UAE announces penalties for corporate tax violations

The UAE Ministry of Finance (MoF) announced the issuance of Cabinet Decision No. (75) of 2023 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).

The Cabinet Decision 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 as of 1st August 2023.

The Corporate Tax Law Penalties have been carefully designed and bench marked to ensure successful implementation and compliance of the Corporate Tax Law without burdening UAE businesses that comply with the new regulations.

Younis Haji Al Khoori, Under-Secretary of the Ministry of Finance, said, “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.”

Under Cabinet Decision No. (75) of 2023, 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.

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

The Ministry of Finance announced Cabinet Decision No. (81) of 2023, outlining additional conditions for Qualifying Investment Funds under the Federal Decree-Law No. (47) of 2022 on the Taxation of Corporations and Businesses. The Cabinet Decision 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.
According to 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 per cent 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 per cent or 50 per cent, 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 Dhs100 million in value, a minimum of 20 per cent 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 per cent maintained annually.

The UAE Ministry of Finance also 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.
WAM