An Overview
As a follow-up to Federal Decree-Law No. 28 of 2021, which amended Federal Decree-Law No. 7 of 2017 on Tax Procedures, a new Cabinet Decree No. 105 of 2021 was published on December 28, 2021, which dealt with rules and procedures about administrative penalty waiver and instalment. The new Cabinet Decree will take effect on March 1, 2022.
For the first time since the UAE’s new tax rules took effect in October 2017, the law now:
- Allows for the payment of tax penalties in instalments.
- Describes the circumstances under which penalty waivers are permissible.
- If there is a pending lawsuit, instalments or waivers are not permitted.
- Allows for the filing of a class-action lawsuit against tax fines.
- Allows fines paid in the previous five years to be waived.
Instalments of administrative penalties:
The following requirements must be met before a request to pay administrative fines in instalments may be approved:
- Only fines that have not been resolved may be the subject of an instalment request.
- There should be no fines of less than AED 50,000 that may be paid overtime;
- Federal Courts and the Tax Dispute Resolution Committee (TDRC) should not be used to challenge penalties that may be paid overtime.
- The tax owed for the period covered by the payment request has been paid in full.
Waivers of tax penalties are acceptable.
Approval of petitions to waive tax penalties (in part or whole) is contingent on the tax penalties not being linked to any tax evasion charges. The statute is unclear whether ‘crimes’ refers to mere claims or real convictions.
The following are acceptable justifications for granting penalty waivers:
- If the taxpayer is a natural person or a business owner, death or sickness occurs.
- Death, sickness, or resignation of a tax registrant’s primary employee.
- Evidence of limits, or precautionary or preventative measures, imposed by UAE government entities on the taxpayer.
- Evidence of a system breakdown affecting a class of individuals in the Federal Tax Authority’s general, payment, or communication systems.
- Causes affecting the liberty and independence of a natural person taxpayer or establishment owner.
- Restrictions on a natural person’s or a business’s right to liberty and freedom.
Payment of all taxes via another registered taxpayer’s tax account.
Penalties may be remitted in situations of insolvency or bankruptcy if they were paid before the insolvency or bankruptcy, and it is clear that the insolvency or bankruptcy was not for tax evasion.
Procedure for applying for either a tax penalty instalment or a waiver.
To be considered for an instalment or waiver application, the applicant must submit basic information (tax number, penalty amounts, justifications, etc.) in their applications.
Notably, the taxpayer must assure that the penalties will be paid according to the Committee’s agreed payment plan for instalment requests.
Importantly, for waiver petitions, the taxpayer must assure that the source of the penalty will be corrected and not occur again.
A taxpayer may not apply for the same penalty [ies] more than once.
The underlying application will be nullified and invalid if the undertakings are breached. In other words, if a taxpayer violates an undertaking against a waiver application by repeating the issue, the Federal Tax Authority may re-impose the waived penalty.
Time frame:
- The Federal Tax Authority will assess an application for conformity with all requirements within forty business days, and if the application is legitimate, it will be forwarded to the Committee.
- The Committee has sixty days throughout the week to decide on an application (and ten days to notify the applicant after that).
- The absence of a decision is seen as a definitive rejection.
The Committee’s Role:
The Committee will be in charge of:
- Setting a deadline for submitting waiver petitions.
- Create payment plans and processes for instalment requests.
- Determine the proportion of penalties that will be waived in response to waiver requests.
- Request whatever assurance it deems necessary to execute an instalment request.
Failure to adhere to an instalment payment plan may result in one of the following:
- If there is a valid reason for noncompliance with the schedule, a new payment plan will be established, or
- The Federal Tax Authority takes action against the taxpayer to collect the fines.
Penalty waivers in retrospect
The Cabinet Decree empowers the Committee to specify the conditions and procedures governing fines paid during the preceding five years.
If paid penalties are waived retroactively, the paid fines will be credited to the taxpayer’s FTA account within 90 business days or repaid in cash if the person has terminated their tax registration.
Please contact HHS Lawyers and legal consultants if you need any further information or support on this subject.