relief

The “medical equipment” to which the temporary zero-rating rules apply are personal protective equipment used for the protection from Covid-19, such medical equipment are limited to:

  • Medical face masks
  • Half filtered face mask
  • Non – Medical “community” face mask made from textile
  • Single-use gloves
  • Chemical disinfectants and antiseptics intended for use on the human body, but excluding detergents, cosmetics and personal care products

Excise Tax Update (Average Retail Selling Price)

UAE’s Federal Tax Authority (FTA) has issued Federal Tax Authority Decision No. 1 of 2021 which highlights the Mechanism for Calculating the Average Retail Selling Price of Excise Goods in the Market. The following major points are covered:

Article 1 – Calculation of the Average Retail Selling Price in the Market

Article 2 – Excise Goods Not Intended for Retail Sale in the State

Article 3 – Implementation of the Decision (28th of April 2021)

UAE VAT update – user guide on “VAT payment for Commercial property buyers

UAE Federal tax authority has issued an updated user guide on “VAT payment for Commercial property buyers” in May 2021 to help Persons who are buying or selling a commercial property which is subject to VAT in the UAE to complete their VAT payment on the FTA’s eServices portal. This is applicable to the sales of commercial property which is subject to 5% VAT. This, however, does not apply to any sales or leases of residential property, lease of commercial property.