Instalments & Waivers Request for Existing Tax Penalties-Are You Eligible?

New Scheme Introduced on Tax Payers Portal to Transform VAT Penalty Payments into Installments

Under Cabinet Decision no. 105 of 2021, the Federal Tax Authority (FTA) initiates procedures for administrative tax penalties instalments and waivers. This has come into effect from 1^st March 2022.

These penalties in UAE arise due to failure to comply with VAT such as:

• Penalty for late VAT registration
• Penalty for non-filing of VAT return
• Penalty for failing to display the prices inclusive of VAT
• VAT late payment
• and non-payment of VAT, among others.

An Overview of Cabinet Decision No.105 of 2021 Regarding VAT Penalties

Requirements for Administrative Installments on VAT Penalties

For taxpayers who wish to settle their administrative Tax penalties with an installment plan, an application should be submitted to the FTA, which shall approve such requests when the following conditions are met:

• Only unpaid penalties are requested;
• Unpaid penalties for installments amount to at least AED 50,000;
• Taxes on administrative penalties relating to installments should be fully paid;

• The unpaid penalties for installments shall not be contested in front of the Tax Dispute Resolution Committee (TDRC) or before the Federal Court.

Requirements for VAT Penalty Waiver in UAE (Administrative)

The FTA has also implemented an administrative VAT penalty waiver or relief mechanism, which requires the submission of another request to the FTA. Under the following conditions, the FTA may accept the request and award the tax penalty waiver:

• Administrative tax penalties that are being considered for waiver must not be associated with incidents of tax evasion.

• Requests for penalty waivers must be submitted within the timeframes specified by the FTA.

• The request of the petitioner could be regarding any of the below-mentioned:

1. The death or illness of a signatory that is authorized or the company’s sole owner, if death or illness is the primary reason for the company’s inability to pay the tax penalty.

• The absence of a vital employee due to death, sickness, or resignation has resulted in the inability to settle the tax penalty.

• Local government entities imposed limits, preventative or preventive measures, resulting in the inability to resolve the tax penalty.

• Evidence of a failure in the FTA’s payment settlement or transmission systems that resulted in the inability to pay tax penalties in the UAE.

• Proof that the tax administrative penalty was imposed due to a limitation in the sole owner’s or authorized signatory’s liberty or freedom.

• Evidence that all tax penalty dues have been paid in accordance with VAT law, although from a different registrant’s tax site.

• When a taxpayer declares bankruptcy and has already paid all VAT dues and payments for the period before bankruptcy, and the insolvency or bankruptcy is not with the motive of tax evasion or avoidance.

Procedure for Submitting Application for VAT Penalty Installments & Waiver Requests

The following information should be included in penalty installment and waiver requests sent to the FTA:

• Name and contact information of the applicant, including email and communication addresses.

• If relevant, include your tax registration number.

• The amount of the VAT penalty and the type of offence.

• The date on which the penalty was imposed.

• The reason for submitting an application.
• When the application relates to the tax penalty instalment plan and the request has been authorized by the FTA, a declaration to settle the required amount is required.

• If the application is for a penalty waiver, the applicant must sign a declaration stating that the tax violation has been corrected and that no more violations will occur. An applicant may not submit the same application more than once.

Timelines for Approval of Tax Penalty Installments & Waiver Application

From the date of submission, the FTA has up to 40 working days to consider penalty installment and waiver requests, 20 working days to issue a decision based on the review, and another 10 working days to notify the applicant of its decision. If the FTA does not respond within the specified time frame, the request will be considered denied.

When the penalty installment request has been authorized and the FTA believes that a payment guarantee should be provided, the FTA is responsible for assigning the installment plan that it believes is acceptable, as well as securing a payment guarantee (i.e., bank guarantees or other guarantees).

Furthermore, once a tax penalty waiver for VAT request has been authorized, the FTA is responsible for determining the percentage of the penalty that should be waived.

The FTA will also be able to define the conditions and procedures for the waiver of already paid fines, according to the judgment (within the last 5 years). If a penalty waiver request is granted and the penalty is paid, the waived amount will be credited to the tax registrant portal or given to the taxpayer in cash if the taxpayer is no longer registered for tax purposes.

Conclusion:

Experts like Farahat & Co, have a team of knowledgeable and experienced tax specialists in Dubai and all-around UAE that can provide you assistance in assessing your eligibility as well as represent your company as registered tax agents, hence, helping you determine the way forward.