A Guide to the Statute of Limitations Under the Amended UAE VAT Law

The UAE Cabinet has amended certain provisions of the VAT Decree-Law that may take effect from January 1^st 2023. The most striking change among these amendments is the introduction of a new article that amends the provision of the Statute of Limitation. Under the current law, as per Article 42 of the Federal Law on Tax Procedures (Federal Decree-Law No. 7 of 2017), the FTA generally cannot perform a tax audit after five years from the end of a tax period.

However, a new Article (79) bis have been added to the Decree Law that states exceptions from the general rule. Tax agents in Dubai can guide you further on the statute of limitations. Read ahead to know more about the Statute of Limitations under the amended UAE VAT Law:

What does the New Provision say about the Statute of Limitation?

With certain exceptions, the Federal Tax Authority (FTA) is not allowed to conduct a Tax Audit or issue a Tax Assessment to the Taxable Person after the expiry of five years from the end of the relevant Tax Period. The exceptions are stated in Clauses 2, 3, 6 and 7 of the amended UAE VAT Decree Law. Taxable persons can seek the help of VAT consultants in Dubai to understand this further.

Exceptions to the Rule of Statute of Limitation in the UAE

Clause 1 of Article 79 mentions that there will be some exceptions to the statute of limitations rule as per relevant clauses in the amended UAE VAT Decree Law. The FTA can carry out a tax audit or issue a tax assessment after five years from the end of the relevant Tax Period under the following circumstances:

1. If the FTA has notified the taxable person about the commencement of such Tax Audit’s procedures before the expiry of the five-year period, given that the Tax Audit is completed or the Tax Assessment is issued, as the case may be, within four years from the date of notification of the Tax Audit
2. If the Tax Audit or Tax Assessment issuance is related to a Voluntary Disclosure submitted in the fifth year from the end of the Tax Period, given that the Tax Audit is completed or the Tax Assessment is issued, as the case may be, within one year from the date of submission of the Voluntary Disclosure. (The Cabinet can issue a Decision to amend the period referred here for the completion of the Tax Audit or the issuance of the Tax Assessment.)
3. If a case of tax evasion is identified, the FTA can carry out a Tax Audit or issue a Tax Assessment within 15 years from the end of the Tax Period in which the Tax Evasion occurred (The Cabinet may issue a Decision at any time to change this period)
4. If there is a failure of tax registration, the FTA can perform a tax audit in the UAE or issue a tax assessment within 15 years from the date on which the Taxable Person should have registered for VAT.

The Cabinet may, according to a suggestion by the Minister, issue a Decision to amend the period specified for the completion of the Tax Audit or the issuance of the Tax Assessment as per Clauses 2 or 3 of this Article.

Statute of Limitations on VAT Voluntary Disclosures

Taxable persons are not allowed to submit any voluntary disclosures after the expiration of five years from the end of the relevant tax period. Taxable persons submit VAT voluntary disclosures when they want to notify the FTA of an error or omission in their tax return, tax assessment, or tax refund application. Consult with VAT consultants in Dubai for more assistance in this regard.

What could be the impact of the amendments to the Statute of Limitations?

The insertion of Article 79 bis into the VAT Law provides the FTA with more time to challenge the VAT return filings in the UAE. The FTA may use these new amendments to extend the standard statute of limitation by notifying taxpayers of a tax audit. As a result, taxpayers can expect an increase in audit activity by the FTA. This means that taxpayers need to be more proactive to ensure their tax affairs are in order. Taxable persons can seek the help of tax agents in Dubai, UAE to organize their tax-related activities.

Consult with the best VAT Consultants in Dubai, UAE

Taxpayers need to be wary of increased tax audit activity from the FTA in light of the amendments to UAE VAT Law with respect to the Statute of Limitations. It is advisable to consult with tax agents in Dubai to plan a robust tax strategy to deal with the impact of the new change. VAT consultants in Dubai such as Jitendra Chartered Accountants (JCA) can help you bring much more discipline to your tax affairs so that you can avoid FTA’s tax audits.

In case a tax audit occurs, we can also advise you on how to prepare for VAT audits in the UAE. JCA has a team of highly qualified and experienced tax experts who can help you assess your current tax position, advise on the appropriate tax treatment, prepare clarification requests, or represent you in front of the FTA as registered tax agents in the UAE. You can call us to discuss your specific tax requirements with JCA and determine the way forward.