The UAE Cabinet has issued new decisions regarding tax procedures, penalties, and exemptions. Under Cabinet Decision No. (75) of 2023, the Federal Tax Authority (FTA) will impose administrative penalties on taxable individuals or legal entities who violate corporate tax laws, effective from August 1, 2023. These penalties will be applied in cases of failure to file and pay corporate tax on time, failure to inform the FTA of any necessary amendments to tax records, and failure to keep or submit required tax records and information.
The new structure for voluntary disclosure penalties has also been introduced. The penalties have been carefully designed to ensure successful implementation and compliance with the corporate tax law while not burdening UAE businesses that adhere to the regulations.
Younis Haji Al Khoori, the under-secretary of the Ministry of Finance, emphasized that adhering to corporate tax compliance is essential to support the implementation of the corporate tax system in the UAE, aligning it with global standards.
Mayank Sawhney, the managing director of MaxGrowth Consulting, explained that the new Executive Regulations on tax procedures related to VAT, Excise Tax, and Corporate Tax in the UAE were issued through Cabinet Decision No. (74) of 2023, set to take effect from August 1, 2023. The decision brings 11 key changes, including expanding the definition of ‘Assets’ to include ‘Intangible Assets.’ Additionally, businesses are now obligated to retain documents supporting accounting entries, and records for real estate transactions must be maintained for seven years from the end of the tax year instead of 15 years.
Other changes include allowing documents related to tax to be submitted in either English or Arabic, requiring businesses to notify the FTA of any changes in e-mail addresses, trade licenses, or legal statuses within a specified timeframe, enabling the FTA to do tax de-registration of any tax registrant not meeting criteria, and obligating taxable persons to submit a voluntary disclosure for any errors in tax returns, regardless of their impact on ‘Due Tax.’
Furthermore, 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. Additionally, legal entities can now be registered as tax agents instead of only natural persons.
The amendment also mandates that the FTA must provide at least ten business days’ notice before conducting a tax audit, compared to the five-day notice previously required.
In line with these changes, Cabinet Decision No. (81) of 2023 outlined additional conditions for qualifying investment funds under the Federal Decree-Law No. (47) of 2022 on the Taxation of Corporations and Businesses. The decision specifies additional criteria that investment funds must meet to be considered a qualifying investment fund and be exempt from corporate tax.
For investment funds other than Real Estate Investment Trusts (REITs) to be exempt from corporate tax, they must primarily engage in investment business activities, with ancillary or incidental activities not exceeding 5% of their total annual revenue. The share of ownership interests held by a single investor and its related parties should not exceed 30% or 50%, depending on the number of investors in the fund. Investment funds must be overseen by an investment manager employing a minimum of three investment professionals, and the day-to-day management of the fund must not be controlled by investors.
The diversity of ownership criteria for investment funds, other than REITs, will not be mandatory for the first two financial years of the fund’s establishment, provided there is an intent to diversify ownership after the first two years. As for REITs, the exemption conditions include having real estate assets, excluding land, worth over Dh100 million, a minimum of 20% 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% maintained annually.