Corporate Tax in UAE: Key Compliance Steps for Businesses

The UAE is known for its business-friendly environment and favorable tax regulations, but the introduction of corporate tax in 2023 has introduced a need for businesses to be vigilant about compliance. Corporate tax is now a reality for companies operating in the UAE, and understanding the compliance requirements is crucial for businesses to avoid penalties and ensure smooth operations.

Understanding Corporate Tax Compliance in the UAE

Corporate tax is levied on the profits of businesses operating in the UAE. The corporate tax rate was introduced in 2023, and it applies to most businesses, including foreign companies, branches, and subsidiaries. While the UAE was historically known for its tax-free business environment, the new corporate tax aims to align the UAE with global tax standards and create a more sustainable economy.

However, businesses must comply with the tax rules, regulations, and filing requirements to ensure they remain in good standing with the Federal Tax Authority (FTA). Failing to comply with the corporate tax law can result in penalties, fines, and interest charges.

Who Needs to Comply with Corporate Tax in the UAE?

Before diving into the compliance steps, it's essential to understand which businesses need to comply with corporate tax laws. The UAE corporate tax regime applies to:

1. Resident Juridical Persons

Businesses incorporated in the UAE, whether mainland or in a free zone, must comply with the corporate tax law. This includes limited liability companies (LLCs), branches of foreign companies, and joint-stock companies.

2. Resident Natural Persons

Individuals conducting business activities in the UAE, with a turnover exceeding AED 1,000,000 annually, are subject to corporate tax. However, personal income from investments or real estate (if personal) is exempt.

3. Non-Resident Persons / Entities

Foreign companies are only subject to UAE corporate tax if they have a permanent establishment (PE) in the UAE, such as a branch or office, and derive income from UAE sources.

4. Free Zone Companies

Certain free zone companies may be exempt from corporate tax or benefit from tax incentives. However, they must meet specific requirements set by the government to qualify for tax exemptions.

5. Exempt Entities

Entities such as government bodies, certain funds, public benefit organizations, and pension/social security funds are exempt from corporate tax.

Key Compliance Steps for Corporate Tax in UAE

Now that we know who needs to comply with corporate tax, let’s go over the key steps businesses must take to ensure compliance with UAE tax regulations.

Step 1: Registering with the Federal Tax Authority (FTA)

The first step in corporate tax compliance is registering with the Federal Tax Authority (FTA). All businesses that are liable for corporate tax must register with the FTA to obtain a Tax Registration Number (TRN). Here's how to get started:

How to Register with the FTA

1. Create an Account: Businesses must create an account on the FTA portal 

2. Submit Required Documents: The registration process requires submitting several documents, including:

   • Company’s trade license.

   • Financial statements.

   • Passport copy of the company’s representative.

   • Proof of address (e.g., utility bill).

3. Obtain TRN: Once the registration is complete, businesses will receive a Tax Registration Number (TRN), which must be used when filing tax returns and making tax payments.

Step 2: Maintaining Proper Financial Records

Accurate and detailed financial records are crucial for corporate tax compliance. Businesses must maintain their financial statements and records in compliance with UAE tax laws. Here's how you can stay organized:

What to Include in Financial Records

• Profit and Loss Statements: To show the company’s income and expenses for a specific period.

• Balance Sheet: To show the company’s assets, liabilities, and equity.

• Invoices: All sales and purchase invoices should be kept for at least five years.

• Bank Statements: Ensure all bank transactions are recorded.

• Supporting Documents: Any receipts, contracts, and agreements related to business transactions.

Maintaining these records will allow businesses to correctly calculate their taxable income and provide the necessary documentation during the tax filing process.

Step 3: Filing Corporate Tax Returns

Once your business is registered with the FTA and has maintained accurate financial records, the next step is filing corporate tax returns.

When to File Corporate Tax Returns

Corporate tax returns must be filed within nine months after the end of the company’s fiscal year. For example, if your fiscal year ends on December 31, your corporate tax return must be filed by September 30 of the following year.

How to File Tax Returns

1. Access the FTA Portal: Log in to the FTA portal using your TRN.

2. Complete the Tax Return Form: The tax return form includes sections to report income, expenses, and adjustments for tax calculations.

3. Submit the Required Documents: Businesses must submit their audited financial statements, tax return forms, and supporting documents.

4. Submit by the Deadline: Ensure that you submit the tax return before the filing deadline to avoid penalties.

Step 4: Paying Corporate Tax

After filing the corporate tax return, businesses must pay any outstanding tax due to the FTA. Failure to pay taxes on time will result in interest charges and penalties.

How to Make Tax Payments

• Online Payment: Payments can be made online through the FTA portal using different payment methods (e.g., bank transfer, credit card).

• Payment Deadline: The tax payment should be made within 9 months from the end of the fiscal year, alongside the tax filing.

It’s essential to ensure that all taxes are paid in full to avoid any financial penalties.

Step 5: Meeting Transfer Pricing Requirements

For businesses involved in international transactions with related parties, the UAE imposes transfer pricing rules. These rules require that transactions between related parties (e.g., parent and subsidiary companies) be conducted at arm’s length.

What You Need to Know About Transfer Pricing

• Arm’s-Length Principle: Transactions between related parties must be priced as if they were between unrelated parties, ensuring fairness and transparency.

• Documentation Requirements: Large entities must maintain and submit transfer pricing documentation that justifies the pricing and structure of their intercompany transactions.

• Compliance with OECD Guidelines: The UAE follows the OECD’s transfer pricing guidelines, which set standards for fair pricing.

Step 6: Keeping Track of Exemptions and Reliefs

Businesses must also be aware of any exemptions or tax reliefs available under the UAE corporate tax law. These exemptions can reduce the taxable income, providing significant tax savings.

Examples of Exemptions

• Small Business Relief: For businesses with annual revenue of AED 3 million or less, tax is not applicable until the end of 2026.

• Free Zone Companies: Certain free zone companies may benefit from tax exemptions on qualifying income.

It’s essential for businesses to check their eligibility for exemptions to reduce their tax liabilities.

Step 7: Understanding Penalties for Non-Compliance

Non-compliance with corporate tax laws can lead to severe penalties. Here are some of the penalties businesses should avoid:

• Late Filing Penalties: A penalty of up to AED 1,000 for late filing of tax returns.

• Late Payment Penalties: Interest charges on unpaid tax, which can increase over time.

• Failure to Maintain Records: If a business fails to maintain the required records, it may be subject to additional penalties.

How Young & Right Help You with Corporate Tax Compliance in UAE

At Young & Right, we specialize in guiding businesses through the complexities of corporate tax compliance in the UAE. With the recent introduction of corporate tax laws, ensuring compliance is more important than ever. Here’s how we can help your business:

• Tax Filing & Registration: We handle the entire corporate tax filing process, ensuring accurate tax returns and timely submissions to the Federal Tax Authority (FTA), helping you avoid penalties.

• Accurate Tax Calculations: Our experts calculate your taxable income and apply the correct tax rates, while making sure you benefit from exemptions like small business relief and free zone advantages.

• Ongoing Support: We offer continuous compliance support, keeping your business updated on any changes to tax laws and regulations, ensuring year-round compliance.

• Transfer Pricing Assistance: For businesses with international dealings, we help ensure your intercompany transactions comply with the UAE’s transfer pricing rules.

• Tailored Solutions: We provide customized corporate tax services, suited to your business’s specific structure and needs, whether you're a start-up, foreign-owned company, or a free zone entity.

Conclusion: The Importance of Corporate Tax Compliance

In conclusion, corporate tax compliance in the UAE is essential for businesses to avoid penalties and maintain good standing with the Federal Tax Authority. By following the key steps of registering with the FTA, maintaining proper records, filing tax returns on time, and staying aware of exemptions, businesses can navigate the UAE’s corporate tax landscape efficiently.

At Young & Right, we specialize in helping businesses stay compliant with corporate tax regulations. Our expert team can guide you through every step of the compliance process, ensuring that your business remains tax-compliant and focused on growth.