With the introduction of a federal corporate tax law, the United Arab Emirates (UAE) has undergone significant changes in its tax arena in recent years. This new legislation has implications for businesses operating in the UAE, including foreign companies with a presence in the country. One crucial aspect of this tax framework is the enforcement of penalties to ensure compliance. The Cabinet Decision No. 75 of 2023 on the Administrative Penalties on Violations Related to the Application of the Corporate Tax Law has come into effect on 1st August 2023. In this blog, we’ll explore the penalties associated with UAE corporate tax, helping businesses understand their obligations and the consequences of non-compliance.
UAE Corporate Tax Overview
Before we look at the penalties, it’s essential to understand the basics of UAE corporate tax. The UAE introduced a federal corporate tax law on June 1st 2023, implementing a flat tax rate of 9% on the taxable income of all taxable persons. This tax primarily affects businesses engaged in specific sectors, such as oil and gas, banking, and insurance, and is applicable to foreign entities with a permanent establishment in the UAE.
Penalties for Non-Compliance:
- Failure to maintain records & other information specified under the Law.
Penalty would be:
- AED 10000 for each violation,
- AED 20000 in each case of repeated violation committed within 24 months from the date of the last violation.
- Failure to submit data, records and documents related to Tax in Arabic to the Authority when requested.
Penalty would be AED 5000 for each such occurrence.
- Failure to submit the de-registration application within the specified timeframe
AED 1000 in case of late submission of the application, for every month of delay, up to a maximum of AED 10000.
- Failure to inform the Authority of any changes that requires amendment in the registrant’s Tax record kept by the Authority.
Penalty would be:
- AED 1000 for each violation,
- AED 5000 in each case of repeated violation committed within 24 months from the date of the last violation.
- Failure to provide notification of Legal Representative’s appointment within the specified timeframes.
Penalty of AED 1000 would be due from the Legal Representative’s own funds.
- Late submission of Corporate Tax return
The below-mentioned penalties would be attracted:
- AED 500 for each month, or part thereof, for the first twelve months.
- AED 1000 for each month, or part thereof, from the thirteenth month onwards.
This penalty shall be imposed from the day following the expiry date of the timeframe within which the Tax Return should have been submitted. In case the Legal representative delays the submission of Tax return, the penalty should be paid by such legal representative from his own funds.
- Submission of Incorrect Corporate Tax Return
Penalized with AED 500, unless the Person corrects his Tax Return before the expiry of the tax return submission deadline prescribed under the Corporate Tax Law.
- Failure to settle the tax payable
Penalty at 14% per annum on unsettled tax amount for each month or part thereof, for the period of delay. Such period is computed from the day following the due date of payment until the date of settlement of tax.
Where Due date of payment would be as follows:
- 20 Business Days from the date of submission, in the case of a Voluntary Disclosure.
- 20 Business Days from the date of receipt, in the case of a Tax Assessment.
- Failure to submit or late submission of declaration to the authority.
The below-mentioned penalties would be attracted:
- AED 500 for each month, or part thereof, for the first twelve months.
- AED 1000 for each month, or part thereof, from the thirteenth month onwards.
This penalty shall be imposed from the day following the expiry date of the timeframe within which the Tax Return should have been submitted.
- Failure of a Person subject to Tax Audit to offer facilitation to the Tax Auditor in violation of the provisions of Article (20).
Penalty of AED 20000 would be due from such person, or his tax agent of Legal Representative’s own funds.
- On Voluntary disclosure of errors in Tax return/ Tax Assessment or Tax refund application.
A monthly penalty of 1% on the Tax Difference, for each month or part thereof, to be applied from the date following the tax return due date or tax assessment notification date or tax refund application submission date until the date of submission of voluntary disclosure.
- Failure to submit a Voluntary Disclosure in relation to errors in the Tax Return, Tax Assessment or Tax refund application before being notified by the Authority that it will be subject to a Tax Audit.
The following penalties shall apply:
- A fixed penalty of 15% on the tax difference
- A monthly penalty of 1% on the Tax Difference, for each month or part thereof, to be applied from the date following the tax return due date or tax assessment notification date or tax refund application submission date until:
- the date of submission of voluntary disclosure if such submission is made after being notified that it will be subject to a Tax Audit by the Authority.
- the date of issuance of the Tax Assessment where voluntary disclosure is not made.
For a broader understanding of tax rates, exemptions, registration, and filing obligations, businesses can refer to our detailed UAE corporate tax guide, which explains the regulatory framework and compliance requirements in detail.
Understanding the penalties associated with UAE corporate tax is essential for businesses operating in the country. Complying with tax obligations is not only a legal requirement but also essential for maintaining a positive business reputation and avoiding financial penalties. It’s crucial for businesses to keep accurate records, meet filing deadlines, and seek professional tax advice if necessary to ensure full compliance with UAE tax laws. By staying informed and adhering to tax regulations, businesses can operate smoothly and contribute to the country’s economic growth. We, at BCL Globiz can help you comply with all the requirements under the Corporate Tax Law and stay legally compliant.
