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SKP GCC VAT Alert
Highlights of the federal law for tax procedures released by UAE’s Ministry of Finance

With the target to roll out VAT from 1 January 2018, the President of the United Arab Emirates (UAE), Sheikh Khalifa Bin Zayed Al Nahyan has issued Federal Law No. (7) of 2017 for Tax Procedures which sets the foundations for the planned UAE tax system, regulating the administration and collection of taxes and clearly defining the role of the Federal Tax Authority (FTA).

Federal Law aims to regulate the rights and obligations between the government authorities and the taxpayers, as well as establish regulation of the common procedures and rules applicable to all tax laws in the state.

On the introduction of the said Federal Law, his Highness Sheikh Hamdan Bin Rashid Al Maktoum, Deputy Ruler of Dubai, UAE’s Minister of Finance and FTA Chairman has said, “The Tax Procedures Law is a significant milestone towards establishing the UAE’s tax system and diversifying the economy”.

The objective of the Federal Law is to establish and implement standardised procedures for all Tax Laws to be introduced so that they can be governed in an effective way. We have outlined some of the key procedures provided by the law below:
  • Record keeping: Accounting records, books and tax related information is required to be kept and maintained by any person conducting any business.
  • Language: All tax returns, data, information, records and documents related to tax are required to be submitted to the authority in Arabic. The authority may accept the data, information, records and documents related to tax in another language, subject to submission of a translated copy at his own expense and responsibility.
  • Registration: A non-registered taxable person or any other person who has the right to register will be required to apply for registration. A registrant must include his Tax Registration Number (TRN) in all the correspondences and transactions with authority in accordance with the law. A person holding a TRN will be required to inform the authority within 20 business days of the occurrence of any circumstances requiring amendment of information related to the tax records kept with the authority.
  • Returns and Tax:
    • Each taxable person will be required to prepare and submit the tax return for each tax period for each tax and settle the payable tax within the time limit.
    • The type of tax and tax period to which the payment relates is required to be specified by the taxable person at the time of paying any amount. In the case of non-adherence to this requirement, the authority has the right to allocate the full amount or part thereof as per the prescribed mechanism.
  • Voluntary Disclosure: A taxable person on becoming aware that a return submitted by him or a tax assessment sent to him by the authority is incorrect, which results in a deviation in the calculation of payable tax, the taxable person is required to submit a voluntary disclosure within the time limit as may be specified.
  • Tax Agent: The law has provided for a register of Tax Agents to be established. A person would be eligible to practice as a Tax Agent only if he is listed in the register. The law has also enlisted certain conditions, fulfilment of which would be the eligibility criteria to be listed as a Tax Agent. Such conditions are set to ensure that the Tax Agents are professionals with highest ethical standards.
  • Tax audit: The authority may perform a tax audit on any person to ascertain the extent of the person’s compliance with the provisions of the Federal Law and Tax Law. Such audit would be performed at the authority’s office, however, if the same is to be conducted at the premises of the person, the authority must inform the person at least five business days prior to the audit.
  • Tax Assessment: The authority will issue a tax assessment in certain specified cases such as taxable person failing to apply for registration within the timeframe, the registrant failing to submit a tax return within the timeframe, taxable person submitting an incorrect tax return.
  • Penalties: The law empowers the authority to issue a penalty assessment and notify the concerned person within five business days for any of the violations enlisted in the law. Some of the violations are a failure to keep the required records, failure to submit the data required, etc.
  • Tax Evasion: The law has provided for stringent penalties like imprisonment and monetary penalty up to five times of the tax evaded. The law further provides the actions/events which would attract such tax evasion penalties.
  • Tax Dispute Resolution Committee & Courts: The law provides for a Tax Dispute Resolution Committee to be formed to resolve the issues related to applications submitted for the reconsideration of the authority’s decision. The authority or any person may challenge the committee’s decision before the competent court.
  • Tax Refund: A refund of tax may be claimed by a taxpayer in case he is entitled to a refund under the Tax Law or the amount paid was in excess of the payable tax/administrative penalties.
  • Calendar: Timelines and due dates for the Federal Law and the Tax Law shall be according to the Gregorian calendar.
The Executive Regulations of the Law will be issued within six months of the issuance of the Law.
SKP's comments
Last month, the UAE’s Ministry of Finance had released additional FAQs providing a broad framework of the proposed VAT regulations. This is now followed by the Tax Procedure Legislation which provides the layout of various procedure and compliances which a taxpayer would be required to adhere to under the upcoming VAT Laws. This legislation also helps taxpayers understand the various rights and obligations which would be cast on the taxpayer with respect to disclosures and reportings to be made to the Federal Tax Authorities under the VAT Law.
 
Also, in the last month, the Kingdom of Saudi Arabia released VAT Implementation Regulations which details the finer aspects of the proposed VAT Regime in the Kingdom. Though such regulations are subject to finalisation based on the consultants of the public, they provide the business with a detailed understanding of the proposed framework in the Kingdom.
 
With the broad framework in place and the overall understanding of the tax procedures available, it is imperative for the businesses to initiate the evaluation of the impact of VAT on their business and chart out the action plan for smooth transition to the VAT regime. Keeping in view the government’s target date of 1 January 2018 (for UAE and Kingdom of Saudi Arabia), businesses have less than five months to not only analyse the impact but also implement the changes and leverage the smooth transition to the new regime for the overall business efficacy.
 
The full text of the Tax Procedures Law is available on the Ministry of Finance's website: www.mof.gov.ae.
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This update contains general information which is provided on an "as is" basis without warranties of any kind, express or implied and is not intended to address any particular situation. The information contained herein may not be comprehensive and should not be construed as specific advice or opinion. This update should not be substituted for any professional advice or service, and it should not be acted or relied upon or used as a basis for any decision or action that may affect you or your business. It is also expressly clarified that this update is not intended to be a form of solicitation or invitation or advertisement to create any adviser-client relationship.

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