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The New UAE Tax Procedure Law – the essentials


The New UAE Tax Procedure Law – The Essentials


On 31 July 2017, UAE President, His Highness Sheikh Khalifa bin Zayed Al Nahyan issued the landmark Federal Law No. (7) of 2017 for Tax Procedures (the "Tax Procedure Law").

The purpose of this law is to lay the foundation for the planned UAE tax system, regulating the relationship between the Federal Tax Authority (the "FTA") and the taxpayer, as well as the procedure for the determination, assessment and collection of taxes.

The Tax Procedure Law is yet to be published in the Official Gazette and much of the detail will follow in the Executive Regulations.

Businesses need to familiarise themselves with the obligations contained in the law as there are significant commercial and criminal sanctions for failure to comply. So far, this law will be most relevant to the upcoming introduction of VAT and excise taxes and should be read in conjunction with regulations concerning registration and management of those obligations.

The key provisions of the Tax Procedure Law are as follows [1] :

Books and records [2]

Taxpayers are required to maintain accounting records and commercial books, as may be required to determine the taxpayer's tax liability, and to allow the taxpayer's liability to be readily ascertained under the applicable federal tax law.

The retention period to keep financial and business records will be specified in the executive regulations of the Tax Procedure Law (the "Executive Regulations"), which should be published in the coming months.

Language [3]

According to the Tax Procedure Law, tax returns, data, information, records and other business documents must be filed with the FTA in Arabic.

These documents may be submitted in any other language provided that a translated copy in Arabic is available upon request by the FTA.

Tax (de)registration and update of tax records [4]

Taxpayers must apply for a tax registration number ("TRN") to be stated on all returns, notices, communications or documents, and be used for all tax purposes.

The FTA should be notified of any change of circumstances or tax records within 20 business days.

The procedure for tax registration, de-registration and amendments of tax records with the FTA will be provided in the Executive Regulations.

It is a requirement for government bodies licencing businesses to inform the FTA within 20 business days of issuing any new licence to a business within the UAE.

Tax returns and payment of taxes [5]

Tax returns include any return, information or forms that will be required to be furnished under the UAE federal tax law ("Tax Law") – to be issued in the coming months – containing information relating to the assessment of tax.

Tax returns must be submitted for each tax period within the time limit of registration as will be set out in the Tax Law.

Tax returns not including basic information as provided by the Tax Law will not be accepted by the FTA.

Any tax payments should stipulate the type of tax and the relevant tax period they are related to.

Voluntary disclosure [6]

Taxpayers may apply to the FTA to make a voluntary disclosure form to correct any error discovered in a self-assessment tax return or tax refund application filed with the FTA or/and in an assessment received from the FTA, within the time limit that will be specified by the Executive Regulations.

Tax agent [7]

The Tax Procedure Law provides that a tax agent may be appointed by the taxpayer to represent the latter before the FTA.

The Tax Agent will be responsible for performing any duty or obligation imposed by the Tax Law on the taxpayer, including the submission of returns and the payment of tax.

When the Tax Law will be issued, it is implied that all tax agents will be required to apply for registration with the FTA in order to be authorised to act on behalf of a taxpayer. The FTA will handle the registration of the tax agents and will establish a tax agent register (the "Register").

Only tax agents listed in the Register and licensed by the Ministry of Economy and the competent local authority will be permitted to provide tax agent services.

As per the Tax Procedure Law, anyone applying for registration as a tax agent will be required to meet the following conditions:

- Be of good conduct and behaviour and never have been convicted of a crime or misdemeanour prejudicial to honour or honesty.
- Hold an accredited qualification from a recognised university or institute showing his specialisation and experience relevant to the provision of tax agent services, as detailed in the Executive Regulations.
- Be medically fit to perform the tax agent services.
- Hold professional indemnity insurance.

The procedures for tax agents' registration as well their rights and obligations will be detailed in the Executive Regulations.

Tax agents will be required to provide information, documents and data related to the taxpayers they represent when requested by the FTA.

Tax agents may be required to assist the FTA to review the records of a taxpayer they represented even after the expiry of the tax agency agreement entered into with the taxpayer or dismissal of the tax agent.

Tax Audits and results [8]

These provisions set out the rights of the FTA with regard to the auditing of taxpayers' compliance with their tax obligations, as well as the kinds of tax audits that can be performed (i.e. on-site or from the FTA offices).

The FTA may perform on-site tax audits (i.e. at taxpayers' offices or any other place where goods are stored or records are kept) which should be notified to the taxpayer at least 5 business days prior the start of the tax audit.

A complete on-site tax audit may be performed without prior notification to the taxpayer, potentially requiring the taxpayer's business to be closed for a maximum period of 72 hours, in cases where suspicion of tax avoidance exist. This closure time limit can be extended for a similar period subject to prior approval of the Public Prosecutor.

It is specified that the tax auditor must obtain written authorisation of the Director General of the FTA before performing on-site tax audits. Should a tax audit have to be performed at the taxpayer's residence, a prior permit from the Public Prosecutor will also have to be obtained.

Moreover, tax audits should be performed during official office hours of the FTA. Any tax audit performed outside such hours will require pre-approval from the Director General of the FTA.

The tax auditor can require access to the original books, records and other documents of the taxpayer, and take copies of the same. The Tax Procedure Law also permits the tax auditor to take samples or seize goods or stocks held by a taxpayer, according to the rules provided by the Executive Provisions.

Audited taxpayers can request a copy of the tax audit notification, attend on-site tax audits and obtain copies of any original documents and data seized or obtained by the FTA during a tax audit.

Only the Director General of the FTA can open a criminal case against a taxpayer.

Details of the procedure and timeframe for the taxpayer's notification of the results (and basis of the results) of the tax audit will be provided in the Executive Regulations.

Tax assessments [9]

The Tax Procedure Law empowers the FTA to issue a tax assessment where the taxpayer has failed to: register as a taxpayer, file a tax return, settle the payable tax within the timeframe provided by the applicable tax law submitted an incorrect tax return, or has committed / is involved in tax evasion.

Similarly, the FTA will issue a tax assessment when a taxpayer has failed to account for tax on behalf of another person as provided by the Tax Law.

The FTA may issue an estimated tax assessment where it is not possible to determine the tax payable / refundable.

The FTA can issue an additional assessment amending a prior tax assessment for a tax period where new information emerges.

Any tax assessment, or amendments to a tax assessment, should be notified to the taxpayer within 5 business days of the tax assessment issuance or amendment.

Offenses and penalties [10]

The Tax Procedure Law provides for the imposition of administrative penalties and penal sanctions in instances where a taxpayer defaults in fulfilling its tax obligations under the Tax Procedure Law and Tax Law. In such a case an administrative penalties assessment shall be issued to the taxpayer within 5 business days.

In the case of small offences, such as the failure to keep documents, submit documents in Arabic when requested by the FTA, or the late submission of a tax return, administrative penalties varying between AED 500 and three times the amount of tax due shall apply.

The UAE Cabinet will issue a resolution that will specify the applicable administrative penalty for each of the violations committed.

In case of tax evasion, such as issuance of fictitious tax records or non–payment of the tax or administrative penalties due, a prison sentence and / or monetary penalty of a maximum of 5 times of the evaded tax may be imposed by the competent UAE court, without prejudice of application of any other administrative penalties.

The imposition of penalties does not preclude the taxpayer from settling any tax due.

It is noted that any person involved in or instrumental of a tax evasion will be jointly and severally liable with the taxpayer that he or she has assisted for the payment of any amount of outstanding tax, together with administrative penalties.

Objections

Application for reconsideration: [11]

Any tax payer may submit a request to the FTA (together with their claim) to reconsider a decision issued by the FTA, subject to a deadline of 20 business days from the notification of the decision. The FTA must issue a decision within 20 business days from receipt of the request.

Objection to the Tax Disputes Resolution Committee (the "Committee") [12]

Any taxpayer dissatisfied with a tax decision may lodge an objection with the Committee within 20 business days after receiving notice of the decision.

Objections can be submitted to the Committee only after having submitted a reconsideration request with the FTA, as mentioned above, and payment of any amount of outstanding tax and administrative penalties.

The Committee must issue a decision within 20 business days from receipt of the objection. This deadline can be extended by the Committee for up to a further 20 business days if deemed necessary.

The FTA must inform the taxpayer who has submitted the objection of the Committee's decision within 5 business days of its issuance.

In cases where the tax being disputed and the administrative penalties do not jointly exceed AED 100,000, the Committee's decision will be considered as final and an executory instrument.

For tax disputes exceeding AED 100,000 the Committee's decision will be considered as an executory instrument provided that it is not challenged before the competent court within 20 business days from the date of the Committee's decision.

Challenge of Committee's decision before Courts [13]

Where either the taxpayer or the FTA are dissatisfied with the Committee's decision, either may lodge an application with the competent Federal Court to review the objection decision within 20 business days of being notified of the Committee's decision.

An application can be filed with the competent court only in the following cases:
- to review a decision issued by the Committee; or
- in the absence of a decision being issued by the Committee after an objection to a tax decision was filed.

Refund of tax [14]

According to the Tax Procedure Law, a taxpayer can claim the refund of excess tax or administrative penalties paid during a financial year.

The FTA will however keep the amount of tax or penalties for refund on account in order to be set-off against any other outstanding/disputed tax debts or administrative penalties.

The tax refund procedure and deadline will be specified in the Executive Regulations.

Tax collection [15]

Where a taxpayer fails to pay outstanding taxes or administrative penalties, the Tax Procedure Law empowers the FTA to issue a notice to pay taxes and administrative penalties within 20 businesses days of the date of notification to the taxpayer.

Where a taxpayer does not comply with the FTA notice, the Director General of the FTA may issue a decision obliging the taxpayer to pay the outstanding taxes and administrative penalties.

The Director General's decision shall be delivered to the taxpayer within 5 business days of its issuance and should be accompanied with tax and administrative penalties assessments.

The Director General's decision will be considered as an executory instrument for the purposes of enforcement by the competent court.

Settlement of tax and administrative penalties

Legal representative [16]

The Tax Procedure law has introduced the concept of a legal representative being responsible for the performance of any duty or obligation imposed by the Tax Law on the taxpayer, including the submission of tax returns as well as payment of taxes and administrative penalties.

Any tax or administrative penalty due by a taxpayer who is of absent, missing, without a known place of residence or incapacitated should be paid by that person's legal representative from the taxpayer's funds and assets . [17]

The following are considered as legal representative:
- for an incapacitated individual or a minor, their guardian or custodian;
- for a company, the manager;
- for a bankrupt company, the bankruptcy trustee appointed by a UAE court
(the "Bankruptcy Trustee"); or
- any other person legally appointed to represent a taxpayer.

The FTA should be informed within 20 business days of the appointment of a person as a legal representative of a taxpayer.

It is noted that penalties will be due from the legal representative in cases of failure to inform the FTA of his appointment or filing of tax returns within the timeframe specified in the Tax Law.

Partnerships [18]

For partnerships, the partners will be jointly responsible and liable for the payment of tax or administrative penalties relating to the partnership.

Death of a taxpayer [19]

As per the Tax Procedure Law tax arrears of a deceased individual does not expire after his death and must be paid by his heirs until a clearance certificate has been obtained from the FTA.

Bankruptcy [20]

In case of bankruptcy, the Bankruptcy Trustee should request the FTA to notify him of the tax due or of its intention to perform a tax audit.

The FTA has 20 business days after being notified to respond to the Bankruptcy Trustee's request.

The Bankruptcy Trustee may make an objection or appeal against the FTA decision.

The procedure for objection, appeal and payment of the taxes due by the Bankruptcy Trustee will be specified in the Executive Regulations.

Confidentiality [21]

The Tax Procedure Law also includes measures concerning confidentiality rules applicable to the FTA's employees who are bound to keep any information regarding a taxpayer confidential.

The obligation of confidentiality also applies to former tax officers or any person who has obtained information pursuant to the Tax Procedure Law.

Statute of limitations [22]

The statute of limitations limits the time during which an action can be brought by the FTA for an audit and the time for the FTA's tax collection activities.

The right to assess a filed tax return by the FTA in general lapses 5 years after the tax period in question has elapsed.

The FTA can open a special tax procedure up to 15 years after the tax period has elapsed in cases where tax evasion has been proven. The FTA statute of limitations is also extended where there is a failure to register, for up to 15 years from the date the taxpayer should have registered.

It is important to note that no deadline applies for the collection of taxes and administrative penalties which have been notified to the taxpayer, thus the FTA may claim and collect them at any time.

Time limits for tax obligations [23]

Unless provided otherwise by the Tax Procedure Law or the Tax Law, the time limit for a taxpayer to perform any tax obligations or procedure will be granted by the FTA depending on the nature of the obligation or procedure.

The time limit provided by the FTA shall be between 5 business days and 40 business days from the date the obligation arises.

Time limit calculation [24]

The time limit calculation should start the day after the notification or occurrence of an event leading to (re)assessment.

If the last day of a time limit falls on a public holiday, the latter should be extended to the next business day.

Administrative penalty remissions [25]

The Tax Procedure Law provides for remission of administrative penalties in certain cases to be provided in the Executive Regulations.

Burden of proof [26]

The burden of proof lies first with the taxable person concerning its tax declaration.

If the FTA alleges tax evasion, the burden of proof shifts to the FTA. It is noted that even if the burden of proof shifts to the FTA, the taxpayer will still need to prove a defence on the basis that (i) the FTA has made a mistake; or (ii) that the taxpayer had no intention to evade taxation.

Entry into force of the Tax Procedure Law [27]

The provisions of the Tax Procedure Law will enter into force following 30 days from the date of its publication in the Official Gazette.

It is noted that the Executive Regulations of the Tax Procedure Law should be issued within 6 months of the issuance of the Tax Procedure Law.

References
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[1] You will find the unofficial English translation of the Tax Procedure Law under the following link: https://www.mof.gov.ae/En/lawsAndPolitics/govLaws/pages/tax.aspx

[2] Article 4 of the Tax Procedure Law

[3] Article 5 of the Tax Procedure Law

[4] Article 6 of the Tax Procedure Law

[5] Articles 8 and 9 of the Tax Procedure Law

[6] Article 10 of the Tax Procedure Law

[7] Articles 12 to 16 of the Tax Procedure Law

[8] Articles 17 to 23 of the Tax Procedure Law

[9] Article 24 of the Tax Procedure Law

[10] Articles 25 and 26 of the Tax Procedure Law

[11] Article 27 of the Tax Procedure Law

[12] Articles 28 to 32 of the Tax Procedure Law

[13] Article 33 of the Tax Procedure Law

[14] Article 34 and 35 of the Tax Procedure Law

[15] Article 36 of the Tax Procedure Law

[16] Articles 7, 25 paragraph 1 items (f) & (g) and 37 of the Tax Procedure Law

[17] Article 39 paragraphs 2 and 3 of the Tax Procedure Law

[18] Article 38 of the Tax Procedure Law

[19] Article 39 paragraph 1 items (a) and (b) of the Tax Procedure Law

[20] Article 40 of the Tax Procedure Law

[21] Article 41 of the Tax Procedure Law

[22] Article 42 and 43 of the Tax Procedure Law

[23] Article 44 of the Tax Procedure Law

[24] Article 45 of the Tax Procedure Law

[25] Article 46 of the Tax Procedure Law

[26] Article 48 of the Tax Procedure Law

[27] Article 54 of the Tax Procedure Law

Further Assistance

Please contact Sophia Yazane, Tax Director at DWF Dubai, if you wish to discuss the above content in further detail or seek suitable tax advice for your business.


This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

Sophia Yazane

Tax Director

I have more than 12 years' international tax experience advising international corporations, financial institutions and high net worth individuals across Europe and the Middle East.