UAE Cabinet Announces New Decisions on Tax Procedures, Penalties, and Exemptions

The UAE Cabinet has announced new decisions pertaining to tax procedures, penalties, and exemptions, effective from August 1, 2023. The Federal Tax Authority (FTA) will impose administrative penalties on taxable individuals and legal entities who fail to comply with corporate tax law. These penalties apply to cases of late filing and payment of corporate taxes, failure to inform the FTA of necessary amendments to tax records, and not maintaining proper tax records or providing required information.

Additionally, Executive Regulations on tax procedures related to VAT, Excise Tax, and Corporate Tax have been issued, incorporating 11 key changes. These changes include expanding the definition of ‘Assets’ to include ‘Intangible Assets,’ requiring businesses to retain all documents supporting accounting entries, and reducing the retention period for real estate transaction records from 15 years to 7 years.

Furthermore, businesses are now allowed to submit tax-related documents to the FTA in either English or Arabic. Tax registration holders must notify the FTA of any changes in their e-mail address, trade license, or legal status within a specified timeframe. The FTA has the discretion to de-register tax registrants who no longer meet registration criteria, even without a formal de-registration application. Licensing bodies issuing trade licenses must notify the FTA of basic data and information for each business within 20 business days of issuance or renewal of the license.

Another significant change is that taxable persons are now obligated to submit a voluntary disclosure to correct errors in their tax returns, even if these errors do not impact the ‘Due Tax’ for the period. Additionally, the requirement for tax agents registered with the FTA to be proficient in Arabic has been removed, and now tax professionals proficient in either English or Arabic can register as tax agents. Legal entities can also be registered as tax agents, not limited to natural persons.

Regarding tax audits, the FTA must now provide at least ten business days’ notice before conducting an audit, an extension from the previous five-day notice period.

The Cabinet also outlined additional conditions for qualifying investment funds to be exempt from corporate tax under Federal Decree-Law No. (47) of 2022. For investment funds other than REITs, conditions include being primarily engaged in investment business activities, with ancillary activities not exceeding 5% of total annual revenue, specific ownership interest limitations, oversight by a minimum of three investment professionals, and day-to-day management control. The diversity of ownership criteria for such funds will be non-binding for the first two financial years, provided the intent to diversify ownership is demonstrated.

For REITs to be exempt from corporate tax, conditions include exceeding Dh100 million in real estate asset value (excluding land), having a minimum of 20% publicly listed or institutional investor ownership, and maintaining an average real estate asset percentage of at least 70% annually.