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UAE introduces penalties for corporate tax

The UAE Ministry of Finance introduced new guidelines for investment funds and REITs, as well as outlines on penalties.

UAE introduces penalties for corporate tax
[Source photo: Anvita Gupta/Fast Company Middle East]

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To boost compliance and offer clear guidance, the UAE Ministry of Finance has introduced new procedures and penalties related to its corporate tax framework.

The New Tax Procedures Law replaces the existing Executive Regulation and ensures alignment, which came into effect on March 1.

Younis Al Khoori, undersecretary of the Ministry of Finance, said that the additional conditions set by the cabinet are clear and simple to apply.

“This decision balances the UAE remaining competitive as an investment hub while maintaining the integrity of the Corporate Tax system,” Al Khoori said.

The cabinet decision offers guidelines for properly maintaining accounting records and commercial books, noting the period and manner of record-keeping. It also includes updates related to tax agents’ registration and delisting procedures, asserting the need for effective communication in either English or Arabic.

It also addresses the rights and responsibilities of tax agents, procedures for handling tax evasion crimes through reconciliation, and conditions for tax payments and refunds. It also looks at the obligations of a trustee in cases of bankruptcy.

Penalties will be imposed on those who do not comply. It will be applied in cases of failure to file and pay corporate tax due on time, including failing to inform the Federal Tax Authority of changes that might require amendments to tax records. The ministry has introduced a new structure for voluntary disclosure penalties.

The ministry also announced a cabinet decision on additional conditions for qualifying investment funds under the taxation of corporations and businesses.

It specified that investment funds must meet certain requirements to be treated as qualifying investment funds and benefit from exemption from corporate tax. Conditions include primarily engaging in investment business activities, with ancillary or incidental activities not exceeding 5% of their total annual revenue.

Another condition included the share of ownership interests in the investment fund held by a single investor and its related parties should not exceed 30% or 50%, depending on the number of investors in the investment fund. It noted that the fund must be overseen by an investment manager employing at least three professionals. Investors mustn’t control the day-to-day management of the fund to qualify for the exemption.

For REITs, there are specific conditions for exemption, such as the value of real estate assets (excluding land held by the REIT) must exceed $27 million. It is also noted that a minimum of 20% of the REIT’s share capital should be publicly listed or wholly owned by two or more institutional investors. The REIT should also maintain an average annual real estate asset percentage of at least 70%.

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