Ministry of Finance announces penalties and updates to Corporate Tax regulations
The UAE Ministry of Finance released the details of Cabinet Decision No. (75) of 2023 regarding administrative penalties for violations 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 1 August 2023.
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 Corporate Tax Law Penalties have been carefully designed and benchmarked to ensure successful implementation and compliance of the Corporate Tax Law without burdening UAE businesses that comply with the new regulations.
His Excellency Younis Haji Al Khoori, Undersecretary 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.”
Siddharth Kohli, Founder and CEO of Indigenesis Consulting UAE feels that businesses are still not prepared. “The more we are interacting with businesses for corporate tax transition, we are realising that businesses can be much better prepared when it comes to adapting to the new tax regime,” Kohli added. “One of the biggest areas of concern remains finalisation of books for the purpose of preparation of the opening set of accounts as on the 1st of Jan 2024, which will form the basis for corporate tax purposes moving forward. We strongly advise businesses to quickly get a grip on the financial management and start migrating their processes and systems to align with the requirements for corporate tax. The most immediate need is to update IT and accounting systems, finalise pending accounting for past periods, if any, and start registering for corporate tax on the Govt portal.”
This is echoed by Rashmi Jain, Co Founder and Tax Leader at JRB Chartered Accountants. As a business owner, Jain feels, that implementing effective corporate tax strategies is crucial for financial success and compliance. The complexity of corporate taxation requires a proactive approach and professional guidance to navigate through the ever-changing tax landscape.
"With the right help," added Jain, "you can enhance your business's financial health, maximize tax benefits, and stay compliant with the ever-evolving tax landscape. Remember that preparing for the future starts with improving internal processes and being well-prepared to face any challenges that may lie ahead."
A new 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 was also announced. This stipulates additional conditions that investment funds must meet to be treated as a Qualifying Investment Fund and be exempt from Corporate Tax. 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 percent 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 percent or 50 percent, 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.
The UAE Ministry of Finance also issued Cabinet Decision No. (74) of 2023 on the Executive Regulation of Federal Decree-Law No. (28) of 2022 on Tax Procedures that 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 1 March 2023.