Have you made some mistakes or errors on your business taxes in the UAE? Did you file your taxes late or fail to pay enough tax? If so, you may have been hit with large penalties from the UAE’s Federal Tax Authority (FTA).
Paying tax penalties can be painful. But there is some good news! The FTA has recently announced reductions and discounts on certain administrative penalties. This makes it easier to get relief if you have tax penalties.
In this post, we will explain the updates to the UAE tax penalty rules. You will learn about:
- How penalties worked before and problems taxpayers faced
- The new discounts and reductions introduced
- Which penalties you can get reductions or discounts on
- Steps to apply for penalty relief from the FTA
The goal is to help you understand the changes to UAE tax penalties. And see if you are eligible to get your penalties lowered or even waived fully/partially under the new rules.
The key takeaway – explore the FTA’s new penalty reductions and discounts. It can potentially save you a lot of money in tax fines!
Let’s start by looking at how tax penalties worked previously in the UAE.
Overview of Previous Tax Penalty System
Earlier, the penalties for errors, late filing or payments, insufficient tax paid etc. were quite high and rigid in the UAE. For instance:
- Late registration for VAT – AED 20,000
- Failure to submit a tax return on time – Starting at AED 1,000
- Incorrect tax return filed – AED 3,000
- Insufficient tax paid – Up to 300% of the unpaid tax
As you can see, the penalties were very steep, often up to thousands or hundreds of thousands of dirhams. This made compliance challenging for many businesses.
Even if the mistake was a genuine oversight or error, it was punished heavily. Many taxpayers complained that the penalties were too harsh. Especially for smaller errors or first-time offenses.
But now, the FTA has revised the tax penalty framework after feedback from taxpayers and tax consultants. This brings relief through lower penalties and discounts.
New Reductions in Tax Penalties
The FTA has reduced penalties across several different scenarios like:
Late Tax Registration
- Old penalty: AED 20,000
- New penalty: AED 5,000
Late Filing of Tax Return
- Old penalty: AED 1,000
- New penalty: AED 800
- Additional penalty after 60 days reduced from AED 500 per day to AED 100 per day
Errors in Tax Return
- Old penalty: AED 3,000
- New penalty: AED 1,000
Insufficient Tax Paid
- Old penalty: Up to 300% of unpaid tax
- New penalty: Up to 25% of unpaid tax
As you can see, the above penalties have been lowered significantly. There are reductions across late registrations, late filings, errors in returns, unpaid tax – making compliance much easier.
Other scenarios like failure to register, filing an incorrect return repeatedly, and obstruction of tax authority also have updated penalties now.
The reductions apply whether you are registered for VAT, excise tax or corporate income tax. All taxpayers can benefit.
Discounts Introduced on Penalties
Apart from the above reductions, the FTA has also opened up discounts if you are willing to pay the penalty quickly:
- 25% discount if penalty settled within 1 month
- 15% discount if penalty settled within 3 months
Previously, no discounts were available. You had to pay the full penalties without exception.
Now, if you pay within 1 month, a quarter of the penalty will be waived automatically. This gives you a strong incentive to close penalties early.
The discounts apply to most administrative penalties mentioned above. For instance, for late registration, late filing, errors, unpaid tax, etc.
However, penalties for tax evasion or fraudulent activity cannot get any discounts. But for other more minor offenses, you can benefit.
To be eligible, you should not have any previous offenses in the last year. First-time offenders get relief, while repeated offenders pay full penalties.
Overall, the discounts enable you to resolve your tax penalties quickly and at a lower cost. An opportunity you should grab when available.
How to Apply for Penalty Relief
Follow these steps if you have existing tax penalties and want to request discounts or reductions:
Gather All Relevant Documents
- Penalty orders issued by FTA stating the penalties imposed and amounts
- Tax audit report, if any penalties emerged from a tax audit
- Any other notices, assessments, or correspondence from FTA related to the penalties
- Original tax returns, filings, payments on which penalties were levied
- Documents supporting reasonable cause for penalties like medical certificates, police reports etc. if applicable
Organise these documents properly for submitting as attachments.
Review Applicable New Rules
- Check FTA website for the Cabinet Resolution on administrative penalties
- Identify which penalties you received are now eligible for discounts or reductions
- Note the revised lower penalty amounts applicable to your specific situations
Draft Application Letter to FTA
- Structure the application letter professionally with your business details
- Outline the administrative penalties imposed on your business as per penalty orders
- Specify which penalties should be reduced or discounted as per new resolutions
- Request FTA to revise your penalties by reducing amounts or granting discounts as applicable
- Provide the supporting documents as annexures to the application letter
Submit Application on Bayanati Portal
- Login to Bayanati portal and navigate to the penalty revision request form
- Fill in the required details in the form as per your application letter
- Attach the application letter and supporting documents
- Pay any additional taxes owed after discounts via portal
- Save and submit the penalty relief application on Bayanati
Follow Up on Your Application
- Track status of your application on Bayanati regularly
- If any further information needed, FTA will contact you
- Provide any other documents requested promptly to facilitate approval
- Call FTA call center or visit tax office if needed for urgent follow-ups
Get FTA Approval Order
- If approved, you will receive a formal order from FTA via email/Bayanati
- The order will specify approval of discounted/reduced penalties as applied for
- Revised penalty amounts will be mentioned in the approval order
Make Payment for Final Penalties
- Pay the final reduced/discounted penalties as instructed in FTA approval order
- Clear dues via Bayanati within deadline given to conclude penalty relief process
- Retain payment confirmations and updated orders for records
Conclusion
Handling tax penalties used to be difficult with UAE’s previous rigid rules. But the updated administrative penalties and discounts make it easier to get relief if you act fast.
Review your tax compliance, identify eligible penalties and apply to the FTA for reductions or waivers. Pay any balance penalties promptly before the discount deadline.
With some efforts, you can save potentially tens of thousands of dirhams in reduced fines. Getting your penalties lowered also enables you to close outstanding issues and move forward with your business.
Act now to explore penalty relief and start 2023 on a clean slate! Visit the FTA website or contact a tax consultant to initiate the process today.
FAQs:
The UAE government has introduced new discounts and reductions for tax penalties to provide relief to taxpayers. These include reduced penalties for early payment and amnesty programs for certain violations.
Eligibility for the new discounts and reductions varies depending on the specific program or initiative. Generally, taxpayers who voluntarily disclose errors or violations and settle their dues within specified timelines may qualify for reduced penalties.
To apply for the new discounts and reductions, taxpayers typically need to submit a voluntary disclosure form to the relevant tax authority. This form should include details of the errors or violations, along with a proposal for settlement.
The new discounts and reductions may apply to various types of tax penalties, including penalties for late payment, non-compliance, or errors in tax filings.
