The Abu Dhabi Judicial Department has issued a resolution to establish a court specialising in money laundering and Tax Evasion.
It has been emphasized that the establishment of this Abu Dhabi Special Court will support the UAE’s efforts to combat such crimes, persecute perpetrators and reinforce the country’s competitiveness both regionally and internationally.
Since the Special Court will function under the Abu Dhabi Criminal Court, the jurisdiction would be limited to businesses registered in Abu Dhabi. Tax Evasion and money laundering concerning businesses registered in other Emirates is expected to be covered under the existing judicial system as it is a federal crime, in the absence of any update.
In the light of this announcement, some of the key provisions related to Tax Evasion are summarised below:
The Federal Tax Procedures Law, which applies to UAE Value Added Tax (VAT) and Excise Tax, defines Tax Evasion as the use of illegal means resulting in the reduction of the amount of the Due Tax, nonpayment thereof, or a refund of a tax that a person does not have the right to have refunded under any Tax Law.
The Tax Procedures Law specifies the cases for Tax Evasion as follows:
- Taxable Person who deliberately fails to settle any Payable Tax or Administrative Penalties.
- Taxable Person who deliberately understates the actual value of his Business or fails to consolidate his related Businesses with the intent of remaining below the required registration threshold.
- Person who charges and collects amounts from his clients claiming them to be Tax without being registered.
- Person who deliberately provides false information and data and incorrect documents to Federal Tax Authority (FTA).
- Person who deliberately conceals or destroys documents or other material that he is required to keep and provide to FTA.
- Person who deliberately steals, misuses or causes the destruction of documents or other materials that are in the possession of FTA.
- Person who prevents or hinders the FTA’s employees from performing their duties.
- Person who deliberately decreases the Payable Tax through Tax Evasion or conspiring to evade Tax.
The penalty for Tax Evasion is a prison sentence and/or a monetary penalty not exceeding five times the amount of evaded Tax.
The Tax Evasion penalties will be levied against any person who is proven to have been involved or instrumental in Tax Evasion as per the Penal Code. These persons are severally and jointly liable with the defaulting business for the penalties for Tax Evasion. This includes Authorised Signatories, Directors, Finance and Tax team members, Tax agents, Tax consultants, and legal representatives who are proven to be involved in the Tax Evasion.
The definition and scope of the offence of Tax Evasion is clearly wide, and in connection with this, it was recently reported that the Federal Supreme Court commented that a taxpayer will be seen as having committed an offence of Tax Evasion if he knowingly fails to disclose a tax error within the prescribed time limits for voluntary disclosures.
The opening of the new court is a reminder of the UAE’s commitment to tackling tax fraud and money laundering and of the comprehensive measures available to the UAE tax authorities.
It is also a reminder that any act that is contrary to the tax law, including non-compliance with the voluntary disclosure provisions, could be seen as a criminal act of tax avoidance.
Taxpayers should undertake regular reviews to ensure tax positions and treatments are as per the Tax Laws and should build robust systems and processes to ensure that any errors are identified and disclosed in accordance with the Law.
In matters of ambiguity in provisions, we recommend that businesses consult Tax experts and where necessary seek clarification from the FTA.
At BDO, we have a team of professionals who have in-depth experience of providing Tax services and assist you in meeting their strategic objectives. We can help businesses with the VAT and Excise health check services, advisory and compliance support services to enable business comply with the Tax Law.