The UAE imposes a fine on failure to make tax payments within the due date as per the tax return, voluntary declaration, or tax assessment. Effective 28 June 2021, the penalty for late payment of taxes applies as follows:
- 2% penalty is imposed on the day following the payment due date; and
- An additional 4% monthly penalty is imposed one month after the due date and for each subsequent month, subject to a maximum cap of 300%.
Previously, the fine was 1% of the tax due for each 30 days or part of 30 days the filing or payment is delayed.
The penalty will be charged after 20 weekdays from the date of submission in case of voluntary disclosure and after 20 weekdays from the date of receipt in the case of a tax assessment.
Penalties due and unpaid until 28 June 2021 may be reduced to 30% of the total unpaid tax penalties and the remaining 70% of the outstanding tax penalties may be waived if the following conditions are met:
- The tax penalties were imposed before 28 June 2021;
- The outstanding tax penalties were not paid in full before 28 June 2021 (i.e., the reduction will not apply on the amount of tax penalties already paid by the taxpayer);
- There is no outstanding tax payable as on 31 December 2022 (extended from 31 December 2021); and
- At least 30% of the unpaid tax penalties imposed before 28 June 2021 are paid by 31 December 2022 (extended from 31 December 2021).
If the above conditions are satisfied, the Federal Tax Authority (FTA) will redetermine the amount of tax penalties by the end of December 2022 (extended from December 2021), and the taxpayer will not be required to pay the remaining amount.
Providing false information or records will result in a fine of AED 1000 (reduced from AED 10,000 effective 28 June 2021) for first-time offenders and a penalty of AED 2000 (reduced from AED 50,000 effective 28 June 2021) in case of repeated violation.
Filing of an incorrect tax return may result in a fixed penalty of AED 1000 (reduced from AED 3000 effective 28 June 2021) for first-time offenders and a penalty of AED 2000 (reduced from AED 5000 effective 28 June 2021) in case of repeated violation. However, if the incorrect return results in a tax difference of less than AED 1000, the penalty will be equal to the difference, provided it is not less than AED 500. A penalty will not be charged if the taxpayer files a revised correct tax return before the tax payment due date.
In the case of voluntary disclosure of errors, a proportional penalty ranging from 5% to 40% applies on the differential tax payable depending on when the voluntary disclosure is made.
In addition to the penalties above, if a taxpayer is legally responsible for a person who commits a violation, the taxpayer may be fined up to AED 50,000.
A penalty of AED 1000 is imposed for failure to submit a return by the deadline. Repeated violations within 24 months can result in a penalty of AED 2000.
The UAE tax authorities may, upon receipt of an application from the taxpayer allow payment of penalties in instalments, reduce or cancel the penalty imposed for the violation of tax provisions. Effective 1 March 2022, the Federal Tax Authority (FTA) introduced new rules for instalment payment and full or partial waiver of penalties. Under the new rules, the following conditions apply:
- The request for instalment relates to unsettled penalty only;
- The unpaid penalty is at least AED 50,000;
- The unpaid penalty is not disputed before TDRC or the Federal Courts; and
- The tax amount relating to the relevant tax period is fully paid.
- The unpaid penalty is not related to tax evasion cases; and
- The reason for the application for waiver of unpaid penalty is related to any of the following:
- death or illness of the taxpayer if the taxpayer is the sole owner of a company;
- death, illness, or resignation of a key employee of the company;
- the existence of restrictions and precautionary or preventive measures imposed by the UAE government;
- the failure of FTA systems, payment systems, or communication systems;
- the taxes have been paid through the tax account of another registered taxpayer;
- the taxpayer is under insolvency or bankruptcy, subject to certain conditions; or
- other cases that may be accepted.
As per the new rules, the taxpayer can request for an instalment payment facility or waiver of penalties by filing an application with the FTA. The FTA will review the application within 40 business days and if the application complies with all requirements it will be referred to the tripartite committee (a committee formed by the Chairman of the FTA along with 2 other board members). The tripartite committee will provide its decision within 60 business days from the date of referral by the FTA and will notify the taxpayer within 10 business days from the date of its decision. If no decision is given, the application is considered to be rejected.
The committee can allow waiver of penalties paid by the taxpayer in the previous 5 years, either by way of refund to the taxpayers registered account or in cash, if the taxpayer is no longer registered for tax purposes.
Further, effective 1 November 2021, taxpayers can file an objection to the Tax Disputes Resolution Committee (TDRC) against the decision of the FTA, without having to pay the penalties imposed as long as the full tax amount is paid and certain other conditions are met (previously all the outstanding taxes and penalties had to be paid before filing the objection with TDRC).