Tax Crimes in the United Arab Emirates
Dispute Resolution / UAE
Ammar AlkaabiAssociate,Dispute Resolution
Tax crimes hold a significant position in the legal framework of the United Arab Emirates. These crimes pose a substantial challenge to the state authorities due to the globalization of the economy and technological advancements, where offenders seek to exploit loopholes in financial and tax systems to gain unlawful advantages. The UAE legislator has strengthened the systems to combat tax crimes by implementing effective legal and administrative principles, aiming to achieve tax justice and protect the national economy. Federal Decree-Law No. (28) of 2022 on tax procedures outlines the approach to addressing tax crimes, their statute of limitations, and reconciliation.
Taxes play a vital role in achieving financial stability, social justice, and funding public services. The primary benefits of taxes include:
Achieving equitable wealth distribution: Taxes help distribute wealth fairly among society members, reducing economic disparities.
Funding public services: Taxes provide the financial resources to build and maintain infrastructure, deliver health and education services, and enhance security and defense.
Regulating the economy: Taxes are used to regulate the economy and stimulate economic growth by taxing harmful goods and offering tax incentives for investments.
Encouraging innovation and investment in research and development: Taxes encourage innovation through tax reductions on research activities.
The UAE adopts a stringent approach to combating tax crimes, reflected in the legislation and legal procedures aimed at imposing effective penalties on tax evaders. Article (25) of Federal Decree-Law No. (28) of 2022 on tax procedures elaborates on the material acts constituting tax crimes, requiring the intentional element for criminality without a minimum threshold for the evaded amount, and identifying the perpetrator as the "taxable person." The decree-law includes several key points:
Criminalizing tax violations is an essential step in addressing these crimes. Countries differ in defining acts classified as tax crimes, but the UAE stands out with clear definitions of tax evasion acts and associated penalties, including:
Intentionally committing or omitting any act that constitutes tax evasion.
Providing false information or data to the tax authority.
Hiding or destroying documents or data required to be kept.
Preventing or obstructing tax authority employees from performing their duties.
The tax procedures law stipulates that accomplices in tax crimes are subject to the same penalty as the principal offender. This includes individuals who contribute to the commission of the crime through assistance, incitement, or facilitation. Accomplices in tax evasion crimes are jointly and severally liable with the person they assisted in paying the due tax and administrative fines.
Legal entities, such as companies, bear criminal liability for committing tax crimes. The law aims to ensure that companies do not escape punishment when crimes are committed by their directors, employees, or agents. For instance, when a company engages in tax evasion, there may not be a specific individual identified as responsible for the crime, but the illegal actions may have resulted from the collective actions of several individuals representing the company. In such cases, the legal entity itself must be held accountable.
Penalties for tax crimes in the UAE vary between imprisonment, fines, confiscation, and publication. The penalties are stringent to ensure full compliance with tax laws:1. Imprisonment according to general rules.2. Fines, which may reach up to three times the due tax.3. Publication: Publishing the judgment or its summary at the request of the authority.4. Confiscation: Confiscation of funds and items related to the crime.
Article (46) of the tax procedures law, consisting of eight provisions, details the statute of limitations. Clause 1 prevents the authority from conducting a tax audit or issuing a tax assessment after five years from the end of the relevant tax period, except for cases involving a voluntary tax declaration in the fifth year, where an audit or assessment is allowed within one year from the declaration date. Clause 6 permits the authority to conduct a tax audit or issue a tax assessment in cases of tax evasion within 15 years from the end of the tax period during which the evasion occurred. The law also provides for the interruption of the statute of limitations if the authority notifies the taxable person of the commencement of the tax audit procedures. The Cabinet may issue a resolution to amend the duration specified for completing the audit or issuing the assessment.
The UAE legislator, in the executive regulation of Federal Decree-Law No. (28) of 2022 on tax procedures, allows for reconciliation in tax crimes under specified conditions and procedures. Reconciliation is an exceptional measure aiming to amicably settle tax disputes in exchange for paying the due taxes and fines. Reconciliation occurs in stages:
1. Before initiating criminal proceedings: The Federal Tax Authority may reconcile in exchange for paying the full due tax and administrative fines.
After initiating criminal proceedings: The Public Prosecution may reconcile after consulting the authority, in exchange for paying the full due tax and fines plus an additional amount.
Reconciliation procedures with the Federal Tax Authority, as specified in the executive regulation of the decree-law on tax procedures, include clear mechanisms for handling tax evasion crimes and deliberate non-payment of administrative fines. According to clauses 1 and 2 of Article (23), the authority can reconcile before initiating criminal proceedings, provided the full due tax and administrative fines are paid. In some crimes, reconciliation is possible after paying an amount of 50,000 AED. If the crime results in tax evasion, the full dues must be paid as a condition for reconciliation. Clauses 1 and 2 of Article (24) detail the procedures for submitting a reconciliation request, which must include a commitment to pay all due amounts. The authority decides to accept or reject the request based on the specified conditions.
The executive regulation also outlines reconciliation procedures with the Public Prosecution before and after a conviction is issued, according to clauses 3 and 4 of Article (23). The Public Prosecution can reconcile in tax crimes after initiating criminal proceedings, during the investigation, trial, and before a conviction is issued, after consulting the authority. These procedures include paying the full due tax and administrative fines plus a percentage of the evaded tax. After a conviction is issued, reconciliation is possible in exchange for paying the amounts mentioned in clause 4 of Article (23), requiring the payment of 75% of the evaded tax plus administrative fines. Article (24) details the procedures for submitting a reconciliation request by the accused or convicted person, which includes drafting a reconciliation report and suspending the execution of the penalty if reconciliation occurs during its execution, even if the conviction becomes final. The report includes the accused's details, the charges against them, the due tax amount, and fines, signed by both parties and approved by the Federal Attorney General. The reconciliation process leads to the termination of criminal proceedings and nullifies its effects, potentially extending the reconciliation effects to all accused persons in the same incident.
For further information,please contact Ammar Alkaabi.
Published in October 2024
