19 Apr 2022
To keep the state’s system running and support the services improving all people’s lives, compliance with tax laws and regulations is way too essential. Tax compliance involves the awareness and observance of the federal and local laws regarding tax filing and tax return services. It is necessary to file tax returns in time to avoid any legal consequences and penalties from the tax authority. The Federal Tax Authority (FTA), established in 2016, regulates tax-related matters in the UAE. The Federal government has enacted tax regulations for tax filing services and procedures for the individuals running businesses. The taxes are the source of generating revenue for the state. Federal Law Number 7 of 2017 on Tax Procedures (the Tax Procedures Law) is promulgated to provide a framework for the FTA to conduct tax audits, assess payable tax, determine tax evasion, and order administrative penalties.
The companies will face the consequences for not complying with tax laws in the UAE. The companies must be registered to file tax returns in the FTA and file tax returns online on its site. There is a particular procedure for litigation and administrative penalties for those who do not comply with the tax laws in UAE. If a person conducts business in the UAE and fails to keep the relevant tax records and other information mentioned in the Tax Procedures Law and the Tax Law, he will be imposed an administrative penalty of AED 10,000 (UAE Dirhams) for not complying with the law for the first time. If he repeated the same, he would have to pay a fine of AED 50,000 (UAE Dirhams). If the tax registrant fails to submit the tax return within the timeframe defined in the Tax Law, he will be charged with AED 1000 (UAE Dirhams) for not complying with the deadline. The penalty for submitting incorrect tax returns is AED 3,000 (UAE Dirhams) for the first time, and if it occurs again, AED 5000 will be charged as a fine. In case of disagreement or dispute between the taxpayer and the FTA regarding tax, the first step the taxpayer needs to take is to submit an application for reconsideration. The next step is to submit an objection to the Tax Disputes Resolution Committee (TDRC). If the tax and penalties exceed AED 100,000, the taxpayer can file an appeal before the Federal Court System. To carry on tax litigations, the taxpayers need the help and guidance of qualified tax lawyers. To avoid penalties, the taxpayers are suggested to pay taxes within the FTA’s defined timeframe, regardless of whether the taxpayer agrees with FTA or not. The taxpayer can directly submit the Application of Reconsideration in FTA within 20 business days after receiving the FTA decision notification from FTA. The application should be in Arabic and submitted on the FTA website. The application must contain the reasons why the taxpayer is requesting reconsideration of the decision. If the application for reconsiderations fulfills all the required criteria, the FTA will notify the taxpayer about its decision within 25 business days after receiving the application. Just in case the FTA and the taxpayer failed to resolve their dispute through the reconsideration process. The taxpayer may submit an objection to the relevant Tax Disputes Resolution Committee (TDRC).
Following are the conditions where a taxpayer can submit an objection to the TDRC against the decision of the FTA;
- the settlement of taxes and penalties that are subject of objection;
- When the application for reconsideration is filed in the FTA by the taxpayer;
- submit an objection within 20 business days after receiving the notification of the decision from FTA.
The taxpayer must submit the reconsideration application; after that, he can submit an objection in the TDRC. He is not allowed to file an objection without exhausting the right to submit an application for reconsideration. The TDRC has jurisdiction to make decisions on an objection submitted regarding the decision of FTA on the application of reconsideration. TDRC can decide objections submitted against the application of reconsideration to FTA regarding which FTA has not yet made any decision. The TDRC has jurisdiction to decide on objections, and the decision of TDRC will be final if the entire sum of the unpaid Tax and Administrative Penalties imposed according to the provisions of the tax law does not exceed AED 100,000 (UAE Dirhams). The decision of the TDRC in such case is equal to judicial order will be executed and enforced by the execution department of courts The taxpayer is required to submit an objection to his relevant TDRC jurisdiction, which means the relevant TDRC jurisdiction will be determined by the address on which the taxpayer is registered with the FTA; for example, for the taxpayer registered with Dubai address in Dubai, he will approach the Emirate of Dubai TDRC, similarly for the taxpayer from the Emirate of Abu Dhabi, TDRC Abu Dhabi, and Sharjah TDRC Sharjah and same goes with all the other emirates.
There is a particular procedure to submit an objection to the TDRC, such as:
- Download the form objection form from the site of the Ministry of Justice
- Fill the form in Arabic. It includes the details of the applicant and the legal representative, information regarding the decision of the FTA, etc
- Relevant documents need to submit along with the objection form, such as an explanatory memorandum of the objection, decision of the FTA, receipt of payment of the tax, and/or the fines that are subject to the objection
- The objection form and all the relevant documents should be in Arabic and in PDF format shall be sent by email
- The Secretary of TDRC, when receives the objection and consults with the Committee members and schedules meeting for deliberation
- The Secretary of TDRC notifies the FTA and the taxpayer(objector) of the date of the meetings and the decisions issued by the TDRC about the objection.
The TDRC notifies the taxpayer of its decision over the objection within 25 business days minimum and can be extended till 45 business days. In the event, any party, either the taxpayer or FTA, not satisfied with the decision of the TDRC, and the amount of tax and penalties is more than AED 100,000 can file an appeal against the decision of TDRC in the Federal Court of First Instance within 20 business days after the decision of the TDRC, it is the competent court to decide TDRC tax appeals. If any party to the case wishes to appeal against the Court of First Instance’s decision, an automatic right will accrue to it to file the case in the Federal Court of Appeals. The appeal to courts process can take 12 months or more time.