Redetermination of Administrative Penalties

Recent amendments on administrative penalties as issued in April 2021, as ardently welcomed by the business enterprises, have for certain brought in major alleviation to many entities of the region. Apart from the significant reductions and relaxations instigated in some of the penalties, a procedure for redetermination of already imposed penalties also has been introduced, which is highly reassuring in terms of the government efforts in promoting compliance among the corporates. Here we intend to highlight the major features of this facility for redetermination of administrative penalties to spread awareness on this and to prompt required actions in this context.

To which all administrative penalties redetermination procedure applies?

Redetermination of penalties is applicable to penalties relating to tax in UAE, whether it be VAT or Excise Tax. FTA has issued a public clarification specifically for the redetermination of administrative penalties, covering both the taxes. Entities can revisit the amendments in the penalty rates and methods to know the impact and implications as applicable to them as the statement from FTA includes separate tables to explain the changes in the penalties of VAT and Excise tax.

Are there any conditions to be met to become eligible for redetermination of administrative penalties?

There are conditions as listed below, which are to be met fully by a person or entity in order to qualify for redetermination of administrative penalties:

• Any of the administrative penalties relating to VAT or excise tax should have been imposed on the person or entity before 28 June 2021
• The person or entity has not settled all of the imposed penalty in full before 28 June 2021
• The person or entity if taxable has ensured to settle by 31 December 2021 all the tax dues as of 31 December 2021 so that there is no outstanding tax as of 31 December 2021
• The person or entity settles 30% of the unsettled penalties which were imposed before 28 June 2021 no later than 31 December 2021

What will be the impact of redetermination of administrative penalties?

Once the above mentioned conditions are met and on verification of the same by FTA by the end of year 2021, the penalty will be re-determined as 30% of the unsettled penalty amount as of 28 June 2021. As the person or entity has already paid this 30% portion for meeting the conditions to re-determine, the remaining 70% can be considered as waived off and need not to be paid. This move signifies a major relief to the business enterprises who have outstanding penalties due to material amounts.

Examples for redetermination of administrative penalties?

Scenario 1

Entity “XYZ” is a trading company to which a VAT penalty was imposed in February 2021 of AED 18,000. As of 28 June 2021, “XYZ” settled AED 8000 and the remaining penalty due is AED 10,000. During 2021, “XYZ” settles all its tax liabilities and there is no outstanding tax due to FTA as of 31 December 2021. Also by 31 December 2021, “XYZ” settles AED 3,000 as well against the outstanding penalty amount, which is 30% of AED 10,000. In this case, “XYZ” meets all the conditions for redetermination of penalties and hence by 31 December 2021, “XYZ” will no longer be required to settle the pending penalty which is AED 7,000. FTA will re-determine the outstanding penalty as of 28 June 2021 as AED 3,000, which is already paid by “XYZ”.

Scenario 2

In the same example of “XYZ” in scenario 1 above, what will happen if “XYZ” has not settled all its tax dues by 31 December 2021 and everything else remains the same? This will disqualify “XYZ” for the redetermination of penalties and the remaining penalty of AED 7,000 has to be paid in full by “XYZ”

What are the procedures for redetermination of administrative penalties?

The eligible tax registrants have to check their e-services account with FTA where a detailed process for redetermination will be linked and available to proceed further.

Also Read: Amendments to Administrative Penalties Relating to UAE VAT

For further queries on VAT penalties and other VAT related activities in UAE, feel free to contact CDA

It is always recommended to proactively execute the VAT activities of your organization to ensure full compliance with the regulatory requirements and to avoid penalties. However, the penalties which are already incurred require to be managed in proper way to avail the possible reliefs extended by the regulatory authorities, thereby reducing the impact of financial loss. CDA has the experience of serving multiple clients as their VAT advisors in UAE and has been successfully engaged for years in providing bespoke consulting services. We are happy to assist you in clarifying your VAT related queries and also discuss further with you on a free one-hour consultation call about recent developments in VAT practices for your consideration. Contact us to know more on this and to explore various thoughtful insights about setting up proper VAT governance in your business.