A Quick Guide to Private Clarifications and the Application Process

A Quick Guide to Private Clarifications and the Application Process

The Federal Tax Authority (FTA) is responsible for administering, collecting, and enforcing federal taxes in the UAE. The key taxes in the UAE include:

• Excise Tax (effective from October 1, 2017)

• VAT (effective from January 1, 2018)

• Corporate Tax (effective from June 1, 2023)

The FTA provides guides, clarifications, and other resources to help taxpayers comply with tax laws. For issues not covered by these resources, taxpayers can seek specific guidance through the private clarification mechanism on EmaraTax.

The UAE Federal Tax Authority (FTA) introduced Decision No. 5 of 2024, which outlines a new refund policy for taxpayers who submit private clarification requests. Announced on July 19, 2024, and set to take effect from August 1, 2024, this decision reflects the FTA's continued efforts to enhance transparency and assist taxpayers in understanding and complying with tax regulations. In this post, we’ll explore the key details of this new policy and discuss its implications for taxpayers in the UAE.

Nature of Clarification:

Private clarifications are formal responses issued by the UAE Federal Tax Authority (FTA) addressing specific tax-related technical matters raised by a taxpayer. These clarifications are provided in the form of a document stamped and signed by the Director General or their delegate and are based on the details and documents submitted through the EmaraTax platform.

The FTA’s clarifications explain how tax legislation applies to the specific facts provided by the applicant. They are tailored exclusively to the applicant's case and should not be applied to other taxpayers or situations. The FTA relies solely on the facts and documentation provided and may request additional information if necessary but does not independently verify the facts.

The FTA considers itself bound to follow the position stated in the clarification, provided the factual circumstances remain consistent. However, issued clarifications are void from the beginning if:

• The facts presented differ from the actual transaction.

• There is fraud, misrepresentation, or non-disclosure of material facts.

• Conditions or assumptions set by the FTA are not met.

Clarifications lose their validity if tax laws referenced in the document are repealed, amended, or replaced by public guidance or clarifications on the same subject. In such cases, the FTA is not required to notify the applicant of withdrawal or modifications.

The FTA may withdraw an issued clarification, in which case the applicant may rely on it until the effective withdrawal date. If a new clarification is issued on the same subject, it will supersede the previous one from the specified effective date.

Eligibility Criteria for Submitting Clarification Requests

Eligibility for a tax clarification request involves two key aspects: whether the applicant is eligible to submit a request and whether the request itself qualifies under the FTA's clarification process.

1. Who Can Apply

• Taxpayer or Representative Member: Only the taxpayer or the representative member of a tax group (e.g., VAT or Corporate Tax group) can apply. VAT group representatives cannot request clarifications for Corporate Tax unless they are also part of the same Corporate Tax group.

• Tax Agents and Legal Representatives: Authorized tax agents or legal representatives registered for the specific tax type may apply on behalf of the taxpayer. The request must reflect the taxpayer's name and details.

• Joint Requests: In exceptional cases, multiple parties involved in the same transaction can submit a joint clarification request, subject to FTA approval.

• Third-Party Requests: Clarifications only address the applicant's tax matters, not those of other parties.

2. Eligible Requests

• The request must pertain to federal taxes or penalties.

• It should clearly indicate the tax type and relate to tax legislation as applied to the applicant's facts and circumstances.

• Sufficient and accurate information must be provided to enable the FTA to determine the correct tax treatment.

3. Grounds for Rejection

The FTA will reject requests in the following cases:

• Applicant Ineligibility: Requests submitted by unauthorized persons, non-representative group members, or those without proof of authorization.

• Incomplete Details: Missing taxpayer information, such as the Tax Reference Number (TRN).

• Scope Issues: Requests related to administrative exceptions, penalty waivers, system issues, or certificates outside eligibility criteria (e.g., Tax Residency Certificate for non-tax-related matters).

• Out of Scope Topics: Requests involving advance pricing agreements, payment installments, or non-relevant system queries.

All applications must be submitted through the applicant’s or their tax agent’s EmaraTax profile. Non-compliance with these requirements will result in rejection.

Cases of Incomplete or Incorrect Clarification Requests

The FTA may reject clarification requests if they are incomplete, incorrect, or do not meet the required standards. Common reasons include:

• Incomplete Information: Missing details about the tax matter or lack of supporting documents, such as invoices, contracts, or tax advice.

• Insufficient Analysis: Failure to provide a clear tax analysis with legal references or alternative views on the matter.

• Form Discrepancies: Information in the request form does not match attached documents.

• Wrong Tax Type: Requests unrelated to the applicant's registered tax type (e.g., a VAT registrant requesting Corporate Tax clarification).

Cases That Do Not Represent Genuine Uncertainty

The FTA may reject requests if:

• The matter is already addressed in FTA guides or public clarifications.

• A previous clarification was issued for the same applicant on the same matter.

Tax Audits and Assessments

Requests are rejected if:

• The applicant is undergoing a tax audit or assessment related to the clarification subject.

• A tax assessment has already been issued for the same matter.

Other Rejection Grounds

• Hypothetical Scenarios: Requests based on speculative cases or multiple unrelated scenarios.

• Mixed Matters: Requests covering unrelated tax issues across different tax types must be submitted separately.

• Suspected Tax Abuse: Requests involving potential tax avoidance, evasion, or abuse under Article 50 of the Corporate Tax Law or similar provisions.

Clarification Process

Clarification requests must be submitted through EmaraTax, and the applicant must have a user profile. For guidance on creating a profile, refer to the EmaraTax Register as an Online User – User Manual available on the FTA website.

Submission Details:

• Requests can be submitted in English or Arabic.

• The issued clarification will match the language of the request, so applicants should choose their preferred language before submission.

Clarification Request Fee

• Single Tax: AED 1,500 per application.

• Multiple Taxes: AED 2,250 per application.

Fees are non-refundable, except as outlined in FTA Decision No. 5. Payment must be made via the EmaraTax portal using a valid bank card.

Submitting a Clarification Request

Applicants can save drafts of their Clarification requests, but they must submit them within 40 business days from the initiation date on EmaraTax. Failure to do so will result in the request being closed.

After submission and payment of the fee, a unique Clarification request reference number will be issued. This number, along with the relevant TRN, must be included in all correspondence with the FTA regarding the request.

Withdrawal of a Clarification Request

Applicants may withdraw their Clarification request; however, the fee will only be refunded if the withdrawal occurs within two business days of submitting the request.

Issuance of Clarifications

Clarifications are provided in the language chosen by the Applicant. If the request is submitted in Arabic, the Clarification will be issued in Arabic, and if submitted in English, it will be issued in English.

For requests involving multiple tax types, separate Clarifications will be issued for each tax type.

• Indirect Taxes (Excise Tax and VAT): Clarifications are issued within 50 business days from the request date or, if additional information is requested, from the date the additional information is received.

• Corporate Tax: Clarifications are issued within 60 business days from the request date or, if further details are required, from the date the additional information is received.

For complex tax matters requiring input from other stakeholders, the FTA may request additional time to issue the Clarification.

Disagreeing with an Issued Clarification

A Clarification is not classified as a formal decision by the FTA and is therefore not eligible for the dispute resolution process. Applicants cannot request a reconsideration or review of an issued Clarification.

However, an Applicant may submit a new Clarification request if:

• The factual circumstances have significantly changed from those provided in the initial request, or

• New information is available that could alter the outcome of the previous Clarification.

Conclusion

Navigating tax regulations and obtaining accurate clarifications from the Federal Tax Authority can be a complex process. At Alwahat Accounts and Internal Audit Services, we specialize in providing expert guidance to help you meet all FTA requirements with ease.

Whether you need assistance in preparing a comprehensive and accurate Clarification request, understanding the tax implications of your business activities, or ensuring compliance with the latest FTA policies, our experienced team is here to support you.

With our in-depth knowledge of UAE tax laws and procedures, we streamline the process for you, reducing errors and ensuring timely submissions. Let us handle your tax matters professionally, so you can focus on growing your business.

Contact us today to learn how we can assist with your tax compliance and Clarification requests.