GCC Indirect Tax Digest

UAE developments

Cabinet Decision on amended penalty regime published in English

As part of Cabinet Decision No. 49 of 2021, the United Arab Emirates (UAE) Cabinet has amended the rules concerning administrative penalties applicable to tax violations in the UAE. These changes are effective from 28 June 2021.

The Cabinet Decision is available in English.

The new Cabinet Decision makes a number of fundamental changes to the Administrative Penalties regime, including regarding the mechanism for calculating the penalties for late payment of taxes and for making errors in tax return, tax assessments or refund applications. The new penalty structure encourages the early submission of voluntary disclosures for errors by applying lower percentages for more timely disclosures of errors.

Importantly, the Cabinet Decision also introduces a concessionary measure which may allow a VAT-registered taxpayer to reduce the amount of penalties that have been imposed under the current penalties regime and that are still unsettled as of 28 June 2021. The relief may potentially allow the taxpayer to reduce such unsettled penalties by 70%.  In order to benefit from the relief, the VAT-registered taxpayer would need to meet certain conditions, including paying all the tax due and 30% of the total unpaid administrative penalties by 31 December 2021. 

For more detail regarding how the amended penalties regime can help your business, please refer to Deloitte’s recent alert.

FTA publishes Public Clarifications on amended penalty regime

The Federal Tax Authority (“FTA”) has also published two Public Clarifications related to the updated tax penalties in the UAE.

TAXP001 on amendments to the penalties regime provides an overview of the amended penalties, and a discussion of the specific changes. The document provides several examples of how the new penalties would be applied in practice.

TAXP002 on redetermination of administrative penalties levied prior to the effective date of Cabinet Decision No. 49 of 2021 discusses the amnesty scheme applicable to the new penalty regime. The document sets out the requirements to be eligible for the amnesty scheme, and provides examples of how it would be implemented in practice.

FTA clarifies criteria for applying to reduce or waive tax penalties

The FTA has issued a press release stating that any person or group has the right to apply to the FTA to reduce or exempt them from penalties imposed under the tax legislation, as long as there is an excuse which is acceptable to the FTA and which is supported by evidence.

Referring to Cabinet Decision No. 51 of 2021, which amends Article 26 of the Tax Procedures Executive Regulations, the FTA clarified that the following conditions must be met in order to apply for amnesty:

• The person has an excuse acceptable to the FTA;
• The person has evidence to justify the excuse;
  
• The FTA is notified of the request for reduction or exemption within 40
  business days from the end of the acceptable excuse;
• The person must demonstrate that the violation has been corrected; and
• The application to the FTA is submitted in the form specified by the FTA.

The FTA is expected to make its decision in respect of the reduction or exemption of penalties within 40 business days from the date of receiving the application, and would notify the applicant of the decision within 10 business days from the date of issuance.

Next steps

Businesses should consider how the changes announced to the UAE tax penalty regime apply to them specifically. We recommend that businesses should, as a matter of priority, speak to their tax advisers on conducting a comprehensive review of their tax affairs.

Deloitte has extensive experience in this area, and we would encourage businesses to reach out to us to discuss how we can assist you with conducting an effective and efficient health check exercise and also on how we can assist you in applying to reduce tax penalties, where this is applicable. 

KSA developments

Electronic invoicing by 4 December 2021

The Kingdom of Saudi Arabia (KSA) Zakat, Tax and Customs Authority (ZATCA) has published the electronic invoicing (e-Invoicing) Implementation Resolution in Arabic on 28 May 2021. The Implementation Resolution is part of the earlier released e-Invoicing Regulations issued on 4 December 2020 and describe the functional and technical requirements for the implementation of e-Invoicing in the Kingdom of Saudi Arabia.

As previously announced, there will be two major phases: (1) the Release phase and (2) the Connectivity and Integration phase.

The initial go-live date for the first phase is still 4 December 2021; however, the second go-live date for the second phase has been extended to 1 January 2023. The latter will be implemented in a phased roll-out, and ZATCA will inform the targeted/selected taxpayers six months before integrating with the Authority’s system.

The technical specifications documents referred to in the Implementation Resolution such as the Data Dictionary, XML Implementation
Standard and Security Implementation Standards have also been released. Further, ZATCA has also issued the e-invoicing simplified guideline and FAQs in Arabic.

It is anticipated that ZATCA will provide more details about the approved external providers of E-invoice Generation Solutions and the potential certification in this respect.

This digest is for information purposes only and should not be construed as advice. It does not necessarily cover every aspect of the topics with which it deals. You should not act upon the contents of this alert without receiving formal advice on your particular circumstances.