The United Arab Emirates has now framed a Federal law No. 7 of 2017 on Tax Procedures to introduce the tax in all the emirates of UAE. This new Tax Law shall explain the rules for regulating the collection of Taxes, defines the role of the Federal Tax Authority, penalties etc.

The Tax Law mainly categorise the tax into two, namely VAT (Value Added Tax) which will be introduced on January 1st, 2018 by Federal Decree Law No. (8) of 2017 and Excise Tax, which shall be introduced in October, 2017 by Federal-Decree Law No. (7) of 2017. The VAT is actually a consumption tax which is usually imposed on a product at each stage of production before the final sale. In simple words, it is imposed on the Customers. In UAE, the VAT will be calculated as a percentage, ie., at the rate of 5%, of the retail sale price of a product. Whereas the excise tax which shall be in force from the upcoming months, is imposed on the manufacturer and not the customer. The Excise Tax Law shall impact all the excise goods consumed inside the Country including all the free zones and Ports. This tax is set to discourage the consumption of products that negatively impact the environment and more importantly, people’s health, while the revenues it generates will go towards supporting advanced services for all members of society.

Since the draft UAE Tax Law is not yet published, it is generally mentioned that all business that provide taxable goods or services with annual revenue of more than AED 375,000 will be required to register for VAT.
As per the New Tax Law, it is to be noted that the accounting records of the companies/business not only have to be prepared and maintained in accordance with the provisions of the tax Law, but any submissions to the Federal Tax Authority shall be in Arabic. Since the recently introduced Federal Law No (2) of 2015 on Commercial Companies already requires the companies to keep the books of accounts and financial records and to prepare the annual financial statement, the companies may not find it difficult to maintain the same under the New Tax Law. But it is to be noted that the application of any penalties in terms of the Commercial Company Law, will be without prejudice to any penalties imposed under Tax law. Upon registration for the Tax, the companies (hereinafter the tax payer) shall receive a unique registration number and the tax payer shall use/quote this registration number on all payments and correspondences with the FTA. The FTA’s power to conduct Audit, includes the Audit on the tax Payer’s premises, and they would also check if the Tax payer has complied with the tax law.

The FTA has also given authority to issue Tax Assessments and administrative penalties on the following circumstances:

  • Where a taxable person do not register for the Tax
  • Where the taxable person fails to submit the return within the timeframe specified.
  • Where the taxable person fails to make any payments due
  • Where the taxable person submits incorrect returns or payments.

Apart from the situations mentioned above, the administrative penalties shall also be made payable when the Tax payer fails to submit the records in Arabic.
The penalties for Tax evasion will be imposed from the range starting from AED 500 to three times the amount of any tax amount due per violation.

For the companies that evade the Tax registration, the penalty shall include prison sentence and a monetary penalty of upto 5 times the amount of evaded tax amount. The penalty for tax evasion shall also be imposed on the below companies:

  • Charge and collect taxes when not registered to do so under any tax law.
  • Deliberately fails to pay the tax due.
  • Destroy, steal or falsify financial records
  • Deliberately submits false documents to FTA
  • Deliberately understate any tax amount payable.

Since the regulations regarding the Tax Law has not been issued and once the same is published, it will give more clarity on the responsibility and obligations of a tax payer.

(Contributed by
Advocate Joy Tattil, )