Availing Tax Advantage For UAE businesses by way of lower penalties and timely Regulatory compliances

Update on Tax penalties & Regulatory compliance deadlines during 2021.
1). The CR 49:In a landmark move UAE Cabinet announced substantial reduction in penalties for most VAT and Excise non-compliances with up to 80% reduction for some violations. The new regulations also provide for waiver of any unpaid accrued penalties up to 70% (Article 3), subject to conditions that the tax payer settles by 31st December 2021, the 30% penalty along with 100% of unpaid VAT overdues, for any assessed VAT Liabilities until 28thJune 2021. It is unclear whether amnesty will apply for any in progress tax audits if assessments are not issued until the above date.
2). The latest Press Release announced by FTA states that any person or a group, who has been levied penalty for violation can apply for reduction/exemption, provided they have anacceptable excuse along with supporting evidence. The taxpayer has to apply to FTA for the reduction/exemption by submitting a request along with supporting evidence and satisfy the following conditions to obtain relief:-

      1.There is an excuse acceptable to the FTA along with supporting evidence that justifies the existence of the excuse;

      2.The request for such reduction/exemption has been made within 40 business day from the end of the acceptable excuse;

      3.The Taxable person will have to prove that the violation in regard to the same has been corrected

      4.The application for exemption/reduction is submitted in the FTA specified form.

An excuse shall not be considered acceptable, if the action which led to such violation was considered deliberate.
2B). Excuse Redressal process:The Director-General of the FTA shall form a tripartite committee to review the excuse and determine the excuse to be accepted or rejected. The committee shall issue a decision within 40 days from the date of receiving the application. Applicant shall be notified within 10 business days from the date of issuance.
Crowe view:It remains unclear whether the 40 days period will start from the day when the error occurred or the day when the error was identified/notified by FTA on which penalty is being levied. Further, it needs clarification whether this can be considered as additional relief from fixed penalties as levied including due to Voluntary Disclosure and or Tax Audits. Once granted, this does not mean that tax audits will not be carried out, but it may reduce the overall risk.
FTA is expected to issue detailed implementation process, forms and eligibility guidelines for availing above relief soon as some questions still remain unanswered.
The details of tax reduced penaltiesare attached in the following link:https://conta.cc/3hgmufA
3). Tax Procedures Public ClarificationPC (TAXP001) relatingto CR 49 :
3a). Amendments to the Penalties Regime:The Mechanism to specify the date of imposition of certain penalties on violations like deregistration, failure to pay the payable tax and submittal of Voluntary Disclosure has been clarified as follows:
  • The date of the imposition of penalty would remain same in the current month as well as the following month. For eg; if the penalty was imposed on 1 January, the penalty in the month of February will be imposed on 1 February and each subsequent month as applicable.
  • However where the following month do not have a corresponding date as of the current month, the penalty shall be imposed on the following date of the next month. For eg, if the penalty was imposed on 30 January, the penalty in the month of February will be imposed on 1 March as February does not have 30th day.
4). TAXP002clarifies the eligibility criteria forRedetermination(i.e. amnesty provisions) and requires thatallthe following conditions should be met toavail reduction of any unpaid penaltiesimposed prior to 28 June 2021:

      1.The person must have not settled all the administrative penalties in full before 28 June 2021

      2.No payable tax is pending by the 31 December 2021*, whether such tax was due before or after 28 June 2021

      3.Settles 30% of the total unsettled penalties which was imposed before 28 June 2021 by no later than 31 December 2021.

*There should be no overdue tax payable for any period up to 31 December 2021
Process Relating to Redetermination of Administrative Penalties:FTA will link the redetermination process and the relevant data to the registrants’ e-Services accounts and they will be able to view further information relating to the process as of 28 June 2021.
Way forward: The UAE businesses should plan to avail all reliefs granted by FTA by initiating preparatory steps to secure this advantage at the earliest:-

      1.Carry out a rigorous self Pre-Audit or Preventive VAT health check and do “AS IS” Assessment and take stock of risks assumed and identify errors to quantify the risk.

      2.Address any documentation gaps to mitigate the risk.

      3.Recalibrate ERP systems to ensure MIS reports meet VAT audit requirements.

      4.Reconciliation with past year financial statements.

      5.Rectify any past errors by filing Voluntary disclosures (VD) prior to any tax audits.

      6.Streamline and re-set their compliance procedures for the future.

The penalty waiver is a one-off opportunity for availing relief by way of reduced penalties to limit past exposures and come clean going forward. The consequences for inaction and “Through put risk” is too high, which can affect business continuity and disruption if ignored.
Economic Substance Regulations (ESR deadline for FY 2020 – 30 June 2021)

      1.All the UAE Licensees whose FY ends on 30 June 2020 are required to submit the Annual ESR test report.

      2.All the UAE Licensees whose FY ends on 31 December 2020 are required to submit ESR Notification after re-assessing the applicability of law provisions.

Ultimate Beneficial Ownership (Cabinet Decision No. (58) of 2020)
1) Department of Economic Development (DED) of Dubaihas announced to furnish Ultimate Beneficial Owner (UBO) details up to30 June 2021.The following was quoted by the Ministry of Economy in the media briefing on anti-moneylaundering & ultimate beneficial owner procedures:
“Following this, starting from July 1, 2021, the penalties stipulated in the Cabinet Resolution No. 53 of 2021 on the Administrative Penalties Against Violating ultimate beneficial owner procedures will come into effect. These include the issuance of written warnings up to imposing AED 100,000 in fines in the event of recurrence and continued noncompliance, along with additional administrative penalties, including, among others, license suspension for one year, and restrictions on board of directors' authority”
2) TheJAFZAauthority has however fixed their deadline as5 June 2021for their registered entities.