Our Dedicative Experts from Tax Department will Assist Business to Submit the Corporate Tax Returns
Corporate Tax in the UAE was introduced to ensure that businesses contribute equitably to the country’s economy while fostering alignment with global tax practices. Corporate Tax Law is governed by Federal Decree-Law No. 47 of 2022, which became applicable for financial years starting on or after 1 June 2023. Corporate Tax applies to entities operating within the UAE, subject to specific rules and exemptions.
The law specifies that Corporate Tax is charged at 9% on taxable income exceeding AED 375,000, while income below this threshold is subject to a 0% tax rate. This progressive tax structure ensures that smaller businesses or start-ups with lower profits are not burdened, while larger corporations pay a fair share. Additionally, free zone persons that meet qualifying criteria can benefit from a 0% rate on their qualifying income. A different tax rate (not yet specified) for large multinationals that meet specific criteria set with reference to ‘Pillar two’ of the OECD Base Erosion and Profit Shifting Project.
Corporate Tax is calculated on taxable income, which is derived after accounting for allowable deductions and adjustments. Deductions typically include legitimate business expenses incurred to generate revenue, while capital expenditures and personal expenses are not deductible. For expert guidance on compliance, businesses can rely on our Corporate Tax Return Filing services Dubai.
Corporate Tax Return Filing Sevices
Corporate tax obligations in the UAE apply to a broad range of businesses, but not everyone is subject to this tax. Understanding who needs to file and who qualifies for exemptions is crucial for proper compliance.
These are the categories of entities and individuals that are subject to corporate tax in the UAE:
- UAE-incorporated Juridical Persons
- Foreign Juridical persons which are effectively managed and controlled in the UAE.
- Non-Resident Juridical Persons having Permanent Establishments in the UAE.
- Non-Resident Persons deriving State-Sourced Income.
- Non-Resident Juridical Persons with Nexus in the UAE: If a foreign juridical person earns income from Immovable Property in the UAE, they are considered to have a “nexus” and will be taxed on such income.
- Natural Persons Conducting Business in the UAE: Individuals (natural persons) who engage in business or business activities in the UAE, with an annual turnover exceeding AED 1,000,000 per Gregorian calendar year, are subject to corporate tax on income derived from those activities.
- Government entities.
- Government-controlled entities.
- Extractive Businesses.
- Non-Extractive Natural Resource Businesses.
- Public and private pension or social security funds.
- Qualifying Investment Funds.
- Juridical persons incorporated in the UAE that are wholly owned and controlled by certain Exempt Persons.
- Qualifying public benefit entities.
Timely submission of corporate tax returns is crucial for businesses operating in the UAE to avoid penalties. The deadline for filing a Corporate Tax return is no later than nine months of the end of the relevant financial year. This allows businesses ample time to prepare their financials, calculate their taxable income, and submit accurate reports.
However, circumstances may arise where businesses require additional time. In such cases, extensions can be requested from the Federal Tax Authority (FTA), though the approval is subject to the authority’s discretion. It’s essential to apply for an extension well before the filing deadline to avoid complications. For example, FTA Decision No. 7 of 2024 extended the filing deadline to December 31, 2024, for entities incorporated between June 1, 2023, and September 1, 2023.
Non-compliance with filing requirements can lead to significant fines. Late submission, underreporting of income, or incorrect tax returns attract penalties. These fines depend on the severity of the non-compliance as described under Cabinet Decision No. 75 of 2023 on the Administrative Penalties for Violations Related to the Application of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses. A penalty of AED 500 applies if the tax return is not submitted by the original deadline.
The calculation of Corporate Tax in the UAE is based on the taxable income, which is determined after considering deductions and adjustments as per the Corporate Tax Law. Taxable income is derived from the profits reported in a company’s financial statements, prepared in accordance with International Financial Reporting Standards (IFRS) or other generally accepted accounting standards.
Certain expenses, such as personal expenses, fines, and penalties, are not deductible. Additionally, capital expenditures may not be immediately deductible, but businesses can claim depreciation on these assets over time.
For companies operating across borders, special rules apply. The Corporate Tax Law allows for foreign tax credits to avoid double taxation on income taxed outside of the UAE. Transfer pricing rules also apply to businesses with related party transactions, ensuring that income is reported at arm’s length and reflects market value.
Reporting is done annually, where businesses submit their Corporate Tax Return along with financial statements. Companies are encouraged to maintain accurate records and ensure all transactions are correctly documented to avoid any discrepancies during tax audits.
Taxable Persons in the UAE are required to maintain adequate records and documentation supporting their tax filings in the UAE. These records should:
- Support the information provided in tax returns or other documents submitted to the Federal Tax Authority (FTA).
- Allow the FTA to readily ascertain the Taxable Income.
- Include specific documents such as financial statements, transaction records, asset details, liabilities, and stock records.
The type of documents maintained can vary based on the business, but should typically include bank statements, loan documents, sales and purchase ledgers, invoices, and business correspondence. Digital storage is acceptable if paper documents are scanned.
A Taxable Person with Revenue exceeding AED 50,000,000 in the relevant Tax Period, or a Qualifying Free Zone Person, is required to prepare & maintain audited financial statements.
If a Taxable Person fails to keep proper records, penalties can be applied:
- AED 10,000 for a first violation
- AED 20,000 for repeat violations within 24 months
The UAE mandates that businesses retain their financial records for a minimum of Seven years, allowing the Federal Tax Authority to verify the accuracy of filings during audits or assessments.
Additionally, businesses that engage in related party transactions must prepare transfer pricing documentation. This documentation should outline the nature of the transactions and ensure they meet the arm’s length standard, which requires pricing to reflect what independent parties would agree upon in similar circumstances.
Given the complexity of Corporate Tax filing, it’s critical for businesses to ensure that their records are not only accurate but also readily available for review if requested by the authorities.
A tax audit is a detailed review conducted by the Federal Tax Authority to ensure that a tax return is accurate and complies with the law. Audits involve a thorough review of financial statements, tax returns, and supporting documents to identify any discrepancies or errors. The goal of the audit is to verify that the reported taxable income and deductions are correct.
The Federal Tax Authority (FTA) can initiate audits without prior notice. If discrepancies are found during the audit, FTA may issue a tax assessment. This assessment could lead to an adjustment in the taxable income, resulting in additional taxes owed. In some cases, taxable persons may face penalties or fines for underreporting income or failing to comply with tax rules.
The Importance of Tax Planning
Tax planning is not just a compliance exercise; it’s a strategic tool that can significantly enhance a company’s financial health. By engaging in proactive tax planning, businesses can legally reduce their taxable income, ensuring that they only pay the amount of tax required by law while maximizing available reliefs and exemptions. For efficient tax planning and accurate submissions, businesses can rely on our Corporate Tax Return Filing services Dubai.
Effective tax planning involves:
- Identifying Deductions: Businesses can lower their taxable income by claiming all eligible deductions, which include operational expenses and other allowable costs.
- Leveraging Exemptions: Various exemptions are available under corporate tax regulations, including those for government entities and qualifying organizations. Understanding and utilizing these exemptions can lead to significant tax savings.
- Structuring Cross-Border Transactions: With numerous Double Taxation Avoidance Agreements (DTAA) in place, UAE-based businesses can benefit from foreign tax credits and avoid being taxed on the same income in multiple jurisdictions, thus optimizing their global tax exposure.
- Long-term Strategic Planning: Aligning business strategies with tax benefits—such as investments and capital expenditures—with potential tax benefits, Businesses can benefit from exemptions on capital gains arising from qualifying shareholdings and dividends received from resident persons, allowing for optimal investment strategies and reinvestment of profits in a tax-efficient manner.
- Risk Mitigation: By keeping abreast of the latest UAE tax regulations and potential amendments, businesses can avoid penalties related to non-compliance. This includes penalties and legal issues that may arise from improper reporting or missed deadlines.
How RVG Professionals Can Help
Navigating the complexities of corporate tax in the UAE can be daunting, especially with the evolving regulations and compliance demands. This is where RVG Chartered Accountants come in as your trusted partner. With a team of seasoned tax professionals, RVG offers tailored solutions that not only ensure compliance but also help optimize your tax position, allowing your business to focus on growth and innovation.
- Tax Filing: Our team handles the entire tax filing process with precision, ensuring that your tax return is submitted accurately and on time. We identify every eligible deduction and exemption, helping you minimize your tax liabilities within the legal framework.
- Tailored Tax Strategies: One size doesn’t fit all. We develop bespoke tax strategies that align with your business goals, industry, and operational structure. From reducing taxable income to making the most of exemptions, RVG ensures your business pays no more tax than necessary.
- Audit Assistance & Support: In the event of a tax audit, RVG provides comprehensive support, ensuring all necessary documents are in place and helping you respond to the Federal Tax Authority (FTA) efficiently. Our goal is to make the audit process as smooth as possible while protecting your interests.
- Transfer Pricing Solutions: For businesses involved in related-party transactions, adhering to the UAE’s transfer pricing rules is crucial. RVG ensures that your transfer pricing documentation is prepared according to the arm’s length principle, safeguarding your business from potential penalties or adjustments.
- Long-Term Tax Planning: Tax planning isn’t just about the current year—it’s about ensuring your business is tax-efficient in the long run. RVG works with you to devise long-term tax strategies that factor in growth, expansion plans, and evolving regulations, ensuring you’re always prepared for the future.
