The UAE’s ministry of finance outlines new procedures and penalties related to the Corporate Tax law
The UAE Ministry of Finance has made new announcements related to its corporate tax framework, outlining new procedures and penalties that aim to boost compliance and provide clear guidance.
On Saturday, the Ministry issued Cabinet Decision No. (74) of 2023 on the Executive Regulation of Federal Decree-Law No. (28) of 2022 on Tax Procedures – also known as the New Tax Procedures Law. This Cabinet Decision replaces the existing Executive Regulation and ensures alignment with the New Tax Procedures Law, which came into effect on March 1, 2023.
Among the key provisions introduced, the cabinet decision lays out the guidelines for the proper maintenance of accounting records and commercial books, detailing the period and manner of record-keeping. It also includes updates related to the registration and de-listing procedures of tax agents, emphasising the need for effective communication in either English or Arabic.
In addition, the decision addresses the rights and responsibilities of tax agents, procedures for handling tax evasion crimes through reconciliation, and conditions for tax payment and refunds are addressed. It also highlights the obligations of a trustee in cases of bankruptcy.
Qualifying investment funds
The ministry introduced additional requirements for Qualifying Investment Funds under Federal Decree-Law No. (47) of 2022 on the Taxation of Corporations and Businesses. It stipulates that investment funds need to meet certain requirements to be treated as qualifying investment funds and benefit from exemption from corporate tax.
During the first two financial years of the fund’s establishment, there is flexibility in the ownership criteria. This is expected to promote diversified ownership beyond this initial period.
However, it’s important to note that Real Estate Investment Trusts (REITs) are not included in these conditions for exemption from corporate tax.
For other investment funds to be eligible, their primary business activities should focus on investments, with ancillary or incidental activities constituting no more than 5 percent of their total annual revenue.
Additionally, the share of ownership interests held by a single investor and related parties must not exceed 30 or 50 percent of their annual revenue, depending on the number of investors involved in the fund.
Moreover, these funds should be overseen by an investment manager who has a minimum of three investment professionals in their employment. It’s essential that the day-to-day management of the fund is not controlled by investors to qualify for the exemption.
Regarding REITs however, there are specific conditions for exemption. To be eligible for exemption, REITs must meet the following criteria:
- The value of real estate assets (excluding land held by the REIT) must exceed Dh100 million.
- A minimum of 20 per cent of the REIT’s share capital should be publicly listed or wholly owned by two or more institutional investors.
- The REIT must maintain an average real estate asset percentage of at least 70 per cent annually.
Penalties
The ministry issued another cabinet decision, No. (75) of 2023, related to administrative penalties for corporate tax violations. It outlines penalties that will be imposed by the Federal Tax Authority, starting from August 1, 2023, to ensure effective implementation and compliance with the Corporate Tax Law.
As per Cabinet Decision No. (75) of 2023, penalties can be imposed due to the following reasons:
- Failure to file and pay corporate tax on time.
- Failure to inform the Federal Tax Authority of changes requiring amendments to tax records.
- Inadequate record-keeping.
- Failure to submit the required records and information specified in the tax law.
“Adhering to corporate tax compliance is a responsibility of all taxable persons to support the implementation of the corporate tax system in the UAE, which is in line with the highest global standards,” Younis Haji Al Khoori, Undersecretary of the UAE’s Ministry of Finance, said in a statement on Saturday.
He added that it also “drives sustainable economic growth” in the country by providing a “conducive legislative environment that promotes tax compliance.”
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