Corporate Tax Return Filing & Compliance in the UAE

The UAE introduced Corporate Tax (CT), effective from June 1, 2023, marking a significant shift in the country’s tax landscape. Under this regime, businesses that meet certain criteria must file Corporate Tax returns to the Federal Tax Authority (FTA). The compliance process involves several key requirements, including the timely submission of tax returns, payment of taxes, and maintaining proper records. Here’s a detailed guide to Corporate Tax Return Filing & Compliance in the UAE.

1. Overview of UAE Corporate Tax (CT)

Corporate Tax in the UAE is a federal tax that applies to businesses and other entities conducting business activities in the country. The basic details are as follows:

• Tax Rate: The standard corporate tax rate is 9% on taxable income exceeding AED 375,000.
• Zero percent tax rate: A 0% corporate tax rate applies to taxable income up to AED 375,000. This is designed to support small businesses and startups.
• Exemptions: Some entities are exempt from corporate tax, including those operating in specific free zones (under certain conditions), as well as certain investment and holding companies.
• Taxable Income: The tax applies to the net income of a business after deducting allowable expenses, costs, and exemptions.

2. Who Needs to File a Corporate Tax Return?

Under the UAE Corporate Tax Law, any business entity that meets the following criteria must file a Corporate Tax return:

• Entities with taxable income above AED 375,000: If the business earns more than AED 375,000 in taxable income during a financial year, it is subject to corporate tax and required to file a return.
• Foreign Companies with a Permanent Establishment: Foreign entities that operate in the UAE through a branch or permanent establishment (PE) are also required to file Corporate Tax returns.
• Free Zone Entities: Businesses located in UAE Free Zones may also be subject to corporate tax if they are not fully exempt or if they conduct activities outside the scope of the Free Zone incentives.
• Group of Companies: If a group of companies has shared control or ownership and meets certain criteria, they may need to file a consolidated tax return for the entire group.

3. Key Corporate Tax Return Filing Requirements

Filing Deadline

• Annual Filing: Corporate Tax returns must be filed annually for each financial year.
• Filing Timeline: A return must be filed within 9 months from the end of the relevant tax period (financial year). For example, if a company’s financial year ends on December 31, the tax return must be filed by September 30 of the following year.

Required Documents and Information

When filing the Corporate Tax return, businesses must submit:

1. Income Statement: Profit and loss statement showing all income, expenses, and net profit.
2. Balance Sheet: A statement of assets, liabilities, and equity.
3. Tax Computation: The calculation of taxable income and the corresponding tax liability.
4. Supporting Documents: Any documentation that supports the tax computations, including financial records, accounting statements, and evidence of deductions or exemptions.
5. Taxpayer Identification: The Tax Registration Number (TRN), which businesses obtain during the registration process with the FTA.
6. Proof of Deductions: Details of any deductions, exemptions, or incentives claimed, including expenses, allowable losses, and credits.

Electronic Filing System

• The UAE Corporate Tax return must be submitted through the FTA’s e-services portal.
• The portal allows businesses to submit their returns online, track their filings, and make payments.
• Electronic filing ensures efficiency and allows businesses to keep records up-to-date in real-time.

4. Corporate Tax Payment

• Payment Deadline: Corporate tax payments must be made within 9 months of the end of the financial year, the same as the return filing deadline.
• How to Pay: Payments are made via the FTA’s online payment gateway. Once the tax return is submitted, the tax authority will calculate the tax due, and the business must pay the amount.
• Installment Option: In certain cases, the FTA may allow businesses to pay taxes in installments if they face cash flow issues. However, this is subject to approval by the tax authority.

5. Corporate Tax Compliance Obligations

Maintain Accurate Records

• Businesses must maintain comprehensive and accurate accounting records for at least 5 years after the end of the relevant tax period.
• These records should include financial statements, invoices, contracts, and supporting documents that substantiate income, expenses, and deductions.

Audit and Documentation Requirements

• Large companies may be subject to tax audits by the FTA, which will verify the accuracy of the submitted returns and the sufficiency of supporting documentation.
• It is recommended that businesses hire external auditors or tax consultants to ensure their financial records meet UAE tax compliance requirements.

Transfer Pricing Compliance

• If a business is part of a group of companies or has cross-border transactions, it may need to comply with transfer pricing rules. These rules ensure that transactions between related entities are conducted at arm’s length (i.e., at market rates).
• Businesses must maintain transfer pricing documentationand be prepared to provide it upon request by the FTA.

Tax Grouping and Consolidation

• UAE allows for tax grouping in cases where multiple entities under common control or ownership wish to file a single tax return.
• Businesses must meet certain conditions to apply for tax grouping and must consolidate their financial statements before filing.

Tax Incentives and Exemptions

• Certain types of income and transactions may be exempt from corporate tax, including income from investments in UAE-based real estate or certain free zone activities.
• Companies may also qualify for tax incentives, such as tax credits for research and development (R&D) or capital expenditure deductions.

6. Penalties for Non-Compliance

The UAE imposes strict penalties for non-compliance with Corporate Tax filing and payment requirements. Penalties may include:

• Late Filing Penalties: Fines for filing the tax return after the deadline.
• Late Payment Penalties: Interest and fines for late tax payments.
• Non-Submission Penalties: Failure to submit a tax return can result in hefty fines and possible audits.
• Underreporting Penalties: If a business reports less income than is actually earned or claims false deductions, it could face severe penalties and additional tax liabilities.

The FTA has the authority to audit companies and investigate discrepancies in filings, so businesses must be diligent about their compliance.

7. Conclusion

Filing a Corporate Tax return in the UAE is a critical obligation for businesses that meet the income threshold. To ensure compliance, businesses need to maintain accurate records, file returns on time, and pay any taxes owed. As the UAE tax environment evolves, especially with the implementation of corporate tax, it is highly advisable to work closely with tax professionals or consultants to navigate the complexities of tax filings and compliance effectively.

By following the correct procedures, businesses can avoid penalties and ensure they are fully aligned with the UAE’s tax regulations, contributing to the country’s vision of a diversified and sustainable economy