United Arab Emirates
Dr Peter Wilson & Iliyana Panova
by Dr Peter Wilson and Iliyana Panova
Tax evasion as a concept in the United Arab Emirates (UAE) was first introduced in 2017 when the UAE introduced federal taxes for the first time. The concept was introduced in the VAT law. Tax evasion was defined to mean “the use of illegal means resulting in the reduction of the amount of the due tax, non-payment thereof, or a refund of a tax that a person does not have the right to have refunded under any tax law”.1 Tax law is further defined as any federal law pursuant to which a tax is imposed. Currently, in the UAE this means excise taxes, VAT, and the recently introduced tax on business profits of corporations and certain business activities of individuals.
Tax evasion is an extremely serious offense, and the UAE Federal Tax Authority (FTA) is very proactive to discourage such behaviour and penalise when tax evasion is identified. Although the UAE tax system is still young, multiple criminal prosecution cases and judgements in tax evasion cases are in evidence.
Where intent to avoid taxes leads to tax evasion, if convicted, the accused may face both criminal charges and fines.
The penalty for evasion isn’t limited to the person who carried out the evasion, as tax evasion penalties may be attached to accomplices as defined in the penal law statute. This approach follows the UAE criminal law rules which deem an accomplice punishable with the same penalty as the perpetrator unless stipulated otherwise by the law.
If an accomplice is found criminally responsible for a tax evasion offense, that person will be held jointly and severally liable with the taxpayer for any penalties and outstanding tax.
How do authorities usually find out about tax evasion?
The FTA continuously monitors tax returns of taxable persons to identify breaches of compliance.
Tax evasion may be detected during a tax audit or when the FTA receives leads about suspected tax evasion, such as when a registrant lists false information in a tax return, or a taxable person evades tax by failing to register for tax, or through a whistleblowing mechanism.
In April 2022, to improve efficiency in UAE tax collections, the FTA launched “Raqeeb”, a whistleblower initiative under which individuals can report tax violations and evasion. Any person can report tax irregularities or non-compliances through the Raqeeb programme. The programme aims to raise the level of tax compliance and reduce tax evasion in the UAE by granting monetary rewards to any informant whose report leads to the collection of tax amounts worth more than AED 50,000 (approximately USD 14,000).
The FTA may use information provided by the informant to detect violations and tax evasion. The FTA requires the informant to provide proof, verification, and documentation, the provision of which is intended to reduce the duration of potential investigations. Using this additional evidence, the FTA is able to test the taxpayer’s records.
What are the opportunities to amend tax declarations or declare additional income?
If a taxpayer identifies an error in their corporate tax return or VAT return, they may submit a voluntary disclosure which discloses errors in submitted tax declaration and provides the FTA with the additional information used by the taxpayer to calculate the tax shortfall. A voluntary disclosure applies to tax evasion as much as it does to avoidance or a simple return error.
The main benefit to the taxpayer of making a voluntary disclosure is that they should expect a less stringent penalty or, in certain circumstances, a penalty waiver.
What are the conditions for voluntary disclosure of tax evasion?
Tax evasion typically involves intention and deliberate actions, and such cases may trigger imprisonment and a monetary penalty not less than the amount of the evaded tax and not exceeding three times the tax that was sought to be avoided.
Strictly speaking, the non-payment of due taxes and administrative penalties, or the deliberate non-disclosure of errors in tax submissions, constitutes tax evasion. Making voluntary disclosure is strongly encouraged to avoid more stringent monetary penalties and imprisonment.
In a decision of the UAE Federal Supreme Court in 2020, it was held that a voluntary disclosure rectifying mistakes in tax submissions may mitigate criminal changes and even help avoid criminal prosecution.
The FTA is expanding the instances in which voluntary disclosure is required. In a recent decision2, the FTA explained that it now requires the filing of a voluntary disclosure as a way to correct a tax return even if there is no tax impact or underpayment of tax (e.g. zero-rated and exempt supplies). This widening of the voluntary disclosure circumstances is designed to ensure compliance with UAE tax laws even where there is no tax leakage.
What are the consequences of voluntary disclosure of tax evasion?
Penalties will be applied at a reduced rate if the voluntary disclosure is filed before the FTA identifies the evasion through an audit. The voluntary disclosure programme also encourages a taxpayer to disclose and correct errors sooner in order to attract less harsh penalties, e.g. if a taxpayer submits a voluntary disclosure within one year from the original submission date of the tax return in which the 5% VAT should have been charged, the penalty is limited to 5% of the VAT amount which should have been charged. The percentage increases progressively if the voluntary disclosure is submitted in any subsequent year.
A taxpayer may also request that the FTA waive a penalty if the taxpayer is able to demonstrate that they voluntarily corrected the errors of previous submissions, where typically such errors are due to omissions or the incorrect application of the law and not due to any intent to evade taxes. Also, the circumstances which occurred and which resulted in the underpayment of tax neatly fit into one of the specified categories.
When is a voluntary disclosure of tax evasion no longer possible?
Voluntary disclosure may be filed at any time before a tax audit is initiated by the FTA. If a taxpayer does not submit a voluntary disclosure and the error is discovered during an audit, then a different and higher set of penalties are potentially applicable.
For example, if the taxpayer does not submit a voluntary disclosure and the absence of payment comes to light during an audit, the potential penalty is 50% of the VAT amount (instead of 5% if the disclosure is made before an audit). A penalty of 4% per month of the tax shortfall will also be imposed for every month or part of the month from the date the payment is due for the relevant tax period until the date of receipt by the FTA of the shortfall amount.
What are the main areas in which voluntary disclosure of tax evasion plays a major role?
The latest FTA and court practices demonstrate that any error in tax compliance may result in penalties, and even criminal charges for alleged tax evasion.
The FTA confirmed the importance of accurate tax compliance in its recent decision requiring voluntary disclosure of any errors in a tax return or in information submitted even if doing so did not result in the underpayment of taxes.
What is often overlooked by foreigners but is considered as tax evasion by the UAE?
Anyone conducting a business in the UAE should be aware of the circumstances which may give rise to tax evasion. UAE Tax Procedures Law stipulates that the following instances constitute tax evasion:
Deliberately failing to settle any payable tax.
Deliberately understating the actual value of a business or revenues, or failing to consolidate related businesses (intentional fragmentation to allow each so-called separate business to exceed the AED 375,000 (approximately USD 100,000) tax-free threshold as specified in the UAE tax law.
Deliberately imposing and collecting funds as tax without being registered for VAT.
Deliberately decreasing the due tax, or participating in any form of tax evasion.
Deliberately committing or omitting any other act which may constitute tax evasion under this decree-law or UAE tax law.
More stringent penalties (including a fine of up to AED 1 million) apply for the following offenses:
Deliberately providing false information, data, or incorrect documents to the FTA.
Deliberately concealing or destroying documents, information, data, or other material that the taxpayer is required to keep and provide to the FTA.
Stealing documents or other materials that are in the possession of the FTA, or deliberately misusing or destroying them.
Deliberately preventing or hindering FTA employees from performing their duties.
What do you recommend to clients who have committed tax evasion and what is your role as a professional in such cases?
UAE tax laws are relatively new and tax auditing practice as well as case law are still evolving. Nonetheless, the FTA has demonstrated that it fights tax evasion very seriously and in the case of suspected tax evasion, it may initiate and conduct a tax audit within 15 years from the end of the tax period during which the suspected tax evasion occurred (as opposed to the normal 5-year statute of limitations).
Engaging a tax consultant as early as possible will therefore not only help to ensure accurate compliance when returns are filed, but also minimise exposure to monetary penalties and criminal charges.
The Federal Supreme Court (Cassation Appeal 227/2020) states “the taxpayer is obliged to rectify mistakes in his tax return to maintain the interests of the state or else will be criminally liable for tax evasion crime and thus the voluntary disclosure by the taxpayer is to rectify his personal mistake shielding him from criminal liability”.
It follows from this that one main benefit of making a voluntary disclosure regarding a potential tax evasion offense is that the taxpayer (and any associated accomplices) may avoid prosecution.
1 Federal Decree-Law No. 28 of 2022 – Issued 30 Sep 2022 (Effective 01 Mar 2023)
2 Federal Tax Authority Decision No. 8 of 2024 – Issued 01 November 2024 – (Effective from 01 January 2025)
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Dr Peter Wilson is an international taxation adviser with more than 44 years of experience. He has a PhD in international tax law, qualified as a chartered accountant in Australia and the United Kingdom, has two master’s degrees in tax, and is legally qualified. He is also the UAE Ministry of Economy's (via the ACCA) subject matter expert on UAE corporation tax. He is a cross-border tax adviser with in-depth knowledge of the tax laws in GCC countries and over the last 10 years has advised on tax laws in more than 75 countries. Contact Peter.
Iliyana Panova is an international tax professional with more than 17 years of experience including cross-border M&A, indirect and corporate tax advisory, tax risk and operating model strategy and transformation. Holder of an LLM degree in Taxation, Iliyana also has an Advanced Diploma in International Taxation (ADIT). Her professional experience includes working for a Big4 practice in the EU and MENA in roles focused on indirect, corporate and international tax advisory, as well as leading the MENA VAT function for a major international bank, and most recently with the Tax Policy and International Relations Department of the UAE Federal Tax Authority. Contact Iliyana.
