In the United Arab Emirates, the corporate tax system encircles businesses and companies with specific income brackets. It is a strict requirement for every business that operates in the UAE. The corporate tax is beneficial for the UAE in many ways as it promotes national economy diversification, fairness, and transparency among the business fraternity.
Also, benefits from corporate taxes attract local and international investors. So, all the concerned people in the UAE need to understand the corporate tax filing process. Here is a brief guide on the practical steps of corporate tax filing in the UAE, tax deadlines, benefits for SMEs, and penalties.
Deadlines
When it comes to corporate tax deadlines in the UAE, timely submission is crucial. As per the FTA (Federal Tax Authority), corporate tax returns should be filed within 9 months from the end of the financial year. Missed deadlines can lead to various complex challenges, like extensive administrative paperwork and considerable penalty payments.
Suppose there is a clothing business that runs inthe UAE, its financial year finishes on 31 Dec 2024, now its deadline to file corporate tax will fall on 30 Sept 2025. To avoid missing deadlines and penalties, corporations must ensure prior audits and prepare financial statements in advance.
Pro Tips:
- As soon as the financial year ends, start work on the financial records.
- Leverage automated accounting software for accuracy.
- Use corporate tax filing services in UAE by professional consultancies to avoid any inconvenience.
Penalties for Non-Compliant Businesses
In the UAE, every business has defined compliance guides. In case any business does not fulfill the compliance requirements, it has to pay significant penalties. Such penalties have multiple ranges as per the violation nature. The different types of penalties are specially designed to promote compliance and discourage negligence.
Common Penalties:
Penalty for Late Corporate Tax Filing
- First Offense: AED 1,000.
- Repeated Offenses: Escalates to AED 10,000 for succeeding violations.
Penalty for Tax Non-Payment
- The unpaid tax percentage is charged daily, accumulating till the full payment is made.
Penalty for Incorrect Tax Filing
- For inaccurate or missing information, fines may be levied on tax returns. Intentional misrepresentation can draw legal action or higher penalties.
Benefits
Since the UAE government desires to foster a collaborative business environment, it has introduced various business-supporting benchmarks for easy compliance for many startups, small businesses, and SMEs.
Key Advantages
- Corporations with taxable yearly income below AED 375,000 are exempt from corporate tax.
- Businesses that are qualified under corporate tax law can subtract operational costs and salaries from taxable income. This will decrease the company’s all-around tax liability.
- Businesses working in selected free zones, until they are regulatory compliant, may enjoy significant tax incentives.
Compliance Criteria
- Maintain correct and up-to-date financial documents.
- Function within the specified taxable income limits.
- Assure that activities stick to free zone regulations and UAE laws.
How to File Corporate Tax in the UAE
Register with the Federal Tax Authority
- Businesses must register with the Federal Tax Authority and obtain a TRN (Tax Registration Number). This unique TRN is essential for all tax-related transactions.
Prepare Financial Statements
- Businesses must prepare financial records that are complete, accurate, and audited as per FTA requirements.
Calculate Taxable Income
- After deducting expenses and exemptions (if any), companies can calculate taxable income.
Complete the Corporate Tax Return Form
- At the FTA portal, companies can access the form, it should be filled with all necessary details and documents to avoid any inconvenience.
Submit the Return
- After completing the form, review it carefully and submit it via the FTA portal.
How to Pay Corporate Tax in the UAE?
The UAE proposes flexible payment choices to accommodate the variable business needs. These choices are developed to sustain cash flow management, particularly for companies with considerable tax liabilities.
Payment Methods
Single Payment
Businesses can pay the entire tax amount in one transaction if they have clear tax liabilities.
Installment Payments
Businesses with more extensive tax liabilities can opt for instalments, but it must be approved by the FTA.
Payment Channels
- Online Bank Transfers
- eDirham Cards
- Other Approved Channels specified by the FTA.
Bonus Tips for Compliance
- Keep informed. Monitor FTA updates about changes in tax filing procedures, tax laws, or deadlines.
- Use trustworthy accounting software to automate computations, track deductions, and develop accurate financial reports.
- Tax consultants and accounting companies can deliver useful guidance on complicated tax matters, assuring exactitude and compliance.
- Retain 5 years of financial records at least to comply with FTA audits.
GAAR (General Anti-Abuse Rule)
The UAE government ensures international best practices of corporate tax laws and has introduced GAAR. The rule applies to non-commercial transactions in which tax benefits are one of the main reasons for transactions. If GAAR applies, FTA ensures that one or more specified corporate tax benefits are to be adjusted or counteracted.