Are You Assessing the appointment of a Tax Agent?
In implementing VAT into the UAE economy, the Federal Tax Authority investigated a number of global VAT systems to learn best practice models and optimize the management of VAT for both businesses and the FTA. One of the key concepts was the definition and legal provisions for Tax Agents. Tax Agents under the Executive Regulations can represent businesses to the FTA on all Tax related matters.
In this article, we discuss the common questions businesses should ask in deciding whether the appointment of a Tax Agent can be beneficial.
Provisions in the Executive Regulations
In the Federal Law No. (7) of 2017 on Tax Procedures, a business may appoint a Tax agent to deal with all matters to the FTA on their behalf, specifically:
- A Taxable Person is allowed to appoint a person(s) as its Tax Agent(s) to represent it in its dealings with the Federal Tax Authority (FTA).
- A Tax Agent assists the Taxable Person in the fulfilment of his tax obligations and the exercise of his associated tax rights.
- A registered Tax Agent is required to be associated with a registered Tax Agency (usually an accounting, tax or law firm) before he/she is allowed to practice as a Tax Agent.
- A Tax Agency is a legal entity which is licensed to operate as a Tax Agency and has registered with the FTA as a Tax Agency.
- A Tax Agency must receive a Tax Agency Trade License, possess a professional indemnity insurance and be associated with at least one registered Tax Agent to operate
For businesses considering the appointment of a Tax Agent, the following questions may assist you in determining whether it provides additional benefit and to better comply and manage your obligations.
Will a Tax Agent fully assume your responsibilities to the FTA?
There is a common misconception a registered Tax Agent can fully assume all obligations on behalf of a Taxable Person.
Under Article 15, Section 1:
‘A Person may appoint a Tax Agent to act in his name and on his behalf with regard to his tax affairs before the Authority, without prejudice to that Person’s responsibility before the Authority.’
This essentially means the FTA will still hold accountable the Taxable Person (the business appointing a Tax Agent) in matters under the Law. Hence a Tax Agent will not be the responsible party for settlements such as VAT payments or any administrative penalties. This obligation remains with the business. The scenario where a company is not resident in the UAE, the Tax Agent could be the responsible party.
Where can a Tax Agent deliver most value?
Many of the processes and documentation requirements to liaise with the FTA can be challenging for businesses without in house expertise. In this case, a Tax Agent may be beneficial to speed up closure of open issues that are accruing penalties and provide the necessary expertise. It is advisable to seek professional opinion first and assess whether a Tax Agent could improve the validity of your case and accelerate the process to a positive outcome. Usually any written advice you receive can be relied upon and indemnified by the Tax Agent. You may have the right to claim for incorrect advice if provided for in your contract.
Once appointing a Tax Agent, this must be noted in the FTA portal.
What could reduce the risks of administrative penalties?
In reality there is no substitute to an accurate assessment and plan for implementing VAT. Ideally, this will include detailed review of your legal, sales, purchasing, processes, systems and people factors.
For many businesses, this does not need to be a complex project. Following your experience during this last year, many issues around your people, processes and systems should be better understood. Addressing the core factors leading to your risks and addressing these is a more cost effective and permanent solution.
How best to manage this into practice?
A common issue to noncompliance risks are due to inhouse expertise and systems constraints. If you have challenges that need a complete solution, we can help you without major investments to your organisation and systems. Alternatively, you should implement changes to your current business with the necessary controls and reviews to better manage your obligations. Preferably, your decision should be based on the risk, effectiveness, cost and sustainability of your solution. In either scenario, we are well positioned to assist you.