How to Navigate Offshore Corporate Tax Registration in UAE

The UAE’s introduction of corporate tax on businesses, including offshore companies, has been a game-changer. As of June 2023, all businesses, including offshore entities, must adhere to the new tax registration process. However, many offshore companies remain unclear about how to navigate the complexities of corporate tax registration in the UAE.

This guide is here to simplify the process for you, explaining step-by-step how to ensure your offshore company is fully compliant with the UAE’s corporate tax registration laws.

Understanding Offshore Corporate Tax in UAE

Offshore companies in the UAE, typically registered in Free Zones such as Ras Al Khaimah (RAK), Ajman, or Jebel Ali, have been a popular choice for international businesses seeking tax advantages. However, with the introduction of corporate tax in 2023, offshore companies are now subject to the UAE’s corporate tax regime.

Key Aspects of Offshore Corporate Tax:

• Standard Rate: Offshore companies will pay the same corporate tax rate as other businesses, which is 9% on taxable income above AED 375,000.
• Tax Registration Requirement: Offshore businesses must register for corporate tax with the Federal Tax Authority (FTA).
• Filing Tax Returns: Offshore companies must file tax returns, disclosing their profits, by the annual deadline set by the FTA.

For many offshore companies, the UAE corporate tax law marks the end of their tax exemption status. While the regime is now more inclusive, some benefits remain for offshore companies that qualify as “Qualifying Free Zone Persons” (discussed below).

Step-by-Step Process for Offshore Corporate Tax Registration

Navigating the corporate tax registration process may seem daunting, but with the right approach, it becomes manageable. Here’s a clear step-by-step guide for offshore businesses:

Step 1: Determine Your Eligibility

Before diving into registration, determine if your offshore company qualifies for any exemptions or tax benefits. Companies that are registered in Free Zones may still be eligible for the 0% tax rate if they meet certain conditions.

Free Zone Companies:

• Qualifying Free Zone Person: If your offshore company is registered in a Free Zone and satisfies the specific operational and income-related criteria, it may be classified as a “Qualifying Free Zone Person,” eligible for the 0% tax rate.
• Substance Requirements: Ensure your business has a genuine economic presence in the UAE. Companies that are not actively conducting business may not qualify for the exemption.

Step 2: Register with the Federal Tax Authority (FTA)

All offshore companies must register for corporate tax with the FTA. The registration process is simple but must be done on time to avoid penalties.

Registration Process:

• Documents Required: Prepare documents like your offshore company’s certificate of incorporation, details of your directors, shareholders, and financial statements.
• Online Application: The FTA provides an online platform for tax registration. Submit your registration through the FTA’s website, ensuring all required fields are accurately filled out.
• Tax Registration Number (TRN): Upon successful registration, you will receive your Tax Registration Number (TRN), which must be used for future tax filings.

Step 3: Submit Financial Statements

After registering, offshore companies are required to file annual tax returns with the FTA. To do this, you’ll need to submit your financial statements, including:

• Income Statement: Detailing your revenues, costs, and profits.
• Balance Sheet: Showing your company’s assets and liabilities.

Step 4: File Annual Tax Returns

Once registered, offshore companies must file their tax returns annually. Even if your company claims zero income or profit, you are still required to submit a return to ensure compliance.

Key Filing Details:

• Deadline: File your tax return by the due date to avoid penalties.
• Financial Year: The tax year is typically the same as your financial year. If your financial year differs, notify the FTA.
• Disclosures: Offshore companies must disclose all income, including foreign income if applicable.

How to Qualify for 0% Corporate Tax (Qualifying Free Zone Person)

Some offshore companies may still qualify for a 0% corporate tax rate. To do so, they must meet the criteria to be considered a Qualifying Free Zone Person. Here are the requirements:

Criteria for 0% Corporate Tax Rate:

• Active Business: Your offshore company must be actively engaged in business operations, not just holding assets.
• Qualifying Income: Income must be derived from qualifying activities, as outlined by the FTA.
• Substance Requirements: Your company must demonstrate real economic activity in the UAE, which includes having employees, office space, and other operational factors.

If your offshore company qualifies for the 0% tax rate, it can maintain its tax-free status. However, if it does not meet these requirements, it will be subject to the standard 9% corporate tax rate.

Common Mistakes to Avoid in Offshore Corporate Tax Registration

Navigating the offshore corporate tax registration process can be challenging, and some businesses may inadvertently make mistakes. Here are some common mistakes to avoid:

Failing to Register on Time

Offshore companies must register with the FTA by the deadline. Failing to do so can result in hefty penalties and delays in the approval of your tax registration.

Inaccurate Financial Statements

Ensure that your financial statements are accurate and complete when filing tax returns. Inaccurate statements can lead to penalties or even legal consequences.

Misunderstanding Exemption Eligibility

It’s crucial to understand whether your offshore company qualifies for the 0% corporate tax rate. Misunderstanding the exemption criteria can lead to unnecessary tax payments or non-compliance.

Penalties for Non-Compliance

If an offshore company fails to comply with the UAE corporate tax laws, including registration and filing obligations, it may face significant penalties. These can include:

• Late Fees: Companies that miss registration or filing deadlines will incur late fees.
• Fines for False Information: Providing false or misleading information in your tax filings can result in fines or legal action.
• Revocation of Tax Status: In some cases, failure to comply with tax registration may result in the revocation of your tax registration status.

To avoid these penalties, ensure your offshore company registers for tax and files accurate returns on time.

Conclusion

Navigating the offshore corporate tax registration process in the UAE may seem complex, but by following the outlined steps, ensuring timely registration, and understanding the eligibility for exemptions, offshore companies can comply with the new corporate tax laws. At Young & Right, we specialize in guiding offshore companies through tax registration and helping them maximize any available tax benefits.

If you need assistance with your offshore corporate tax registration or compliance, feel free to reach out to us for expert advice and support.