All you need to know about the UAE’s tax administration system

The UAE legislature has moved swiftly towards the implementation of a comprehensive set of laws to lay the platform for the introduction of taxation in the UAE.

The creation of the Federal Tax Authority by federal decree-Law No (13) of 2016 was the first step in this process, and now federal law No (7) of 2017 on Tax Procedures (TPL) has provided the Federal Tax Authority (FTA) with their modus operandi and defined the scope of their operations and their rights and powers and will be applicable to all specific tax laws in the UAE.

Read more: UAE issues new tax procedures law ahead of VAT

The TPL also sets out the rights and obligations of qualifying taxpayers and defines the relationship between taxpayers and the FTA.

These two laws have paved the way for the release of all specific tax laws to follow, whether it be for value added tax or other sales taxes, excise taxes and even for future imposition of company and personal income tax.

The TPL is mostly aimed at clearly regulating the implementation and administration of new tax laws in the UAE. The TPL will in due course be supplemented by the law’s executive regulations giving specific requirements for the conduct of the TPL’s requirements.

Other specialised tax laws, such as the VAT law, will also supplement the TPL and may qualify certain rules and even introduce further rules with specific applicability to specific industries.

MAIN POINTS TO NOTE

One of the main points of the TPL that should be highlighted are the that accounting records not only have to be prepared and maintained in accordance with the controls contained in the executive regulations of the TPL, but any submissions to the FTA such as tax returns, will have to be submitted in Arabic.

If accounting records are maintained in another language, then translated versions into Arabic must be produced at the cost of the taxpayer, if so requested by the FTA.

The obligation to keep books of account and financial records is not new to the UAE as such provisions are already contained in Articles 26 and 27 of Federal Law No (2) of 2015 On Commercial Companies (CCL) which require companies in the UAE to maintain and retain financial records and to prepare annual financial statements.

In fact, the CCL contains punitive measures for the failure to keep financial records (with fines of up to Dhs100,000) and failure to keep accounting records for the periods determined by law (with fines of up to Dhs500,000). It is also interesting to note that the application of any penalties in terms of the CCL will be without prejudice to any penalties imposed by any other law such as the TPL.

The Tax Procedures law does not specify any of the specific registration requirements and the executive regulations to the TPL will contain the details of registration, obligations regarding correspondence with the FTA as well as de-registration formalities.

The TPL requires the appointment of a legal representative for each taxpayer who will be responsible for the timeous preparation, the accuracy and the submission of tax returns and the settlement of any taxes payable. Administrative penalties will be payable if the deadlines are not met or payments are not made in time.

The TPL also allows for the appointment of tax agents, who will be the representative of the taxpayer subject to the condition that all tax agents must be registered with the FTA.

Upon registration for a specific tax, each taxpayer will obtain a unique registration number to be quoted on all payments and correspondence with the FTA.

Correspondence from the FTA will be sent to the address registered by the taxpayer with the FTA and all correspondence, including any assessments or penalty notifications.

Another point to highlight is the FTA’s powers of audit, which include audits on the taxpayer’s premises, merely for the establishment of a taxpayer’s compliance with any tax law.

Notification of an on-site audit must be given by the FTA to the taxpayer at least five days in advance, however the FTA also has the power to conduct tax audits at any premises used by the taxpayer for business purposes, stores good or keeps records.

The FTA can also close the taxpayers business operations for a period not exceeding 72 hours in the event that it has grounds to believe the taxpayer is evading tax, is frustrating any audit and that the non-closure will hinder the conduct of an audit.

For purposes of an audit, the FTA has the right to access all original records of any taxpayer, take stock samples and seize equipment under certain circumstances.

The FTA will have the power of re-audit in the event that circumstances arise leading the authority to believe such re-audit is necessary. The results of any FTA audit will have to be communicated to the taxpayer within the time period specified in the executive regulations.

Tax audits can only be conducted within five years from the end of any relevant tax period except where tax evasion or non-registration is suspected, in which case an audit can be conducted anytime within 15 years from the end of the tax period under audit or the date the person should have registered for that tax, respectively.

PENALTIES

Tax assessments and administrative penalty assessments will be issued by the FTA in a number of circumstances.

The FTA can issue these assessments in cases where a taxable person –

* Does not register for tax

* Fails to submit a return within the timeframe required

* Fails to make any payments due

* Submits incorrect returns or payments

Administrative penalties – as will be set out in the executive regulations – will be payable in a number of circumstances including failure to submit records in Arabic, failure to keep records and for submitting late or incorrect tax returns, among others.

The amount of the penalties will range from Dhs500 to three times the amount of any tax amount due per violation.

Penalties for tax evasion will be imposed without prejudice to any penalties imposed by any other law, and can include a prison sentence and a monetary penalty of up to five times the amount of the evaded tax amount.

The tax evasion penalties will also be imposed on those who –

* Charge and collect taxes when not registered to do so under any tax law

* Deliberately not pay any taxes due

* Destroy, steal or falsify financial records

* Deliberately submit false documents to the FTA

* Deliberately understate any tax amount payable

The TPL makes specific reference to Federal Law No (9) of 1987 (the Penal Code) and directs any court that finds a person guilty of being involved or instrumental in tax evasion to impose the penalties imposed by the TPL.

It is important to note that proving the accuracy of any tax return will fall upon the taxpayer and the burden of proof for tax evasion will be borne by the FTA.

IN CASE OF ERRORS

The TPL does contain a mechanism for the correction of errors and a procedure to be followed in the event of mistakes being made on any tax returns. As part of the process, an application for correction to the FTA will be required.

An objection can be lodged with the FTA within 20 days of notification, to which the authority is obliged to respond within 25 days from their receipt of the objection giving their decision and the reasons therefore.

A further dispute regarding any decision by the FTA will be dealt with by the Tax Disputes Resolution Committee (TDRC) established under the terms of the TPL.

Should a person wish to object to any decision of the FTA, the aggrieved person must lodge a reconsideration request with the TDRC within 20 days of notification of the initial decision of the FTA.

However, the reconsideration will only be heard if the taxes and penalties due under the FTA’s decision has been settled and the matter has not previously been heard by the TDRC.

The TDRC will have 25 days to issue a decision on the reconsideration request. Any decision of the TDRC on matters under Dhs100,000 shall be final, however disputes concerning matters over Dhs100,000 may be appealed by application to the courts of the UAE and the procedures to do so are set out in the TPL.

RECEIVING A TAX CREDIT

The TPL deals with the procedures to be followed when claiming a tax credit in circumstances allowed by the specific tax laws.

Any refund payment will be dependent upon the taxpayer being up-to-date on all payments and penalties due, on ensuring that all tax returns are up to date and there are no ongoing disputes, and will be subject to the executive regulations.

It is common opinion that refunds over a certain threshold may be subject to an audit prior to payment.

The executive regulations relating to the TPL have not been issued yet but are required to be issued within six months of the TPL, and these will give further clarity as to each taxpayer’s responsibilities and obligations and a more exact application of this law.

An eye should be kept on more updates to the TPL in the coming months.

John Peacock is a senior associate with the Corporate and M&A and Real Estate practice at BSA Ahmad Bin Hezeem & Associates