The complete guide to understand UAE corporate tax compliance

According to this law, corporate tax compliance UAE has become necessary for each and every business operating in the UAE.

Due to the modern infrastructure, strong economy, and global connections, the UAE has been a favorite place for businesses.

In January 2022, the UAE introduced a major change with the implementation of a federal corporate tax law (Federal Decree-Law No. 47 of 2022, as amended).

This is effective from 1 June 2023, and all businesses operating in the UAE must comply with this new system. This system requires all companies to pay tax on their business profits.

This compliance not only helps to avoid the penalties but also builds the organization’s credibility. And in this way, your business can easily maintain a strong reputation with the surety of smooth operations.

Contrary to this, non-compliance can lead your business to fines, legal issues, and significant financial risks.

Introduction to UAE Corporate Tax

UAE corporate tax definition

It is a sort of direct tax that is applied to the revenue and profit earned by the businesses. Simply, it is a certain percentage of a business’s net profit that they have to pay to the government in the UAE. This tax was introduced by the UAE to enhance the transparency in its economy, meet global standards, and diversify its revenue stream.

Why do businesses in the UAE need a corporate tax consultant?

Businesses need a corporate tax consultant to avoid CT penalties in the UAE and maintain compliance with rules and regulations. However, there are also some other benefits of a corporate tax consultant in the UAE that are as follows:

•       Help to reduce tax risk UAE.
•       Assist in proper CT planning UAE.
•       Help in FTA audit handling.
•       Offer complete compliance support UAE.

By hiring a reliable corporate tax advisory firm, Dubai can set your business up for sustained success. So, it is important for companies to let the professionals handle corporate tax needs.

Different types of corporate tax services in UAE

After the implementation of CT laws, it is essential for the corporate sector to adapt its strategies and operations to comply with these rules. And to manage all the tax-related matters professionally, there are different corporate tax services in the UAE available. Such services are:

• CT registration UAE.
• CT return filing.
• CT compliance audit.
• Tax documentation review.
• Tax assessment.
• Transfer pricing UAE services.
• Free zone tax advisory UAE.

All these services provide expert guidance, so you can manage tax obligations confidently while running your business smoothly.

Corporate tax registration guideline

It is compulsory for all taxable businesses to get registered with the Federal Tax Authority (FTA) and obtain a tax registration number TRN for corporate tax. They need to get registered before they start paying corporate tax. Here is how you can get registered with FTA by using the CT portal registration.

• For registration, you need to visit the FTA portal.
• The companies of the free zone with the non-qualifying income also need to get registered.
• Failure to comply with corporate tax in the UAE will result in fines and penalties.
• The required documents for CT UAE are a trade license, proof of business operation, and passport copies of the owners.
• You can also check the FTA registration support for understanding the process.

Corporate tax return filing and review

Businesses are required to submit annual corporate tax returns with the required information regarding profits, deductions, and exemptions. The CT filing deadline in the UAE is nine months after the end of the financial year. Businesses also require a financial statement review to ensure accuracy.

The submission must include a clear breakdown of taxable income, allowable expenses, and any qualifying or non-qualifying free zone income. However, for the corporate tax filing in the UAE, late submissions, errors, or incomplete information can lead to financial penalties, interest on outstanding tax, and the possibility of additional audits for CT error correction in the UAE.

CT planning and advisory services

It is very crucial to plan the tax for enhancing business profitability. And in this context, the corporate tax advisors offer strategic tax planning UAE service that helps to identify different opportunities to reduce corporate tax legally through allowable tax deductions UAE, credits, and optimal structuring. It also ensures business tax efficiency with this corporate tax optimization.

Important conditions for UAE corporate tax compliance

To ensure that all CT compliance requirements in the UAE are completed, you first need to know about the important conditions of corporate tax regulations. The businesses need to meet several key conditions set by the Federal Tax Authority (FTA). These conditions are:

• On time reporting with financial record meeting accounting standards in the UAE.
• Accurate tax calculation if the business meets the UAE corporate tax threshold.
• Full adherence to legal requirements.
• Compliance with mainland and free zone rules.

Record keeping and proper documentation

It is important for all businesses to manage all supporting documents, such as:

• Transfer pricing records.
• Financial record keeping.
• Invoices and contracts UAE.
• Audit-ready documents UAE.

All these CT documentation in the UAE must be available for review.

Transfer pricing and related party rules

The arm’s length principle in the UAE is for such businesses that are engaged in related-party transactions. According to this rule, businesses need to ensure that the prices of related party transactions are the same as what independent parties would agree upon. When required, companies must also prepare and maintain appropriate transfer pricing documentation to support these transactions. For this, the companies require proper TP documentation in the UAE to ensure tax transparency.

Corporate tax in free zones vs mainland

The free zones business and mainland companies are operating under different jurisdictions; in this, the corporate tax in the UAE applies differently to both of them. So, the understanding of all these differences is essential for proper compliance.

Mainland companies

Basically, the mainland businesses do not receive the benefits of the free zone, and they are subject to the standard UAE tax structure, which is:

• On taxable income up to 375000 AED 0% tax is applied.
• On taxable income above 375000 AED 9% tax is applied.

This is the mainland corporate tax in Dubai, and businesses need to pay this according to their taxable income.

Free Zone businesses

The free zone businesses enjoy the 0 percent CT UAE on the qualifying income or qualifying free zone person if they meet the free zone compliance conditions set by FTA.

In case of non-qualifying income, the free zone companies are subject to the standard rate of corporate tax, which is 9%. This is the free zone corporate tax in the UAE.

Different corporate tax penalties and non-compliance risks

In case of non-compliance with UAE corporate tax regulations, businesses can face substantial financial penalties. Here is an overview of the major penalties that businesses may face:

• Late registration penalty in the UAE

The businesses that fail to register for CT with FTA before the deadline may face the fixed penalty of 10000 AED.

• Late filling penalty in the UAE.

For the businesses that miss the deadline of filing a return, face the escalating penalty on a monthly basis, which is 500 AED for the first 12 months of delay. And in case the delay period extends for 12 months, the amount of penalty increases to 1000 AED per month.

• Late payment of due taxes

The businesses whose CT payment is delayed may face a penalty of 14% from the day after the deadline and continue until the full amount is paid.

• Inaccurate record-keeping

For those companies that are not maintaining proper financial records or supporting documents, a fine of 10000 AED is incurred in case of the first offense, and if it is repeated within 2 years, then the fine of 20000 AED is incurred.

• Misleading and incorrect tax returns

An AED 500 penalty is for those businesses that submit incorrect returns.

Easy ways to avoid penalties with the help of a consultant

When a business is working with a qualified tax consultant, it becomes much easier to stay compliant and avoid costly penalties. Every expert tax consultant understands UAE tax laws completely; therefore, they will guide you through each requirement. They also ensure that at the time of filling, nothing is missed. The professional tax agent also helps in maintaining accurate records and filing returns on time. They also assist in applying the correct tax treatments for all transactions. Here are a few other services that they offer:

• Penalty prevention UAE
• CT reconsideration request
• Voluntary disclosure UAE
• Dispute resolution FTA
• Compliance monitoring UAE services.

Process of working effectively with a corporate tax Consultant in the UAE

A structured and collaborative process is required to get the best results from a corporate tax consultant. It is important for businesses to hire a corporate tax consultant in the UAE as they are aware of the local laws and rules. And they ensure the CT compliance process is not ignored at the time of return filing and registration.

Initial assessment and CT impact study

The first step from which you begin is discussing your business impact review and tax challenges. This helps the consultant understand your requirements and recommend the right services. They also assist with CT readiness assessment in the UAE and recover the compliance gap analysis.

Filing returns, submissions, and ongoing support

Consultant also submits VAT or corporate tax returns on behalf of their clients. However, you should review summaries or drafts to ensure that everything mentioned reflects your business accurately. These consultants also offer CT periodic support to ensure the ongoing compliance with the UAE and monitor filing deadlines.  This allows your consultant to monitor changes, prepare documentation, and keep you compliant at all times.

Documents required for corporate tax services

Different documents for corporate tax in the UAE are as follows:

• Audited financial statements, UAE
• Corporate governance documents
• Payroll records UAE
• Company licenses UAE
• Bank statements UAE

FAQs

Q1. What is the corporate tax rate in the UAE?

375000. The CT structure in the UAE is straightforward, forward, that is 0% for taxable income up to AED 375000 and 9% for taxable income above AED 375000. However, companies in a free zone enjoy 0% tax rate on qualifying income. And the tax rate for non-qualifying income is 9%

Q2. Who must register for UAE corporate tax?

1. The companies that need to be registered for UAE CT are all mainland and free zone businesses, foreign companies operating in the UAE, partnerships and joint ventures, and individuals who are engaged in business activities.

Q3. Do free zone companies pay corporate tax?

1. The free zone companies that earn non-qualifying income should pay the tax at the rate of 9% while for a qualifying person, the tax rate is 0%.

Q4. What documents are needed for CT filing?

1. To file the corporate tax return, a few documents are needed: financial statements, tax computation records, transfer pricing documents, supporting documents, and a trade license.

Q5. Can a consultant help with CT audits?

1. Yes, a corporate tax consultant plays a crucial role in assisting businesses during a Corporate Tax (CT) audit in the UAE. Their expertise ensures that your company is fully prepared, compliant, and able to respond correctly to all Federal Tax Authority (FTA) requests.