UAE introduces New Tax Procedures Law, penalties for corporate tax violation

By Arya M Nair, Official Reporter
  • Follow author on
Ministry of Finance New Tax Procedures Law
Rep.Image (Courtesy: WAM)

The UAE Ministry of Finance (MoF) has announced the issuance of Cabinet Decision No. (74) of 2023 on the Executive Regulation of Federal Decree-Law No. (28) of 2022 on Tax Procedures (New Tax Procedures Law).

The Cabinet Decision repeals and replaces the existing Executive Regulation on Tax Procedures and aligns definitions, procedures, and processes, amongst other matters, with the New Tax Procedures Law, which entered into force on 1st March 2023.

With the introduction of Corporate Tax in the UAE and the Corporate Tax Law becoming effective for tax periods starting on or after 1st June 2023, it is crucial to continuously update all relevant legislation and provide Taxable Persons with the necessary guidance to understand how the UAE Tax system applies to them, ensuring ongoing compliance.

The new Cabinet Decision stipulates the accounting records and commercial books to be maintained as well as the period and manner of record-keeping. It further includes updates related to the conditions and controls for registering as a Tax Agent, the procedures for de-listing a Tax Agent, including the requirement to communicate verbally and in writing in Arabic or English, and the rights and responsibilities of a Tax Agent. 

Other key updates include procedures related to reconciliation in Tax Evasion crimes and the terms and conditions for such reconciliations. In addition, the new Cabinet Decision covers Tax payment and refund procedures, and the obligations of a trustee in cases of bankruptcy.

Cabinet Decision No. (74) is effective as of 1st August 2023, except for Clause (2) of Article (12) outlining the conditions for juridical persons who wish to be listed in the Register of Tax Agents, which will be effective as of 1st December 2023. 

The Ministry of Finance announced another cabinet decision outlining additional conditions for Qualifying Investment Funds under the Federal Decree-Law No. (47) of 2022 on the Taxation of Corporations and Businesses. 

It stipulates additional conditions that investment funds must meet to be treated as a Qualifying Investment Fund and be exempt from Corporate Tax. The decision upholds the integrity of the Corporate Tax system, while bolstering the UAE’s competitiveness as an investment hub.

Cabinet decision on REITs

As per the cabinet decision, the additional conditions for investment funds, other than Real Estate Investment Trusts (REITs), to be exempt from Corporate Tax, include being primarily engaged in investment business activities, with ancillary or incidental activities not exceeding 5 percent of their total annual revenue; the share of ownership interests in the investment fund held by a single investor and its related parties not exceeding 30 percent or 50 percent, depending on the number of investors in the investment fund, being overseen by an investment manager employing a minimum of three investment professionals, and the day-to-day management of the fund not being controlled by investors.

To ensure the flexibility of the Corporate Tax system, the diversity of ownership criteria for investment funds other than REITs will be non-binding for the first two financial years of the fund’s establishment, provided that the intent to diversify its ownership after the first two financial years is substantiated.

Regarding REITs, the exemption conditions include the necessity for real estate assets, excluding land held by the REIT, to exceed $27.2 million in value, a minimum of 20 percent of its share capital being publicly listed or wholly owned by two or more institutional investors, and an average real estate asset percentage of at least 70 percent maintained annually.

Younis Haji Al Khoori_New Tax Procedures Law
Younis Haji Al Khoori
UAE Ministry of Finance

“The additional conditions set forth through this new Cabinet Decision are clear and simple to apply, and serve the UAE to retain its position as a leading investment hub. This decision balances the UAE remaining competitive as an investment hub, while maintaining the integrity of the Corporate Tax system.”

Penalties for corporate tax law

The ministry also announced the issuance of a cabinet decision regarding administrative penalties for violations related to the Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (Corporate Tax Law). 

It specifies the administrative penalties that will be imposed by the Federal Tax Authority for violations related to the application of the Corporate Tax Law, effective August 1, 2023.

The Corporate Tax Law Penalties have been carefully designed and benchmarked to ensure successful implementation and compliance with the corporate tax law without burdening UAE businesses that comply with the new regulations. 

Mr. Al Khoori said that “Adhering to Corporate Tax compliance is a responsibility of all taxable persons to support the implementation of the Corporate Tax system in the UAE, which is in line with the highest global standards. It also drives sustainable economic growth in the UAE by providing a conducive legislative environment that promotes tax compliance.”

As per the cabinet decision, penalties will be imposed on taxable persons, whether an individual or a legal entity, who do not comply with their obligations under the UAE Corporate Tax Law. 

“Penalties will be applied in cases of failure to file and pay Corporate Tax due on time, including the failure of the Registrant to inform the Federal Tax Authority of any case that may require the amendment of the information pertaining to his Tax record kept by the Federal Tax Authority. A new structure has also been introduced for voluntary disclosure penalties,” Mr. Al Khoori stated.

Penalties also apply in cases of failing to properly keep records or submitting the required records and other information specified in the Tax Law, Mr. Al Khoori added.

Related: UAE Ministry of Finance announces Corporate Tax Law exemption