The UAE has recently issued Cabinet Decision No. 74 of 2023, impacting its Tax Procedures. This Decision replaces the previous Executive Regulation on Tax Procedures and aligns it with the most recent version of the Tax Procedures Law, which was effective since 1 March 2023 but did not have Executive Regulations yet. The New Executive Regulation shall be effective from 1 August 2023.
The FTA has additionally issued guidance by way of a Public Clarification on Tax Procedures (TAXP006). The Public Clarification aims to highlight the differences between the previous and new Executive Regulations and provides additional clarification on the new provisions.
We have listed what we consider the most notable changes as per the new Executive Regulations:
The relevance of the expansion relates to the potential seizing of these assets and record keeping.
In other words, this suggests, amongst others, that the working papers to prepare a CT return are also records that the FTA may consult.
We note, however, that Pillar Two companies and businesses with a turnover of more than 200M AED are already subject to the requirement to prepare a master file and local file under Ministerial Decision No. 97 of 2023. In addition to that, Qualifying Free Zone Persons also need to adhere to transfer pricing principles.
The takeaway here presumably is that no matter the size of the business, when there is a related party transaction, these need to be documented and analyzed. In other words, there seems to be no de minimis rule for related party transactions, which, particularly for SMEs, may pose certain challenges.
We note further that there is no guidance as to what are not considered business records. Do internal emails constitute business records? There seem to be little or no limitations to the audit power of the FTA.
Additionally, there seem to be no limitations to potential fishing expeditions nor to audits with one taxpayer to detect noncompliance with another taxpayer.
For real estate records, the period is seven years. Article 71(2) of the VAT Executive Regulations still states that it is 15 years, and the Capital Asset Scheme for VAT purposes requires a taxable person to monitor the use of a real estate asset over 10 years’ time. While the Executive Regulations to the Federal Tax Procedures Law could claim the lex posterior principle, it is unclear whether it would be a lex specialis. Irrespective of a potential academic discussion on the matter, it is likely that the law of the lowest common denominator will determine that taxpayers will still keep real estate records for 15 years.
The period for record-keeping is extended in case of an audit, dispute or voluntary disclosure, in line with the extensions of the statute of limitations made in the new Federal Tax Procedures Law.
This provision is essentially legalizing a practice which was currently in existence, where many records were already submitted in English and accepted. The UAE courts system in recent years has been more accepting of the use of English, and the new Civil Procedures Decree-Law No. 42 of 2022 already foresaw the use of English in mainland courts as from 2023 onwards.
The tax agent is no longer required to be proficient in both Arabic and English, as fluency in either language is now acceptable. Additionally, there is no need to submit proof of medical fitness to perform the duties of the profession.
This change is important and will substantially increase the number of available tax agents and will add to the diversity of available tax agents. There will be further Decisions providing a tighter framework of the tax agent concept. Organisations, i.e., Companies, will also be able to register as a tax agent (this was previously referred to as an “agency”).
The New Executive Regulations do, however, include certain modifications and updates to ensure compliance with the latest tax regulations and practices.
By conducting tax audits on electronically stored data, the FTA aims to enhance transparency and compliance in tax reporting. It enables the FTA to verify the accuracy of tax returns and ensure that taxpayers are fulfilling their tax obligations in accordance with the law. Having readily available electronic records also reduces taxpayers’ burden during the audit process, as they can provide the required information in a digital format.
The provisions presumably prepare for E-audits and audits of the E-invoicing records under the E-invoicing obligations, which will enter into force in July 2025.
To be eligible for reconciliation, the person must commit to fully settling the payable tax and administrative penalties owed to the FTA as part of the reconciliation process. This measure allows individuals to rectify their tax-related misconduct and avoid further legal consequences by resolving outstanding tax obligations through reconciliation.
The new Executive Regulations provide additional details and guidance on the procedural aspects of the reconciliation.
We note further that there is still no manager’s or director’s liability foreseen in the tax procedures law (see our earlier comments here).
The changes in the Executive Regulations are not substantial, and they are not meant to be, as substantial changes would need to go into the law. The changes around tax agents are important, though and will have an important effect on the sector.
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