Voluntary Disclosure for UAE Tax Errors: Legal Analysis Memo

Executive Summary

Filing a voluntary disclosure is generally advisable when past UAE tax errors are identified, as it provides a structured mechanism to correct errors while potentially reducing administrative penalties. The Tax Procedures Law establishes clear procedures for voluntary disclosures, with penalty reductions available when disclosures are made before FTA audit notification, making proactive correction financially beneficial compared to errors discovered during tax audits.

Legal Basis

• Federal Decree-Law No. 28 of 2022 on Tax Procedures – Articles 10, 14, and Title Seven (Penalties)
• Cabinet Decision No. 74 of 2023 – Executive Regulation on Tax Procedures, Articles 4-6
• Cabinet Decision No. 75 of 2023 – Administrative Penalties for Violations (as amended)
• FTA Decision No. 8 of 2024 – Mechanism for Correction of Error or Omission in VAT Returns

Analysis

When Voluntary Disclosure is Required:
The Tax Procedures Law mandates correction when errors result in incorrect tax returns or assessments. Under Article 10 of Federal Decree-Law No. 28 of 2022, a Taxable Person must notify the FTA of any error or omission in a Tax Return, Tax Assessment, or Tax Refund application that results in:

• Understated Payable Tax


• Overstated Recoverable/Refundable Tax


• Incorrect calculation affecting tax liability

Correction Mechanisms Available:
The FTA provides two primary correction pathways:

• Subsequent Tax Return correction – for errors below specified thresholds [FTA Decision No. 8 of 2024]


• Formal Voluntary Disclosure – required when errors exceed thresholds or involve prior periods

> ⚠️ Important: Voluntary disclosure must be submitted before the FTA notifies you of a tax audit for the relevant period to qualify for reduced penalties [Federal Decree-Law No. 28 of 2022, Article 10(3)].

Key Requirements

Timing Thresholds:

• Disclosure must be made within the timeframe specified by the Authority


• For VAT: errors exceeding AED 10,000 require formal voluntary disclosure


• For Corporate Tax: material errors affecting Taxable Income require disclosure

Penalty Implications:

• Pre-audit voluntary disclosure: Reduced penalty rates apply


• Post-audit notification: Standard penalty rates under Cabinet Decision No. 75 of 2023


• Fixed penalty of AED 1,000 for first voluntary disclosure; AED 2,000 for subsequent disclosures within 24 months [Cabinet Decision No. 75 of 2023]

Documentation Required:

• Corrected figures with supporting calculations


• Explanation of error cause


• Period(s) affected


• Payment of any additional tax due

Dependencies

The voluntary disclosure process interacts with multiple tax types:

• VAT errors: Follow FTA Decision No. 8 of 2024 correction mechanism


• Corporate Tax errors: Subject to Federal Decree-Law No. 47 of 2022 provisions


• Excise Tax errors: Governed by Federal Decree-Law No. 7 of 2017 framework

Critical Considerations

> ✓ Key Point: Filing a voluntary disclosure before FTA audit notification significantly reduces penalty exposure and demonstrates good faith compliance.

Recommended Actions:

1. Quantify the error amount and affected tax periods


2. Determine if error exceeds voluntary disclosure thresholds


3. Prepare supporting documentation


4. Submit disclosure through EmaraTax portal


5. Pay any additional tax due promptly to minimize late payment penalties

Penalty Escalation Risk:
Failure to voluntarily disclose known errors may result in:

• Higher administrative penalties upon FTA discovery


• Potential tax evasion implications for deliberate concealment [Federal Decree-Law No. 28 of 2022, Article 26]