President of the UAE, has issued the landmark 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).
“The Tax Procedures Law is a significant milestone towards establishing the UAE’s tax system and diversifying the economy,” said H.H. Sheikh Hamdan bin Rashid Al Maktoum, Deputy Ruler of Dubai, Minister of Finance and FTA Chairman. “The Law, issued by H.H. Sheikh Khalifa bin Zayed Al Nahyan, is an all-encompassing legislative framework that lays the groundwork for the UAE’s plan to implement taxes as a means to ensure sustainability and diversify the government’s revenue streams. The increased resources will enable the Government to maintain the momentum of its development and infrastructure for a better future.”
The Law defines a clear set of common procedures and rules to be applied to all tax laws in the UAE, namely, VAT and excise tax laws, and clearly states the respective rights and obligations of the FTA and the taxpayer. The Law covers tax procedures, audits, objections, refunds, collection, and obligations – which include tax registration, tax-return preparation, submissions, payment and voluntary disclosure rules – in addition to tax evasion and general provisions.
When the Tax Procedures Law goes into effect, all UAE-based businesses will be required to keep accurate records for five years. The law also sets penalties for non-compliance, as well as clear processes for appeals which align with international best practices, and establishes a fair and transparent environment for the FTA to carry out its mandate.
“The UAE is committed to meeting the most stringent international standards,” H.H. Sheikh Hamdan bin Rashid said. “We are working to establish an optimal legislative and executive environment to ease the nation into the VAT and excise tax systems. Implementing these taxes gives the UAE further leverage when it comes to international competitiveness and brings us one step closer towards building the future envisioned by our wise leaders, who have called on all those in charge to innovate and strive to spread happiness among citizens and residents.”
The Tax Procedures Law also establishes the register of tax agents who may interact with the FTA on behalf of taxpayers, specifies the basic requirements for appointing said tax agents, and sets the standards for maintaining confidentiality by the Authority as well as its officers.
The new Law comes after the UAE, represented by the Ministry of Finance, ratified the
Common Value Added Tax (VAT) Agreement of the States of the Gulf Cooperation Council and the Common Excise Tax Agreement of the States of the Gulf Cooperation Council, following Federal Decrees No. (31) and (32) of 2017, issued by H.H. Sheikh Khalifa. It is a follow-up step from Federal Decree-Law No. (13) of 2016 on the Establishment of the Federal Tax Authority, which created the FTA and tasked it with executing tax laws in the UAE.
Tax Procedures Law: Provisions and Obligations
The Law requires any Person conducting any type of business to keep accounting records and commercial books, as well as any tax-related information as determined by the Law. Tax returns, data, information, records and documents must be submitted to the Authority in Arabic. The FTA may, however, accept documents in any other language, as long as the Person provides a translated copy into Arabic at their expense and responsibility if so requested.
Furthermore, any Person obliged to register or any other Person eligible for registration must do so, as stipulated by the Law. Registrants must include their Tax Registration Number (TRN) in all correspondence and transactions with the Authority or with others. They must also inform the Authority – by filling the form – of any circumstance that might require the amendment of information related to their Tax record within 20 working days of the occurrence of said circumstance.
Each Taxable Person must also prepare the Tax Return for each Tax Period and for each Tax while being registered. They must then submit the Tax Return to the Authority and pay any Payable Tax as specified in the Tax Return or any Tax Assessment within the time limit. The Authority reserves the right to turn down any incomplete Return – i.e. if it does not include the basic information determined by the Tax Law.
The Law mandates that a Register of Tax Agents be established at the Authority, which will hold files for each Agent documenting his/her conduct. It is not permitted for any Person to practise the profession of a Tax Agent in the UAE unless he/she is enrolled in the Register. Procedures for registration, as well as the rights and obligations of the Tax Agent before the Authority and the Person, is specified in the Executive Regulations of the Law.
The Authority may perform a Tax Audit on any Person to determine their compliance with the provisions of the relevant Laws. The FTA may perform the Audit at its office or the place of business of the Person (or any other place where they conduct business, store goods or keep records), in which case, the Person must be given prior notice of at least five business days.
While conducting a Tax Audit, the Tax Auditor may ask for original records or copies thereof, or take samples of the goods, equipment or other assets available at the Person’s place of business. The Tax Audit will be conducted during the official working hours of the Authority. The Director General may, by way of exception, issue a decision to conduct the Audit outside regular hours if necessary.
The Authority may order a re-audit if new information surfaces that might impact the outcome of the Tax Audit. Any Person subject to a Tax Audit, as well as his Tax Agent or legal representative, must offer all required assistance to the Tax Auditor to perform his/her duties. The audited Person has the right to: request the Tax Auditors to show their professional identification cards; obtain a copy of the Tax Audit Notification; attend the auditing procedures that take place outside of the Authority’s headquarters; and obtain copies of any original paper or digital documents removed or obtained by the FTA during the Tax Audit.
The Authority must issue a Tax Assessment to determine the value of Payable Tax and serve it on the Taxable Person within five working days of its issuance in any of the following cases: if the Taxable Person fails to apply for registration within the timeframe specified by the Tax Law; if they fail to submit a Tax Return within that timeframe; if they fail to pay the Tax stated as Payable on the submitted Tax Return before the deadline; if the Taxable Person submits an incorrect Tax Return; and if the Registrant fails to calculate Tax on behalf of another Person when they are obligated to do so by the Tax Law.
The Law addresses Conflict of Interest, prohibiting all Authority staff members from performing or participating in any tax procedures related to any Person in the following cases: if the staff member and that Person are related up to the fourth degree; if there is a common interest between the staff member and Person or between any of their relatives up to the third degree; and if the Director General decides that the staff member should not perform any tax procedures related to that Person owing to a case of conflict of interest.
Employees of the Authority are bound by Non-Disclosure clauses and are prohibited from disclosing information that they obtained or to which they had access in their capacity as employees (save as specified or defined in accordance with the Executive Regulations). FTA employees are required to maintain professional confidentiality after cessation of their services, and are prohibited from disclosing information that they obtained or to which they had access in their capacity as employees, unless otherwise requested by the judicial authorities and in accordance with the Executive Regulations. Any person who has obtained information pursuant to the provisions of the Law is not to disclose or use said information for any purposes other than those for which the information was obtained.