Tax law enforcement in United Arab Emirates

Enforcement

How does the tax authority verify compliance with the tax laws and ensure timely payment of taxes? What is the typical procedure for the tax authority to review a tax return and how long does the review last?

The UAE tax regime is dominantly a self-assessment system that requires taxpayers to self-assess their tax liabilities and submit them to the Federal Tax Authority. Taxpayers are responsible for preparing their tax returns for each tax period. Submissions are done via the taxpayers’ online portal. There are no timeframes for review of a tax return.

In case of an incorrect tax return, the Federal Tax Authority issues a tax assessment to the taxpayer and may also apply administrative penalties.

Are different types of taxpayers subject to different reporting requirements? Can they be subjected to different types of review?

The Federal Tax Authority identifies ‘taxpayers’ as mainly legal persons or natural persons located within or outside the United Arab Emirates. More granularly, the Federal Tax Authority requests taxpayers to identify whether they are a public joint stock company, an incorporation, a club, a charity or association, or a federal or emirate government entity. For natural persons, the Federal Tax Authority requests clarification as to whether the natural person(s) is an individual or a partnership.

Tax periods for submitting tax returns may differ depending on the value of revenues of the taxpayer: quarterly submissions for taxpayers with an annual turnover below Dh150 million, and monthly for taxpayers with an annual turnover above Dh150 million.

A taxpayer is allocated a different tax registration number for value added tax (VAT) and excise tax liability.

Cabinet Decision 32/2019 of 30 April 2019 requires country-by-country reporting to the Ministry of Finance for entities that are considered a tax resident in the United Arab Emirates and are part of a multinational group with consolidated revenues equal to or exceeding Dh3.15 billion in the preceding financial year.

There are also special provisions that govern taxpayers that are subject to excise tax (Federal Decree-Law 7/2017). These special provisions sometimes lead to longer or more intricate tax reviews. 

What types of information may the tax authority request from taxpayers? Can the tax authority interview the taxpayer or the taxpayer’s employees? If so, are there any restrictions?

As applicable, taxpayers are required to maintain balance sheets and profit-and-loss accounts, records of wages and salaries, records of fixed assets, and inventory records and statements. However, the Federal Tax Authority has authority to require any other information to confirm an audit trail. Generally, taxpayers must maintain the documents for a period of five years after the end of the respective tax period. Original documents must be maintained and can be in a language other than Arabic or English, but in such a case the Federal Tax Authority may request documents to be translated into Arabic.

The Federal Tax Authority generally reaches out to employees via the registered contact details (email, phone) to request any clarifications. Apart from audits by the Federal Tax Authority, there are no explicit tax-related rules governing the general communication by the Federal Tax Authority with the taxpayer.

What actions may the agencies take if the taxpayer does not provide the required information?

The Federal Tax Authority may issue a tax assessment to determine the value of the payable tax and notify the taxpayer with the assessment if, among other things, the taxpayer fails to apply for registration, fails to submit a tax return or submits an incorrect tax return, or fails to settle the amount defined in a previous tax return. The Federal Tax Authority may also issue estimated tax assessments if it is deemed impossible to determine the amount of tax payable.

Once an assessment takes place and is notified to a taxpayer, it is deemed a debt to the Federal Tax Authority.

The Federal Tax Authority has the authority to conduct an audit at the premises of the taxpayer and inspect all documents, assets and accounting systems available. The taxpayer premises may be the headquarters, stores, warehouses or any other place deemed to be where the taxpayer conducts its business. During the audit, the Federal Tax Authority may also take samples of goods, equipment or other assets.

The Federal Tax Authority must generally notify the taxpayer five days prior to conducting a tax audit; however, the authority may conduct the audit without notification in certain cases, such as suspicion of tax evasion.

How may the tax authority collect overdue tax payments following a tax review?

If a taxpayer does not voluntarily pay the taxes and penalties due within 40 working days of the date the taxes and/or penalties are due, the director general of the Federal Tax Authority may issue a decision to the execution judge of the competent court to seize and enforce against the taxpayer’s assets. Decisions of the director general concerning due taxes and penalties are deemed a writ of execution and can be submitted directly to the execution judge of the federal courts to enforce. The execution judge has authority to seize all assets of the taxpayer (bank accounts, real property, receivables from government contracts, etc) for the purposes of covering the debts due to the Federal Tax Authority.

In what circumstances may the tax authority impose penalties?

The Federal Tax Authority may impose penalties in various circumstances defined in the tax legislation. These circumstances include a taxpayer’s failure to: 

• keep the required records and other information; • submit the data, records and documents related to the tax in Arabic to the Federal Tax Authority upon request; • submit the registration application within the defined periods; • notify the Federal Tax Authority of any event that requires the amendment of the information on the tax record; and• submit a tax return in the allocated time or settle the taxes in a tax return or tax assessment.

A tax agent or legal representative may also be penalised for various defaults including their failure to inform the Federal Tax Authority of their appointment or submit a tax return on behalf of the taxpayer.

How are penalties calculated?

Cabinet Decision 40/2017 provides a list of penalties that may be applied for general defaults of the taxpayer, and for VAT-related issues and excise tax issues. The list provides for fixed figures and percentage-based penalties based on the unpaid taxes. For example, late registration is punishable with a penalty of Dh20,000. Failure of a person to calculate any tax that may be due on the import of goods is punishable with a penalty of 50% of the unpaid or undeclared tax. Tax evasion is also punishable by a prison sentence and five times the amount of tax debt that has been evaded.

What defences are available if penalties are imposed?

The various statutes that make up the tax legal framework were introduced in late 2017, with some continuing to be promulgated and come into effect to date. The legislation’s novelty may lead to different interpretations that are presented before the tax dispute resolution committees or the federal courts to rule on. Where the issue is a question of law, the defences available are those of judicial interpretation. For example, in penalties related to voluntary disclosures the main question is the taxpayer’s awareness of the incident that gave rise to such disclosure, in which case defences or mistake and intent play an important role. There are also various public and private clarifications issued by the Federal Tax Authority which may clarify a position that was previously unclear to the taxpayer, in which case a respective defence may be presented. Comparative analysis against tax laws and reliance of tax rulings of regional jurisdictions such as Egypt or Jordan or, in some cases, as far as the United Kingdom, may be used to assist in judicial interpretation.

Are there criminal consequences that can arise as a result of a tax review? Are these different for different types of taxpayers?

Criminal proceedings may be initiated only by a request of the director general of the Federal Tax Authority, and are administered by the public prosecution.

Criminal consequences under the tax legislation are for tax evasion. Tax evasion can arise if, among other things, the taxpayer abstains from settling any payable tax or penalties, understates the actual value of his or her business or omits any related business, imposes and collects amounts from clients without being registered, submits wrong information and incorrect data to the Federal Tax Authority, conceals or destroys documents or other materials that he or she is required to submit to the Federal Tax Authority, or prevents the Federal Tax Authority from performing its duties.

Tax evasion is punishable with imprisonment and/or a penalty of up to five times the amount of tax evaded. Imposition of criminal liability does not exempt a person from the due taxes or penalties.

Joint and several liability may be applied to persons who are proven to have directly participated or caused tax evasion. This could apply to employees of a taxpayer (or, in some instances, shareholders) who are found to be accomplice to tax evasion.

What is the recent enforcement record of the authorities?

Enforcement records are not public, but there have been enforcement cases where the values of the taxes and penalties unpaid by the taxpayer have exceeded tens of millions of UAE dirhams.