UAE Tax Penalties Reduced and Discounts Granted
Looking for an opportunity to reduce or avoid VAT penalties which have been accumulating over a period of time? This information must give you an useful insight for the same.
The UAE Cabinet of Ministers issued Decision No. 49/2021 amending provisions of Cabinet Decision No. 40/2017 regulating tax penalties on 28th April 2021 which are:
- Late penalty dates have been revised
- Penalties reduced from 1% per day to 4% per month
- Late penalty still capped at maximum 300%
- Chances of reduction of previous unpaid penalties
Horizon Biz Consultancy is a certified tax agent with team of professionals who will advise you to avoid penalties and other queries.
Penalty reduction information:
New calculation of late payment penalties will be calculated as follows:
PENALTY BEFORE AMENDMENT
2% of the unpaid tax immediately past the due date.
4% is due on the seventh day following the due date.
1% per day after a calendar month from the due date.
PENALTY AFTER AMENDMENT
2% of the unpaid tax immediately past the due date.
4% per month thereafter commencing a month after the due date.
*The 300% cap on the late payment penalties is still applicable.
In Summary, the late payment penalties have been reduced from 1% per day to 4% per month for the due amount after a calendar month.
Its duty of the business to maintain proper records, not being able to provide when asked can lead to penalty of AED 10,000 for first time and 20,000 on repetition.
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.
- 20 weekdays as of the date of submission of a voluntary disclosure
- 20 weekdays as of the date of a tax audit
The text of the new Decision is explicit and reads to apply the late payment penalties 20 weekdays from the date of a voluntary disclosure or audit assessment, as opposed to retrospectively.
This should be read in caveat with the Supreme Court order that late payment penalties apply retrospectively from the date of the original tax return.
Voluntary disclosure:
PENALTY BEFORE AMENDMENT
Previously voluntary disclosure followed fixed base penalty where if disclosed for
First time – AED 3,000
Repetition – AED 5,000
PENALTY AFTER AMENDMENT
In case while filing the vat there are some error, voluntary disclosure penalty has been reduced, it is 5% in the first year on the difference amount from date of tax return, assessment or related claim, 10% in the second year and 30% in third year and so on.
Discounts for previous penalties:
The new Decision grants the Federal Tax Authority to decrease your penalty provided the following conditions are met:
- Regularly pay your taxes till December 2021
- Pay 30% of your previous outstanding balance for penalty charged as per previous cabinet decision
- Lead to decrease in tax penalty by 30%
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