The UAE recently issued laws on Excise Tax (Federal Law No 7 of 2017) and VAT (Federal Law No 8 of 2017). Excise tax will be applicable in the UAE from 1 October 2017 and VAT will be applicable from 1 January 2018. Excise tax will be applicable on a limited number of commodities like tobacco, energy drinks and sugary fizzy drinks. VAT will be applicable on a number of goods and services as set out in the VAT law. Under the VAT regime, businesses will be collecting taxes on behalf of the government and will file tax returns accordingly. Although the tax is collected at each stage of value addition, the burden of tax falls only on the end consumer. For all the other stages, one can claim a refund. For this reason VAT is called ‘consumption tax’.
Various statutory and administrative actions are being taken for the timely and effective implementation of excise tax and VAT. Following the establishment of the Federal Tax Authority (the Authority) under Federal Law No 13 of 2016, the Tax Procedures Law has been issued as Federal Law No 7 of 2017. The Tax Procedures Law establishes the framework for federal taxes (like excise tax and VAT) administration in the UAE. Details will be added by executive regulations to be issued to supplement the Tax Procedures Law.
All persons conducting any business or profession in the UAE are required to maintain accounting records. All taxable persons are required to register with the Authority to obtain a Tax Registration Number (TRN). The TRN is required to be quoted in all correspondence with the Authority. Tax returns are required to be filed in Arabic, however, the Authority may permit filing in another language provided the person agrees to provide the Arabic copies when requested by the Authority.
A tax assessee may appoint a person, like the manager of the company, as its legal representative, and such appointment shall be notified to the Authority within 20 days of their appointment. If the legal representative fails to inform its appointment to the Authority within the specified time or if they fail to ensure filing of timely tax returns, the penalties may be recovered from the personal assets of the legal representative.
The Tax Procedures Law creates a regime for registration of tax agents with the Authority. A registered tax agent can represent any person before the Authority and assist the person to file tax returns. To practise the profession, a person must be enrolled in the register maintained by the Authority for such purpose, and the person shall also be licensed for this purpose by the Ministry of Economy and the competent local authority.
The Authority has been given wide powers of audit. A tax audit may be conducted at the Authority’s office or at the place of business of the person subject to the tax audit or any other place where such person carries on business, stores goods or keeps records. Ordinarily a five days prior notice is required to be given for a tax audit. However, on specified serious grounds, the Authority can conduct a tax audit without prior notice. To protect the rights of a tax assessee, a tax audit without notice requires prior written approval of the director general of the Authority. In addition, approval of the public prosecutor is required if the audit is to take place at the assessee’s residence. An assessee also has a right to know the identity of the persons conducting a tax audit, ask for approvals for tax audit, obtain copies of any originals impounded by the Authority and attend the tax audit. The Authority also has the power to assess tax and administrative penalties. Tax evasion and related conduct is a criminal offence. Any penalty does not relinquish the requirement of paying the unpaid tax.
The Authority shall have powers to issue tax assessments to determine payable tax and to issue administrative penalties assessments to determine administrative penalties. Details of the information to be included in these assessments will be specified in the executive regulations yet to be released. A request for reconsideration may be made to the Authority within 20 business days of being notified of the Authority’s decision.
The Tax Procedures Law provides for the establishment of a tax disputes resolution committee, which will decide objections filed against certain decisions (or indecisions) of the Authority. The committee’s decision shall be final if the amount of the tax and administrative penalties does not exceed AED100,000. For matters exceeding AED100,000, the order may be challenged in the competent court within 20 business days.
All tax-evasion matters shall be determined by the competent court.
The Authority’s officers are bound by strict confidentiality obligations in relation to the information they obtain during a tax audit. Unless a tax evasion is proven, the Authority cannot conduct a tax audit after the lapse of a period of five years. All persons conducting any business or profession in the UAE are advised to maintain accounting records, invoices and related documentation for at least five years. In case any tax evasion is proven, records are required to be kept for 15 years. The burden of proof for accuracy of a tax return lies on the person filing the return, and for tax evasion it lies on the Authority. Any business that is required to be registered for VAT and charge VAT from 1 January 2018 must be registered prior to that date. Voluntary VAT registration for businesses is expected to commence from the third week of September 2017 via an online application on the Authority’s website. Subsequent completion and lodgement of VAT returns of the registered entity will also be made via the Authority’s website. Payment of VAT and excise tax liabilities will only be accepted via electronic means, and correspondingly, any refunds due will only be remitted electronically to the entity’s registered bank account. The VAT registration with the Authority is likely to be an online process, and activated prior to the end of Q3 of 2017. The tax return filing is also likely to be an online process.
The promulgation of the Tax Procedures Law is a significant step forward in the implementation of VAT in the UAE. Given the penal sanctions under the Tax Procedures Law, it is in the interest of all potential tax assessees to prepare early to comply with VAT.