Tax Dispute Resolution in the UAE

Tax dispute resolution in the UAE refers to the processes through which businesses and individuals can challenge decisions or assessments made by the Federal Tax Authority (FTA), which is responsible for administering taxes in the country. This process ensures that taxpayers have the opportunity to resolve any issues related to tax assessments, penalties, or other disputes in a fair and structured manner.

The UAE has established clear legal frameworks for tax dispute resolution, which include administrative and judicial mechanisms designed to ensure transparency, fairness, and compliance with both domestic and international standards.

Key Aspects of Tax Dispute Resolution in the UAE

The dispute resolution process in the UAE typically involves several steps, each aimed at resolving the issue at the earliest stage possible. These steps are outlined under the UAE’s Tax Procedures Law (Federal Law No. 7 of 2017), which regulates the procedures for resolving tax disputes in the country.

1. Administrative Dispute Resolution (Pre-Litigation Stage)

Before a tax dispute escalates to court, taxpayers are required to attempt to resolve their issues through administrative processes. The FTA provides multiple opportunities for taxpayers to challenge assessments or decisions without the need for litigation. The key stages include:

a. Objection (First-Level Dispute Resolution)

• When to File: If a taxpayer disagrees with a tax decision or assessment (e.g., an audit assessment, tax penalty, or VAT assessment), they must first file a formalobjection with the Federal Tax Authority (FTA).
• Timeline: The taxpayer must submit the objection within20 business days from the date they receive the decision or assessment. This includes decisions regarding:

• • VAT assessments.
  • Corporate tax assessments (since the introduction of the corporate tax in 2023).
  • Penalties and fines.
  • Refunds or denial of refunds.

• Objection Process:

• • The taxpayer submits a written request to the FTA, providing a clear explanation of why they disagree with the decision or assessment.
  • The request must include any supporting documentation and evidence that justifies the taxpayer’s position.
  • The FTA has 20 business days from the receipt of the objection to respond with a decision. If the FTA fails to respond within this time frame, the taxpayer can consider the objection as rejected.

• Outcome: The FTA will either accept the objection and adjust the tax assessment or reject it. If the taxpayer is not satisfied with the outcome, they can escalate the matter further.

b. Alternative Dispute Resolution (ADR)

• What It Is: If the taxpayer and the FTA are unable to resolve the dispute through the objection process, there is an option forAlternative Dispute Resolution (ADR). This is a non-binding process that involves a third-party mediator to help both parties reach a mutually acceptable resolution without resorting to formal litigation.
• How It Works: ADR is intended to speed up the dispute resolution process by offering a less formal setting. A mediator (who is typically an expert in tax matters) will facilitate discussions between the taxpayer and the FTA to find a resolution.
• Duration: The ADR process must be completed within60 business days of initiating the process. If no agreement is reached, the taxpayer can proceed to judicial proceedings.

2. Appeal to the Tax Dispute Resolution Committee (TDRC)

If the administrative objections or ADR do not result in a satisfactory resolution, the taxpayer has the right to appeal to the Tax Dispute Resolution Committee (TDRC).

a. Filing an Appeal with the TDRC:

• When to File: A taxpayer can appeal to the TDRC if they disagree with the FTA’s decision following the objection process or ADR.
• Timeline: The taxpayer must file an appeal with the TDRC within20 business days from the date the FTA issues its decision on the objection or ADR.
• How to Appeal: The appeal must be filed through the FTA’s online portal, and it must include all relevant documentation, supporting evidence, and a clear statement of the taxpayer’s position.

b. Role of the TDRC:

• TheTDRC is an independent body formed to adjudicate tax disputes and make binding decisions. It is designed to provide an impartial review of tax disputes, making it a critical part of the dispute resolution process.
• The TDRC can review a variety of issues, including:

• • Disputes over tax assessments and penalties.
  • Issues related to tax refunds.
  • Disputes concerning VAT, corporate tax, excise tax, or other federal taxes.

• Composition: The TDRC consists of tax experts and legal professionals appointed by the UAE Ministry of Finance. The members of the committee are independent and do not represent the FTA or the taxpayer.

c. Decision by the TDRC:

• The TDRC will issue a final binding decision within 20 business days of receiving the appeal. The decision can:
  • Uphold the FTA’s original decision.
  • Modify the decision (e.g., reduce penalties or adjust the tax assessment).
  • Annul the FTA’s decision and issue a new one.
• If the taxpayer disagrees with the TDRC’s decision, they can escalate the matter to the judicial courts (i.e., court litigation).

3. Judicial Review (Litigation in Court)

If a taxpayer is dissatisfied with the outcome of the TDRC’s decision, they can take the dispute to the UAE courts for a final judicial resolution. The UAE’s legal system allows for tax disputes to be resolved by the judiciary in accordance with the laws and regulations.

a. Judicial Appeal Process:

• Court of First Instance: The first step in the judicial process is to file an appeal with theCourt of First Instance. If the taxpayer is not satisfied with the ruling, they can appeal to the Court of Appeal.
• Court of Appeal: If the case is appealed, theCourt of Appeal will review the case and issue its decision. The Court of Appeal can either uphold or modify the decision of the lower court.
• Supreme Court: In certain cases, if there are significant legal issues involved, the case may be taken to theUAE Supreme Court for final adjudication. The decision of the Supreme Court is binding.

b. Judicial Decision:

• The court decision is final and binding, meaning that both the taxpayer and the FTA must adhere to the court’s ruling. However, businesses and individuals should consider the potential costs, time delays, and reputational risks of pursuing judicial litigation

4. Penalties for Non-Compliance with Tax Obligations

While the tax dispute resolution process is designed to protect taxpayers’ rights, it’s important to note that there are penalties for non-compliance with UAE tax laws, which can add complexity to a tax dispute. Common penalties include:

• Late Payment Penalties: If a taxpayer fails to pay taxes on time, they may incur late payment penalties. These penalties can be substantial and are calculated based on the overdue amount and the duration of the delay.
• Late Filing Penalties: Late submission of tax returns (including VAT and corporate tax returns) can also lead to fines. The penalties vary depending on the type of tax return and the duration of the delay.
• Penalties for Misreporting: In cases of incorrect reporting, whether due to negligence or intentional tax evasion, the FTA may impose severe penalties, including substantial fines, tax reassessments, and even criminal charges in extreme cases.

5. Tax Audit and Investigations

During a tax dispute, the FTA may conduct a tax audit or investigation to verify the taxpayer’s financial records and compliance with tax laws. In such cases, the taxpayer may be required to provide extensive documentation and may face additional assessments or penalties if the audit reveals non-compliance

6. Resolving Cross-Border Tax Disputes

For international businesses and individuals, the UAE is part of the OECD’s Base Erosion and Profit Shifting (BEPS)initiative and has signed Double Tax Avoidance Agreements (DTAA) with several countries. These agreements provide a framework for resolving cross-border tax disputes and avoiding double taxation. In cases of cross-border tax disputes, taxpayers can resort to Mutual Agreement Procedures (MAPs) under the relevant DTAAs.