For entrepreneurs who want to take their companies to the next level, the United Arab Emirates is rapidly emerging as a preferred business destination. The business and industrial ecosystem built around opportunity, connectivity and growth continues to evolve over time with regulatory frameworks designed to support their operations.
To maintain the exclusivity of the ecosystems, the regulatory bodies have put greater emphasis on financial reporting transparency and compliance with the regulatory requirements of the country. Corporate Tax in the UAE has become a critical instrument and companies operating across the seven emirates are realising it.
Often seen as a simple and straightforward annual tax requirement, corporate tax filing and reporting has become more than just about the balance sheet. It shows the accuracy of the tax returns and the positions that have been applied during the filing process.
“Corporate Tax filing is rarely complicated because of one major issue. It is often the smaller details during the process that can create compliance gaps.”
Most leaders know how staying aligned with UAE Corporate Tax requirements is more than just a regulatory obligation. However, the finer details can often slip the best of minds. Before we proceed with the blog, let’s take a sneak peek at the essentials that every enterprise must know.
- Deadline: Firms are generally expected to submit their corporate tax returns within nine months after the end of the relevant tax period.
- The tax rates: For enterprises earning up to AED 375,000, the tax rate is at 0%. However, those earning more than the threshold of AED 375,000, the tax rate is at 9%.
-
The common mistakes: While the process is straightforward,
here are some of the common errors that cause last-minute during
the filing process.
- Incomplete financial records
- Incorrect classification of income and expenses
- Overlooked tax adjustments and insufficient supporting documentation
While considered by many to be the final step, business owners must take a closer look at the applicable tax treatment and supporting documents before the submission is reviewed by the FTA. Through this blog, we explore in depth the five things that businesses need to know before submitting their returns.
1. Know Your Corporate Tax Position in the UAE
Whenever business leaders and entrepreneurs are filing their corporate tax returns in the UAE, they have to carefully understand their corporate tax obligations. Businesses operating on the UAE mainland may have differing obligations based on their structure and the size of their operations.
This difference becomes crucial for enterprises, particularly with regard to the rate itself. Corporate Tax is normally calculated on the taxable income of an enterprise, making the consideration of its financial position fundamental during the process.
To support small and medium-sized enterprises (SMEs), the corporate tax is calculated at 0 per cent for incomes up to AED 375,000. In contrast, enterprises that have an income over the AED 375,000 threshold are subject to 9%.
But for companies operating in the free zones, the corporate tax is at a 0% rate on qualifying income. The key factor that has to be considered is whether the firm can maintain its QFZP conditions. A failure to meet these conditions can often result in the corporate tax being levied at 9%.
Businesses also have to evaluate their eligibility for Small Business Relief, participation exemption and the Qualifying Free Zone Person (QFZP) regime requirements. A thorough review helps businesses avail of available tax benefits while remaining compliant.
2. Get Your Numbers Right Before the Filing of Corporate Tax Returns
For any corporate tax process, the starting point lies in the books. Financial statements and records become foundational when calculating the taxable income. Making a review of the books with a fine-tooth comb to ensure the accuracy of the information provided is an essential part of the process.
While leaders might confuse accounting profit with the final taxable income, that is not often the case. Several considerations, reliefs and adjustments have to be taken into account. Any incomplete or dated information and records can have a direct effect on the final tax computation.
A closer review of the financial records can bring these gaps to light before they become part of the submitted return. An exhaustive review of the financial records and books can help the business owner to identify potential gaps before they become an issue during the FTA’s review.
3. Don’t Ignore Transfer Pricing Reporting
In the modern business environment, related-party transactions form a major part of any firm’s everyday commercial activity. This also introduces another layer of compliance into the picture.
As per the UAE Corporate Tax framework, any related-party transactions conducted will have to ensure that the transfer pricing obligations are met. Management fees, shared services, and other intercompany dealings are considered relevant during the process. Transfer pricing will help corporate tax experts take a closer look at these transactions.
With the arm’s length principle at the core of the framework, the applicable documentation also has to be taken into account before determining the corporate tax position. This process will also consider factors like the assumed risks, assets utilised and the functions performed, along with the economic situation during the transaction.
Reviewing these transactions alongside the broader tax position can help businesses maintain consistency between their commercial arrangements, financial records and Corporate Tax reporting.
4. Have Your Corporate Tax Documents Ready
While numbers can help the FTA understand a business’s tax position, the supporting documents behind those numbers often make its case.
It is no secret that corporate tax returns draw a comprehensive and extensive set of documents that vary from financial records to bank statements, from fixed asset registers to VAT records and transfer pricing documentation, and more. Each of these documents not only adds valuable context behind the figure but also paints a clear picture of the business’ true financial position.
Keeping these documents ready in advance of the filing deadline can help them respond in a timely manner to any potential inconsistencies that can penalise their operations.
5. Stay Ahead Of The Corporate Tax Filing Rush
Knowing the corporate tax filing deadline is one thing, while being actually prepared by the deadline is another.
Smart business leaders prepare all the necessary documents for corporate tax in advance before the deadline for the corporate tax filing nears. As per the UAE Corporate Tax Law, the returns are generally required to be filed within nine months from the end of the tax period. This is subject to any announcement or information by the FTA.
Staying true to the saying that the early bird catches the worm, leaders who begin the process early take away the last-minute pressure during the review process. They also limit unnecessary delays and risk of errors. This also allows businesses enough time to cross-check the documents and provide any missing information before submitting them.
The deadline may be the final date for filing. It should never be the starting point for preparation.
“A smooth filing process allows business time to review, question and correct any inconsistencies. That preparation becomes a major difference between just meeting a deadline and getting the filing done right.”
Final Words
Submitting the corporate tax return might seem like one of those compliance requirements that businesses think of as just an annual obligation, often leaving the door open for potential gaps if not filed correctly. By paying closer attention to these five things, businesses can move forward with greater clarity, avoiding the last-minute hiccups making the process smooth and the experience easier.
In an era where data is considered the new oil, the accuracy of the information provided and the position submitted to the FTA becomes important. This is where the right guide and partner can make the difference.
At Excellence, our team of corporate tax experts and business consultants supports businesses with their corporate tax needs by providing the necessary clarity and consistency throughout the process. Leveraging our understanding of UAE corporate tax requirements and working closely with businesses, we help maintain regulatory compliance and strengthen the financial reporting framework.
