Tax Evasion v2

Introduction

Real Estate⸺On May 8, 2023, the Cabinet of Ministers issued a Decision No. (49) of 2023 that specifies the categories of businesses or business activities that are subject to corporate tax for resident and non-resident natural persons under the Corporate Tax Law (CT Law) Federal Decree-Law No. (47) of 2022. The decision comes into effect on June 1, 2023.

Key points 

1. The Decision applies to both resident and non-resident natural persons.
2. The Decision specifies the categories of businesses or business activities that are subject to Corporate Tax.
3. The Decision clarifies that certain activities are not considered to be business activities for the purposes of the CT Law.
4. The Decision comes into effect on 1 June 2023.

Who is Subject to Tax? 

The UAE Ministry of Finance (MoF) has issued Cabinet Decision No. 75 of 2023, which establishes a schedule of administrative penalties for corporate tax violations. The new penalties are intended to deter tax evasion and ensure compliance with the UAE’s corporate tax laws.

The penalties range from AED 10,000 to AED 5 million, depending on the severity of the violation. The MoF has also stated that it will take a “zero-tolerance” approach to tax evasion, and that those who are found to have violated the law will be subject to the full force of the penalties.

The issuance of the new penalties is a significant development in the UAE’s efforts to combat tax evasion. The penalties are intended to send a clear message that the government will not tolerate tax evasion, and that those who are found to have violated the law will be severely punished.

The penalties are effective immediately. Businesses and individuals should be aware of the new penalties and take steps to ensure compliance with the UAE’s corporate tax laws.

Some of the key provisions of the new penalties include:

• A penalty of AED 10,000 for failing to file a tax return.

• A penalty of AED 50,000 for submitting a false or misleading tax return.

• A penalty of AED 100,000 for failing to pay taxes on time.

• A penalty of AED 5 million for engaging in tax evasion.

The new penalties are in addition to the criminal penalties that may be imposed for tax evasion. The criminal penalties for tax evasion can include imprisonment for up to five years and a fine of up to AED 5 million.

The MoF has stated that it will take a “zero-tolerance” approach to tax evasion, and that those who are found to have violated the law will be subject to the full force of the penalties. The issuance of the new penalties is a clear indication that the UAE government is serious about combating tax evasion.

Businesses and individuals should be aware of the new penalties and take steps to ensure compliance with the UAE’s corporate tax laws. By complying with the law, businesses and individuals can help to ensure that the UAE’s tax system is fair and that everyone pays their fair share of taxes.

*- enabling a zero rate is possible if the transacting party is a Free Zone Person and whether the owner is the Qualifying Free Zone Person.

**- if no license is required. If the activity requires a license, the turnover up to AED 1M will not be subject to corporate tax. If the turnover exceeds AED 1M, then normal rules of corporate tax apply, i.e. the taxable income above AED 375,000 will be subject to corporate tax at 9%.

Parker Russell’s Remarks  

The Cabinet of Ministers issued a decision that clarifies which activities are subject to corporate tax treatment of real estate for natural persons. The decision includes a small business relief. While wages and investment income are not considered business activities and therefore are not subject to corporate tax, individuals with combined revenue of less than AED 1 million per year can register for corporate tax with limited compliance requirements. The decision is a welcome clarification for natural persons who are subject to corporate tax in the UAE.

References

1. Cabinet decision specifying business categories subject to Corporate Tax
2. Specifying the Categories of Businesses or Business Activities
3. Applicability of UAE Corporate Tax (“CT”) Law to Resident and Non-resident Natural Persons
4. Real Estate Income in the UAE – how it is treated for corporate tax purposes