The United Arab Emirates (UAE) has announced a series of significant decisions related to tax procedures, penalties, and exemptions, signifying a shift in the country’s taxation landscape.
New Penalties for Tax Violations:
Under the recently unveiled Cabinet Decision No. (75) of 2023, the Federal Tax Authority (FTA) will enforce administrative penalties for breaches of corporate tax regulations starting August 1, 2023. These penalties will apply to both individuals and legal entities, commonly referred to as taxable persons, who fail to comply with corporate tax laws. Instances leading to penalties include late filing and payment of corporate taxes, as well as inadequate record-keeping or failure to provide necessary tax information.
The new regulations also introduce a revised framework for voluntary disclosure penalties, enhancing transparency and accountability within the tax ecosystem.
Streamlined Tax Procedures:
Cabinet Decision No. (74) of 2023, effective from August 1, 2023, brings forth a series of amendments to tax procedures impacting VAT, Excise Tax, and Corporate Tax. Some notable changes include:
- Expanded ‘Assets’ Definition: The term ‘Assets’ now encompasses ‘Intangible Assets,’ broadening the scope of taxable assets.
- Document Retention Obligation: Businesses are now obligated to retain documents supporting accounting entries, enhancing accountability and transparency.
- Real Estate Transaction Records: Records related to real estate transactions must be maintained for seven years from the end of the tax year in which the transaction occurred, as opposed to the previous 15-year requirement.
- Language of Submission: Documents related to tax can now be submitted in either English or Arabic, increasing accessibility and inclusivity.
- Notification Requirements: Businesses with FTA tax registration must promptly notify FTA of changes in email addresses, trade licenses, or legal status.
- Tax Agent Criteria: The requirement for tax agents registered with FTA to be proficient in Arabic has been removed. Proficiency in either English or Arabic is now acceptable.
- Juridical Person Tax Agents: Legal entities can now be registered as tax agents with FTA, broadening the spectrum of eligible tax professionals.
- Extended Tax Audit Notice: FTA must provide at least ten business days’ notice before conducting a tax audit, ensuring more preparation time for taxable persons.
Qualifying Investment Fund Exemptions:
Cabinet Decision No. (81) of 2023 outlines additional conditions for investment funds to qualify for exemption from corporate tax, based on the Federal Decree-Law No. (47) of 2022 on the Taxation of Corporations and Businesses. These conditions encompass:
- Engagement in Investment Business: Investment funds must be primarily involved in investment activities, with ancillary activities limited to 5% of total annual revenue.
- Ownership Share Limit: Ownership interests held by a single investor and related parties should not exceed 30% or 50%, depending on the number of investors.
- Professional Oversight: Investment funds should be supervised by an investment manager with a minimum of three investment professionals.
- Management Independence: Day-to-day fund management must not be controlled by investors.
The diversity of ownership criteria for certain funds will be non-binding for the first two financial years, with diversification intent established afterward.
These comprehensive changes underscore the UAE’s commitment to modernizing its tax ecosystem while fostering compliance and transparency. The alterations aim to strike a balance between effective tax regulation and the support of the UAE’s businesses.
