As the UAE VAT regime begins to settle, taxpayers should understand their rights and the process associated with tax disputes and litigation in the UAE.
Where taxpayers disagree with the Federal Tax Authority (FTA) the first step is to submit an 'Application for Reconsideration'. Next an objection can then be submitted to the Tax Disputes Resolution Committee (TRDC). If the tax plus penalties exceeds AED100,000, an appeal can be made to the federal court system. Taxpayers will need to be supported by experienced UAE litigation lawyers and specialist UAE tax advisers.
Taxpayers across the globe face many challenges in ensuring compliance with VAT law. It becomes even more challenging where taxpayers are not in agreement with the technical interpretation of law and/or the application of penalties by a tax authority. As the UAE VAT regime begins to settle, taxpayers should understand their rights and the process associated with tax disputes and litigation in the UAE.
Settlement of tax and penalties due
VAT is a self-assessment tax where taxpayers are required to declare the amount of tax due or refundable for each tax period based on their own assessment of their taxable activities. In certain instances, such as a tax audit, the FTA will issue a decision to the taxpayer on the amount of tax and penalties due in respect of a particular transaction or tax period.
It is recommended that taxpayers settle all amounts indicated by the FTA decision within the given time frame. This is the case regardless of whether or not the taxpayer is in agreement with the decision of the FTA, as paying the tax will 'stop the clock' on any time geared penalties.
Application for Reconsideration
The taxpayer may choose to submit an 'Application for Reconsideration' directly to the FTA, as long as they:
- submit it within 20 business days from being notified of the decision - the date stated on the FTA decision notification;
- give details of the reasons why the taxpayer believes the decision should be reconsidered - supported by legislative references and any relevant FTA publications; and
- submit in Arabic – English will not be accepted – via the FTA public website.
If the Application for Reconsideration has fulfilled the above requirements, the taxpayer should be notified of the FTAs decision within 25 business days from receipt of the application.
Objection to Tax Disputes Resolution Committee (TDRC)
In the event that the taxpayer and the FTA are not able to resolve their dispute by means of the reconsideration process, an objection may be submitted by the taxpayer to the relevant TDRC, all of which are established by means of Ministerial Decision.
The conditions for submitting an objection to the TDRC against a decision by the FTA are as follows:
- Settlement of all tax and penalties;
- Application for Reconsideration has been submitted to the FTA (regardless of whether a response has been received); and
- Objection submitted within 20 business days.
The relevant TDRC for each taxpayer shall be determined based on the address which the taxpayer registered with the FTA, as follows:
- Dubai TDRC – All taxpayers with registered addresses in the Emirate of Dubai;
- Abu Dhabi TDRC – All taxpayers with registered addresses in the Emirate of Abu Dhabi and non-UAE addresses; and
- Sharjah TDRC – All taxpayers with registered addresses in the Emirates of Sharjah, Ras al-Khaimah, Ajman, Fujairah or Umm al-Quwain.
In order to submit an objection, the taxpayer must submit to the relevant TDRC via [email protected] all of the following documentation:
- A completed TDRC Objection Form (English and Arabic),
- An explanatory memorandum of the objection (Arabic), and
- All supporting documentation including, but not limited to, evidence of the original FTA decision, the 'Application for Reconsideration' submitted to the FTA, any response received from the FTA, evidence of payment of all tax liabilities and penalties subject to the FTA decision, etc. (Arabic)
It is strongly recommended that a UAE litigation lawyer experienced in UAE administrative disputes, together with a UAE tax specialist experienced in tax law interpretation and tax authority interactions, are involved in producing the relevant documentation in order to ensure that taxpayers put their best foot forward in completing this process and give themselves the best opportunity to resolve the matter as early in the tax dispute process as possible.
The relevant TDRC should notify the taxpayer of its decision within 25 business days. The maximum extended period is 45 business days.
If the objected tax plus penalties is AED100,000 or less the TDRC decision is final and it cannot be challenged in court. A Deemed Writ of Execution gives the FTA the ability to collect the outstanding amount – the tax debt – in cash, assets, property, etc.
If the objected tax plus penalties exceeds AED100,000, the TDRC decision may be challenged by the taxpayer or the FTA at the Federal Court of First Instance. An appeal must be submitted to Federal Court of First Instance within 20 business days of the date of the TDRC decision. If the appeal is not submitted within the timeframe or no appeal is submitted at all, the TDRC decision becomes final and enforceable by the FTA.
It will take some time to identify whether the above TDRC timelines and procedures are followed strictly in the region, or whether additional 'extensions' will be granted for the taxpayer or the TDRC to submit a request for 'objection' or provide a response. However, to date, we have experienced reasonably quick turnaround times by the TDRC in responding to objections.
Appeal to federal court system
The competent court to which appeals of TDRC decisions can be made by either the taxpayer or the FTA is the Federal Court of First Instance which will decide TDRC tax appeals.
In most cases it is anticipated the court will appoint an expert or experts with specialist tax experience to assist in evaluating the merits of the appeal. If either party wishes to appeal the decision of the Court of First Instance then they will have an automatic right to refer the case to the Federal Court of Appeal in the usual manner with civil cases.
While, in theory, the appeal process through the courts could be relatively swift and inexpensive, in practice it could take 12 months or more if cases progress to appeal which would increase costs.
Again, having regard to the technical and procedural steps involved it is important taxpayers wishing to appeal TDRC decisions are supported by experienced litigation lawyers and specialist tax advice.
Other tax disputes
Tax disputes may occur when arising in a contractual context between two or more stakeholders and concerning the correct tax treatment and obligations in accordance with tax law, where the TDRC is not involved.
In this instance, a party will need to begin a civil claim in the courts of first instance in the relevant Emirate where the cases will progress along more traditional lines, but court-appointed experts with tax expertise will routinely be appointed and parties will also need to be prepared and have specialist tax support as well as the help of litigation lawyers.
In such contractual tax disputes there will also be the possibility of appealing decisions to the Court of Appeal, which could include the specialist department established by Ministerial Decision No 225238/2019, and ultimately the Court of Cassation.
Payment methods
For all settlements of tax and penalties made to the FTA, the following payment methods are available to the taxpayer:
- E-Dirham: a favourable option for domestic taxpayers; not a viable option for an international business, in the absence of having a local branch/subsidiary;
- Credit card: attracts a charge between 2%-3% of the total payment amount; or
- Bank transfer: most effective option, however many taxpayers have experienced difficulties transferring funds from a foreign bank to a UAE GIBAN number.
A local bank account is required in order to receive refunds of tax or penalties overpaid.
Key stakeholders
Key stakeholders in the tax disputes process will be:
- Taxpayers: may need local technical expertise in order to support them with tax disputes and litigation in the region.
- Tax agent: acts on behalf of a taxpayer with the local tax authority and TDRC to prepare and file Applications for Reconsideration, objections of decisions, etc.
- Tax disputes and litigation lawyer: represents the taxpayer in the relevant court in defending the taxpayer's position on the interpretation of law and application of penalties, with support from tax experts.
- Tax advisers: performs detailed technical analysis of the interpretation and application of the UAE tax law on behalf of taxpayers and as specialist tax experts for UAE litigation lawyers.
Practical challenges
Since the beginning of the year many taxpayers in the region across a broad range of industry sectors have experienced tax audits and technical decisions being issued by the FTA, together with the application of penalties. For some, this has resulted in higher than expected VAT costs in their supply chain which is affecting their profits.
Depending on the tax governance strategy of a taxpayer, they may or may not have the appetite to formally disagree with a decision of the FTA in regards to tax and penalties due.
Although the UAE tax disputes and litigation process is at an early stage in its development, it is likely to progress at a quick pace, with precedence being developed. To date, we have already seen some positive outcomes for taxpayers in relation to the mitigation of penalties, however all have been supported by strong tax technical and legal arguments. In time, the process should give taxpayers more comfort on the consistent interpretation of law and the reasonable application of the penalty regime in the region.
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