UAE TAX UPDATE- AMENDMENTS TO THE FEDERAL TAX PROCEDURE LAW
Amendments to the Federal Tax Procedure Law
The UAE Cabinet has issued Federal Decree-Law No. 28 of 2021 (16 September 2021), amending Federal Decree-Law on Tax Procedures No. 7 of 2017 (11 June 2017) (The Federal Decree-Law on Tax Procedures) effective from 1 November 2021.
The UAE Federal Tax Authority (FTA) will today start implementing new procedures to facilitate the ease for tax registrants to submit reconsideration requests and objections to the FTA’s decisions, for implementing the decisions of the Tax Dispute Resolution Committee (TDRC), appeal procedures, controls for reducing administrative penalties, the payment of penalties over instalments and exempting penalties.
| S.No. | Application time | Previous time line | New Timeline |
| 1 | Reconsideration requests | 20 business days | 40 business days |
| 2 | Issuance of a decision on a reconsideration application by FTA | 20 business days | 40 business days |
| 3 | Applying for an objection on a decision made by FTA to any reconsideration application to the Tax disputes resolution committee (“TDRC”) | 20 business days | 40 business days |
| 4 | Challenge any decision made by TDRC before the Court | 20 business days | 40 business days |
When filing an objection before TDRC, only the tax amount (as against tax and penalties previously) should be deposited for the admissibility of the case.
The TDRC’s final decisions regarding disputes exceeding AED 100,000 should be deemed as executory instruments if they were not appealed before the Competent Courts within 40 (previously 20) business days from the date of notification of the outcome of the objection.
An alternate mechanism for filing objections and appeals to be prescribed for federal and local government entities in tax disputes, for which the Cabinet shall, according to a suggestion by the Minister, issue a respective decision.
As a pre-condition for filing an appeal before the Competent Courts, a minimum of 50% of penalties (or as may be decided by the Competent Courts), to be paid either by way of cash transfer or bank guarantee (as opposed to full amount).
Cases for waiver, refund and payment in installments of administrative penalties to be reviewed and approved by a special committee (previously by the FTA). The separate decision by the Chairman of the Board of the FTA shall set out the formation of the committee, its bylaws, and the manner of holding meetings for such cases.
The Cabinet decision is now expected for more details on controls and procedures to be used during committee meetings, regarding approving the payment by installments of the penalty amount or totally or partially waiving or refunding it. The controls specified in the Executive Regulation of the Federal Decree-Law on Tax Procedures are not anymore referenced as a result of the amendments.
An increase in the time limits for filing tax applications/objections and softening the requirement to pre-deposit only tax amounts for filing objections before TDRC and 50% of penalties at the time of appeal before the Competent Courts should significantly ease the tax disputes procedures for the UAE taxpayers.
The FTA has confirmed that the new amendments advance a series of developments and enhancement plans for tax legislation and procedures. These are designed to facilitate objection to the authority’s decisions by extending objection periods for individuals, improve the efficiency of the tax system, further registrants’ confidence in it, and support taxpayers in fulfilling their tax obligations with easy and transparent procedures.
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A key highlight of the clarification is the direct impact it has on transactions and payments made to shareholders, directors, officers, owners, and related parties that are involved with the business. This will include:
- Salaries and bonuses
- Management fees and consultancy payments
- Allowances, reimbursements and benefits
Reinforcing the fact that the deductibility of these payments will not be limited to just where they were incurred, but will also consider if they can be commercially justified. Businesses now would have to demonstrate if the commercial terms linked to the payment are in line with the market value conditions. But the FTA has also further detailed the conditionality that businesses have to meet before the transaction will be considered deductible. The conditions are:
- The expense is for genuine business purposes;
- The amount is commercially justifiable; and
- The value is at market level.
Any excess over market value may be disallowed for Corporate Tax purposes.
Conclusion
For every business to properly function, it has to ensure that it maintains supporting documents for its decisions. The clarification by the FTA about Article 36 of the UAE Corporate Tax Law further puts this point into the spotlight. With respect to the market value, businesses are now expected to maintain documentation such as:
- Employment and service agreements
- Board resolutions
- Benchmarking and salary studies
- Job descriptions and role clarity
- Evidence of services rendered
The clarification becomes more than just a guideline that clarifies the terminologies. It shapes the corporate tax structure with the broader principle of substance over form.