GCC Indirect Tax Digest

UAE developments

UAE VAT penalties amended

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 60 days from the date of the issuance of this Decision, which was issued on 28 April 2021. 

The original administrative penalties, which will be in effect up to the effective date of the new penalties, are available in English here.

The new Cabinet Decision makes a number of changes to the Administrative Penalties regime. One of the most notable changes is the introduction of a concessionary measure which may reduce the quantum of penalties imposed on some taxpayers.

The new penalty structure encourages the early submission of voluntary disclosures for errors by applying relatively low percentages of penalties for disclosures submitted closer to the due date of the relevant tax return. On the other hand, the penalties for cases where a business does not submit a voluntary disclosure are much more significant, and continue to accumulate from the due date of the relevant tax return.

For more detail, please refer to Deloitte’s recent alert.

Action to take

Since greater penalties will apply where errors are discovered in the course of a tax audit (or disclosed after a taxpayer is notified of an impending audit) it is critical that businesses work towards identifying such errors and reporting them to the FTA before it is notified of any FTA audit.

Businesses should now consider how the changes announced as part of the Cabinet Decision No. 49 of 2021 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. 

Once a business is aware of any tax errors, it will need to consider which penalties may be applicable (e.g. penalties for the errors, late payment penalties, etc.) and the steps that should be taken to minimise the impact of the penalties.

Finally, where a business is already subject to the penalties under the existing penalties regime, Deloitte may help to determine whether it is possible to mitigate and reduce the effects of these penalties. Taxpayers who are currently litigating tax matters should consider their position also.

In summary the new rules are welcome, but are also more complicated in some aspects. In addition taxpayers should be careful to consider further guidance published by the FTA, the date of effect of the changes and the full implications of all the changes.

FTA publishes Decision on mechanism for calculating the average retail selling price of excise goods in the market

The UAE Federal Tax Authority (FTA) has published a Decision on the mechanism for calculating the average retail selling price of excise goods in the market.

FTA Decision No. 1 of 2021 sets out the method to be used to calculate the average retail selling price in the market, and the method to determine the value of excise goods not intended for retail sale in the UAE (e.g. imported goods to be exported or used in the production of a new excise good). 

The average retail selling price is relevant for the purposes of Cabinet Decision No. 52 of 2019 on excise goods, excise tax rates and the methods of calculating the excise price, particularly in relation to determining the designated retail sales price to be used for excise goods.

Businesses which make supplies of excise goods and/or are involved in excise tax related activities should familiarize themselves with the new Decision, in order to ensure that they are performing the calculations correctly.

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.