Exploring the New UAE Tax Procedures Law and Executive Regulation – Part I

Introduction

Tax procedure laws contribute to the foundation of a country’s tax system. These regulations establish the guidelines, define the procedures, and determine the processes that oversee the relationship between tax authorities and taxpayers. In a sophisticated tax jurisdiction like the United Arab Emirates (UAE), the significance of having clear and streamlined tax procedure laws isparamount. Understanding this significance, it is essential to take a closer look at the recent changes made to the UAE's tax procedures.

This article serves as Part I in our two-part series covering the recent changes to the UAE’s tax procedures. In this article, we provide a detailed overview of the most noteworthy changes introduced by the new tax procedures law. In Part II, we will dive into the key changes implemented by the new executive regulation on tax procedures. We encourage readers to engage with both pieces for a comprehensive understanding of the new regulations.

 

Background

On 30 September 2022, the UAE’s President, H.H. Sheikh Mohamed Bin Zayed Al Nahyan issued Federal Decree-Law No. (28) of 2022 on Tax Procedures (New Tax Procedures Law), introducing a comprehensive overhaul of the UAE’s tax procedures. The New Tax Procedures Law, which replaced the previous law on tax procedures¹ came into effect on 1 March 2023.

On 11 July 2023, the UAE’s Prime minister, H.H. Sheikh Mohammed Bin Rashid Al Maktoum, issued Cabinet Decision No. (74) of 2023 on the Executive Regulation of Federal Decree-Law No. (28) of 2022 on Tax Procedures (New Executive Regulation). The New Executive Regulation, which replaced the previous Executive Regulation, came into effect on 1 August 2023. Until then, the previous Executive Regulation² remained in effect to the extent that its provisions did not contradict with the New Tax Procedures Law.

 

Definitions (article 1)

The New Tax Procedures Law introduces new terms in its definitions section and refines certain existing ones for added clarity. The below table highlights the major differences between the definitions in the 2017 and 2022 versions.

 

Term	Tax Procedures Law (2017)
Director-General	Director-General of the Authority
Business Day	Not present
Tax	Any federal tax administered, collected and enforced by the Authority.
Tax Residency Certificate	Not present
Tax Resident	Not present
Person	A natural or legal person.
Business	Including industrial, commercial, agricultural, professional, drilling activities or use of material/non-material property.
Tax Return	Information and data specified by the Authority.
Legal Representative	The manager of a company or guardian, custodian, or bankruptcy trustee.
Administrative Penalties	Monetary amounts for breaching provisions of this Law or the Tax Law.
Tax Audit	Inspect commercial records or any information or data related to Business.
Tax Evasion	Evasion: The use of illegal means...
Executive Regulation	Not present

Term	Tax Procedures Law (2022)
Director-General	Director General of the Authority
Business Day	Any day of the week, except weekends and official holidays of the Federal Government.
Tax	Every tax imposed under the Tax Law, that the Authority is mandated to administer, collect, and enforce.
Tax Residency Certificate	A certificate issued by the Authority confirming the tax residency of a Person in the State
Tax Resident	A Person resident in the State in accordance with Article 53 of this Decree-Law.
Person	A natural or juridical person.
Business	Including industrial, commercial, agricultural, professional, excavation activities or use of tangible/intangible properties.
Tax Return	The information and data submitted in the form and manner as prescribed by the Authority, including relevant attachments and schedules.
Legal Representative	The guardian or custodian of an incapacitated person or minor, or the bankruptcy trustee, or any other Person legally appointed to represent another.
Administrative Penalties	Monetary amounts for breaching provisions of this Decree-Law, the Tax Law, or decisions issued by the Cabinet for execution thereof.
Tax Audit	Inspect commercial records, information, data, or goods related to a Person to determine obligations under this Decree-Law or the Tax Law.
Tax Evasion	The Person’s use of illegal means...
Executive Regulation	The Executive Regulation of this Decree-Law.

 

Language (article 5)

Any tax-related documents submitted to the Federal Tax Authority (FTA), including Tax Returns and other related documents, must be in Arabic. While the FTA may permit documents in other languages, they can request an Arabic translation. The New Tax Procedures Law includes a new provision which stipulates taxpayers are responsible for the accuracy and validity of translated documents³. The FTA is entitled to rely on the translation submitted by the taxpayer. All translation costs will be borne by the taxpayer.

 

The Legal Representative (article 7)

The New Tax Procedures Law more clearly sets out the responsibilities of legal representatives.

 

Determination of Payable Tax (article 9)

The New Tax Procedures Law permits the FTA to apply overpaid taxes or credits to outstanding tax liabilities in accordance with the procedures specified in the New Executive Regulation.

 

Submission of Voluntary Disclosure (article 10)

When a Taxable Person discovers errors in their tax returns, tax assessments, or refund applications, which have resulted in an underpayment or overpayment of taxes, they will either be required or will have the option (depending on the specific circumstances), to submit a Voluntary Disclosure to the FTA. This principle was implemented by the previous tax procedures law and has not changed.

A new clause has however been added to article 10 of the New Tax Procedures Law, which stipulates that taxpayers are now also required to submit a Voluntary Disclosure for errors or omissions in the tax return which did not result in a difference in the amount of tax due⁴.

Examples of such errors include:

• Failing to report imported services, where the business is entitled to full input tax recovery in respect of the supply.
• Reporting supplies in Box 1 of the VAT return against an Emirate other than the Emirate in which supplies should have been recorded.
• Failure to report services that are zero-rated.

Article 10 of the New Tax Procedures Law further stipulates that the New Executive Regulation will set out detailed provisions relating to the submission of Voluntary Disclosures to the FTA. To this effect, the New Executive Regulation⁵ states that if a taxpayer becomes aware of an error or omission in the tax return submitted to the FTA without there being a difference in due tax, the taxpayer shall correct the error or submit a Voluntary Disclosure to the FTA, as may be specified by the FTA. It appears that with this provision, it was the legislator’s intention to provide discretionary powers to the FTA in deciding whether a Voluntary Disclosure is required for errors with no impact on the amount of tax due. In a recent public clarification⁶, the FTA stated that errors without tax impact would indeed mandate a Voluntary Disclosure.

 

Methods of Notification (article 11)

The recent amendments in the New Tax Procedures Law have streamlined the notification process. Now, all persons will receive notices at their registered address, irrespective of their status as a taxpayer. Under the New Tax Procedures Law, a person is deemed notified if the FTA sends notices and correspondence to the person’s registered address.

 

Tax Agents (article 12-15)

The previous tax procedures law outlined the criteria for tax agents to obtain a registration in the register of tax agents. However, the New Tax Procedures Law delegates the conditions, controls and procedures for registration of the tax agent, suspension of registration and deregistration, and the rights and obligations of the tax agent to the New Executive Regulation. In other words, the detailed requirements for tax agents have been transposed to the New Executive Regulation.

Tax agents must now also keep the information, documents, records and data related to any person that is or was represented by the tax agent for the period and manner specified in the New Executive Regulation.

The FTA can no longer access a taxpayer’s records held by a tax agent once the agency relationship ends or if the tax agent is dismissed.

 

Tax audits (article 16)

The New Tax Procedures Law provides clearer guidelines on the tax audit process. Now, the FTA must give at least ten (10) business days' notice before starting an audit, an increase from the previous five (5) business days.

 

Tax assessment (article 23)

The FTA is now required to inform the taxpayer of a tax assessment within ten (10) business days of its release, an increase from the previous five (5) business days.

 

Administrative Penalties Assessment (article 24)

The New Tax Procedures Law stipulates that tax agents or legal representatives who fail to cooperate with, or provide assistance to, the tax auditor will face penalties, payable from their own funds. Additionally, the minimum administrative penalty of AED 500 has been eliminated, and the maximum cap reduced to twice the tax amount, down from the previous triple limit.

 

Tax Crimes (article 25)

Persons found guilty of tax evasion are subject to imprisonment and/or fines, ranging from the evaded tax amount up to triple its value, a reduction from the previous five-fold limit. Tax evasion includes intentional actions such as:

• Deliberately failing to settle payable tax.
• Deliberately understating the actual value of a business or revenues, or not consolidating related businesses, to avoid registration or tax thresholds.
• Deliberately collecting tax amounts without being registered.
• Deliberately reducing due tax or engaging in any form of tax evasion.
• Deliberately committing or omitting actions that are defined as tax evasion under the respective law.

It is important to note that for an act to be considered tax evasion, there must be an intentional or deliberate violation by the taxpayer.

The New Tax Procedures Law also introduces the following tax crimes:

• Deliberate failure to settle the administrative penalties: any person who deliberately does not settle an administrative penalty which is due will face a prison sentence and/or will incur a monetary penalty ranging from the amount of that penalty and up to three (3) times that amount.
• Anyone who commits any of the following acts will face a prison sentence and/or will incur a monetary penalty up to AED 1 million:
• Deliberately providing false information, data and incorrect documents to the FTA.
• Deliberately concealing or destroying documents, information and data or other material that he is required to keep and provide to the FTA.
• Stealing documents or other materials that are in the possession of the FTA or deliberately misusing or destroying them.
• Deliberately preventing or hindering the FTA’s employees’ from performing their duties.

If any of these acts result in tax evasion or facilitating or concealing of tax evasion, the penalties applicable for tax evasion will apply (see first bullet point).

Anyone directly participating in or causing any tax crimes will be penalized with the applicable penalty as set out above on the basis of criminal participation⁷.

Where several persons are found guilty of the same crime in one judgment, they will be jointly liable for paying the monetary penalty, irrespective of whether they were perpetrators or accomplices.

Committing the same offense within a five-year period is now considered an aggravating factor, classifying the person as a repeat offender.

Tax Crime Procedures (article 26)

The New Tax Procedures Law outlines detailed procedures for tax crimes, particularly focusing on the seizure of goods.

Reconciliation in Tax Evasion Crimes (article 27)

The New Tax Procedures Law introduces a new concept called ‘reconciliation’. In essence, reconciliation offers an alternative pathway for those accused of tax evasion or deliberate failure to settle the administrative penalties, allowing them to settle their dues and penalties in exchange for the cessation of legal consequences and potential penalties.

Reconciliation can be initiated by different parties at various stages of the legal proceedings:

• Pre-Trial Reconciliation by the FTA: Before any criminal case starts, the FTA can opt for a reconciliation procedure with individuals involved in tax evasion or intentional non-payment of administrative penalties. This reconciliation involves the full settlement of any owed taxes and administrative penalties. Additionally, for crimes mentioned in article 25 (4), the FTA can reconcile before initiating a criminal case, provided that amounts specified in the Executive Regulation are settled.
  
  
• Post-Trial Initiation but Pre-Conviction Reconciliation by Public Prosecution: after the initiation of a criminal case but before any conviction is formally made, the public prosecution has the authority to propose reconciliation. This will involve the full payment of due taxes and administrative penalties. In addition, a fee, which is a percentage of the evaded tax (as outlined in the Executive Regulation), or specific amounts related to crimes mentioned in article 25 (4), must also be paid.
  
  
• Post-Conviction Reconciliation by Public Prosecution: even after a conviction has been handed down, the Public Prosecution can still offer reconciliation. This requires the full settlement of payable taxes and administrative penalties, as well as an additional amount, which is a percentage of the tax evaded (as detailed in the Executive Regulation) or amounts specified regarding crimes mentioned in article 25 (4).

Before proceeding with reconciliation initiated by the Public Prosecution, the latter must consult the FTA and consider its opinion.

Successful reconciliation has significant legal implications. It results in the termination of the criminal case and negates any associated consequences. If penalties were imposed by the court and reconciliation is achieved during their execution, the Public Prosecution can suspend these penalties, even if the judgment was final.

The exact conditions, controls, and procedures for reconciliation will be detailed in the New Executive Regulation.

 

Tax Assessment Review (article 28)

The New Tax Procedures Law adds an additional step to the administrative dispute process. If a person disagrees with a tax assessment issued by the FTA, they can now submit a request for a ‘Tax Assessment Review’. The request must specify the reasons for the request and must be submitted within forty (40) business days from the date the person is notified of the tax assessment and related administrative penalties. The FTA will have forty (40) business days to review the request and issue a decision. The decision must be communicated by the FTA within five (5) business days from the issuance of thereof.

Taxpayers can submit a Reconsideration Request against the FTA’s decision within forty (40) business days of being notified thereof. However, if the person has already submitted a Reconsideration Request it will no longer be possible to submit a request for a Tax Assessment Review. Thus, careful and strategic planning is essential in cases of tax dispute, to ensure that taxpayers do not miss out on this additional opportunity to contest a tax assessment.

 

Reconsideration Request (article 29)

The New Tax Procedures Law specifies that if someone has already requested a review of a tax assessment, they cannot submit a Reconsideration Request for the same assessment until the FTA has taken a decision on the review⁸.

 

Tax Refund Procedures (article 39)

Article 39 now includes a clause which states that if a taxpayer is under audit, the FTA may decline a tax refund, under specific conditions to be set out in an FTA decision⁹.

 

Collection of Payable Tax (article 40)                                                      

If the FTA believes there is a possibility of tax revenue loss, the Director General can request the Judge of Urgent Matters to seize the taxpayer’s assets to cover the amount of tax payable. In such case, the assets will remain temporarily frozen and can only be released by a court decision upon the Director General's request.

 

Tax Disputes Resolution Committee (articles 30-35)

Taxpayers can file an objection against the FTA’s decisions on Reconsideration Requests with the Tax Disputes Resolution Committee (TDRC). An objection with the TDRC must be submitted within forty (40) business days after being notified of the FTA’s decision. To do so, they must first pay the disputed tax amount in full (“Pay now, dispute later”).

A new clause has been added to article 32 which would allow the Cabinet to amend the amount that needs to be paid upfront prior to submitting an objection with the TDRC, potentially easing cash flow burdens for businesses that wish to challenge an unfavorable decision¹⁰.

Taxpayers can now also request deadline extensions for Tax Assessment Review Requests, Reconsideration Requests, or TDRC objections if they meet conditions in the New Executive Regulation. The FTA or TDRC may also extend their review under certain conditions. If a request for extension is denied, the decision issued by the FTA or TDRC will be final, with no further objections or appeals permitted.

 

Statute of limitation (article 46)

The standard statute of limitation period is five (5) years and fifteen (15) years in case of crimes that constitute tax evasion.

The New Tax Procedures Law introduces several exceptions to the standard limitation period of five (5) years:

• If the Taxable Person is notified of a tax audit before the expiration of the 5-year period, the FTA may conduct a tax audit or issue a tax assessment after the expiration of the five (5) year period, provided that the audit is completed, or assessment is issued within four (4) years from the date of notification of the tax audit.
• If a voluntary disclosure is submitted in the fifth year, the tax authority may conduct a tax audit or issue a tax assessment after the expiration of the 5-year period, provided the audit is completed, or the tax assessment is issued within 1 year from the date of submission of the voluntary disclosure.

Additional changes include:

• The New Tax Procedures Law now also explicitly states that taxpayers cannot file a voluntary disclosure after a period of five (5) years following the end of the relevant tax period.
• In cases where a taxpayer failed to register, the FTA may conduct a tax audit or issue a tax assessment within fifteen (15) years from the date on which the taxpayer should have registered.

 

Conclusion

The New Tax Procedures Law introduces pivotal changes to the UAE tax landscape. Noteworthy changes include amendments to the voluntary disclosure regime, new tax agent criteria, the introduction of new tax crimes, the addition of a 'Tax Assessment Review' in the dispute resolution process and new exceptions to the standard statute of limitation periods.

Given these impactful changes, consulting tax professionals to ensure compliance and adeptly navigation of these new tax procedures will be paramount.

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¹ Federal Decree-Law No. (7) of 2017 on Tax Procedures as amended by Federal Decree-Law No. (28) of 2021.
² Cabinet Decision No. (36) of 2017 on the Executive Regulation of Federal Decree-Law No. (7) of 2017, as amended by Cabinet Decision No. 51 of 2021.
³ Article 5(3) of the New Tax Procedures Law
⁴ Article 10(5) of the New Executive Regulation
⁵  Article 10(3) of the New Executive Regulation
⁶ See Tax Procedures Public Clarification (TAXP006), p. 8.
⁷ See Federal Decree-Law No. 31 of 2021 promulgating the Crimes and Penalties Law.
⁸ If the FTA does not issue a decision within the period stipulated in article 28, the taxpayer can submit a reconsideration request upon expiry of this period.
⁹ Article 39(2)(b) New Tax Procedures Law
¹⁰  Article 32(3) New Tax Procedures Law