22 November 2022
FTA issues changes in Tax Procedure and Executive Regulation under UAE VAT

The Federal Tax Authority has made changes to the following legislation relating to UAE VAT:
 
I. Changes in Federal Decree-Law No. 28 of 2022 (Tax Procedures)
II. Changes in the Executive Regulation – Law No. 8 of 2017 (Executive Regulations)

We have provided a detailed explanation, basis our understanding of the literal translation of the relevant amendment in the table below:
 
  1. UAE Federal Decree-Law No. 7 of 2017 of VAT has been amended by the Federal Decree-Law No. 28 of 2022 and shall be effective from 1 March 2023.
 
Article No. Heading Amendment Nexdigm Comments
1 Definitions New definitions have been provided for ‘Tax Residency Certificate’ and ‘Tax Residence’. Also, minor amendments have been made to the definition of Business and Tax. The said changes are made to align the law with Corporate Tax to be introduced from 1 June 2023.
5 Language The Authority may accept the documents in any language other than Arabic also. Arabic translation may be required in specific cases, wherever the Authority requests the same. This is a welcome change to help businesses and individuals to co-ordinate with Tax Authority without any language barrier.
7 Legal Representative Representatives can now submit tax returns to the Authority and adhere to any additional requirements. Basis this amendment, there will be no bar on submitting the return in situations where the taxable person is a minor or incapable.
10 Voluntary Disclosure (VD) Taxpayers to file VD in a case where there is no difference in the amount of tax due. Executive Regulation will set out the detailed provision on application and penalties, if any. Basis this amendment, taxpayers shall not be able to rectify issues in the next return and file VD for each trivial error.
16 Right to perform a tax audit
  1. Increase in the number of days for notifying before conducting tax audit from five to 10 business days; and
  2. In case the notice attempts to stop the Tax auditor from entering the premise where the tax audit is conducted - Authority can enter any business premises without prior notice.
  1. This is a welcome amendment whereby taxpayers get additional five days to collate all the necessary documents; and
  2. Basis the amendment, it is imperative for the taxpayer to co-operate with the Authority and allow them to conduct the audit.
23 Tax Assessment The FTA shall issue a tax assessment and notify the taxpayer within 10 days (earlier five days) in cases where the taxpayer has failed to:
  • apply for registration
  • submit VAT return
  • Pay tax (if any), or
  • Submitted an incorrect return.
This amendment will assist taxpayers in determining the correct amount of tax, thus, avoiding any harsh consequences.
24 Administrative Assessment Penalties Amendment has been made to the administrative penalty from a fixed fee of AED 500 to a maximum twice the amount of tax (the current penalty is thrice the amount of VAT). This has decreased the taxpayer‘s burden (small or otherwise) who used to suffer such penalties irrespective of the tax liability or bonafide issues.
25 Tax Crimes and Penalties
  1. Prison sentence or a monetary penalty thrice (earlier five times) the amount of tax evaded would be imposed if any taxable person commits any crime for the following acts:
    • Failure to settle any payable tax.
    • Imposing and collecting tax as unregistered.
    • Tax evasion.
  2. If any person deliberately does not settle the due penalty, unless waived. In that case, they shall be subject to a prison sentence or a monetary penalty not exceeding three times the penalty evaded.
  3. A prison sentence or monetary penalty not exceeding AED 1,000,000 would be imposed, if any, if any taxable person commits any of the following acts:
    • deliberately provides false information, data, and incorrect documents.
    • deliberately conceals or destroys documents or information.
    • steals documents or materials in possession of the Authority.
    • deliberately prevents or hinders the Authority from performing duties.
Comment for point no. (i): Reduced the burden from paying the earlier amount as not exceeding five times of tax evaded.

Comment for point no. (ii) and (iii): person to fully comply with law and support the Authority for performing functions.
32 Procedure for submitting the objection and cases of non-acceptance Objection to the Authority‘s decision in respect of reconsideration request to be submitted within 40 business days (earlier 20 business days). This is a welcome amendment whereby taxpayers get additional time to file objections.
36 Procedure of Appeal before the Court Authority or the taxpayer may appeal the committee‘s decision before the Court within 40 days from the date of the committee‘s decision. Similar to the above, if the taxpayer or Authority is not satisfied with the response or there exists any dispute, then they may go for an appeal in the Court within the stipulated time.
46 Statute of Limitation The following additional scenarios have been included, whereby the Authority can issue tax assessment or conduct tax audit after the expiry of five years from the end of the relevant tax period:
  1. The FTA had issued a notice to conduct an audit to the taxable person before the expiration of five years, provided such an audit is completed within four years from the date of issuance of the notice.
  2. Where a taxable person files a VD in 5th year from the end of the relevant tax period, then FTA can conduct an audit or assessment within one year from such submission.
In the aforesaid cases, after the Minister’s suggestion, the Cabinet issued a decision to amend the said timeline.

Furthermore, no voluntary disclosure can be submitted after the expiry of five years from the end of the relevant tax period. 		Similar to the above, if the taxpayer or Authority is not satisfied with the response or there exists any dispute, then they may go for an appeal in the Court within the stipulated time.

It provides additional time for the Authority to issue tax assessments or conduct the business’ tax audit.

Furthermore, the following Articles have been newly introduced for crimes committed in respect of tax and Review of Assessment, Objection and Appeal.
 
Article No. Particulars
26 Procedures and Measures
27 Reconciliation in Tax Evasion Crimes
28 Tax Assessment Review Request
35 Extension of Deadlines
 
  1. Executive Regulation – Law No. 8 of 2017 has been amended by Cabinet Decision No.99 of 2022 and shall be effective 1 January 2023
  1. Article 3 has been amended to exclude services provided by an individual to perform functions of a member of the Board of Directors of any government entity or any private entity from the definition of supply. Public Clarification has been issued to explain inclusions, exclusions, implications during the transitional period and provision for deregistration.
  2. Article 72, relating to record keeping of supplies made, has been amended to the below extent:
    1. Where a taxable person does not have a fixed establishment and has a place of establishment in UAE, then he shall maintain the records of the transaction for proving to the Emirate in which the place of establishment is located; and
    2. Where services supplied by the taxable person through an electronic commerce operator (ECO) exceeds AED 100,000,000 during the calendar year, then he must keep the records to prove the Emirate in which the supply is received.
    3. ECO also refers to the process of selling goods or services through electronic means, an electronic platform, or a store in social media. The applicability of the provision has also been provided on the basis of the crossing threshold.
Our Comments
Revised Federal Decree-Law has been issued along with Tax Procedures and Executive Regulations considering that changes are required to be undertaken in which businesses are functioning at present.

It can be clearly seen that FTA is becoming sterner in terms of overall compliance for any business operating in the UAE. Accordingly, businesses should start analyzing the changes applicable to them as the same is effective from 1 January 2023.

Basis the above, the business shall be required to conduct a detailed impact assessment as the amendments would impact:
  1. Existing contracts - which will need to be amended.
  2. Policy changes - for instance, change in the manner of raising invoices and credit notes.
  3. Revisiting the tax position already undertaken.
  4. Maintenance of requisite documentation and record.
 Accordingly, to avoid any penal consequences, businesses are advised to ensure that the above amendments, if any, in the underlying documentation and processes are carried out in time before the law comes into force.
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