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.

Effective date of UAE Cabinet of Ministers Decision No. 49/2021 is sixty days from the issuance date.

Penalty calculation:

Most notable of the new amendments is that the late payment penalties of VAT & Excise Tax have been reduced from 1% per day to 2% per month up to one month & 4% per month thereafter for the period in which the tax remains unpaid with a maximum cap of 300%.

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 to:

  • 5%   if Voluntary Disclosure submitted within 1st year of due date of Tax Return
  • 10% if Voluntary Disclosure submitted during 2nd year from the due date of Tax Return
  • 20% if Voluntary Disclosure submitted during 3rd  year from the due date of Tax Return
  • 30% if Voluntary Disclosure submitted during 4th year from the due date of Tax Return
  • 40% if Voluntary Disclosure submitted after 4th year from the due date of Tax Return.

Reduction in the other penalties:

  • Failure to keep proper records

(10,000) for the first time and  (20,000) in case of repetition

  • Failure to submit registration request on time

AED 20,000 reduced to AED 10,000 for failure of the taxable person to submit a registration application within the timeframe specified in the Tax Law. 

  • Failure to submit de-registration on time

(AED 10,000 reduced to AED 1,000 monthly (not exceeding AED 10,000) for failure of the registrant to submit a deregistration application within the timeframe specified in the Tax Law 

  • Failure to inform for amendment in information

(5,000) for the first time and  (10,000) in case of repetition

  • Failure by the Taxable Person to display prices inclusive of Tax

AED 15,000 reduced to AED 5,000 for failure by the taxable person to display prices inclusive of VAT.

  • Failure by the Taxable Person to issue the Tax invoice/Tax credit note or an alternative document when making any supply.

AED 5,000 (for each tax invoice) reduced to AED 2,500 (for each instance discovered) for failure by the taxable person to issue a tax invoice / tax credit note or an alternative document when making any supply.

Due date / start of penalties:

In October 2020, the UAE Federal Supreme Court ordered that late payment penalties should apply retrospective to the voluntary disclosure, calculated as of the date of the original tax return.

However, 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.

Discounts for previous penalties:

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 following conditions are met:

  • The penalties were applied under the previous Cabinet Decision No. 40/2017 regulating tax penalties.
  • The registrant has paid all taxes due by 31 December 2021 at most.
  • By 31 December 2021, at most, the registrant must have paid 30% of the total tax penalties owed until the coming into effect of the new Decision (i.e. 60 days from 28 April 2021)

At RVG, our professionals will help you in avoiding these penalties and will guide your company for requirements and compliances.