UAE Corporate Tax: Why businesses should be prompt about their voluntary disclosures

There are administrative penalties under the corporate tax regime that businesses in the UAE should be aware of immediately.

Worldwide, penalties work as a deterrent to non-compliance and tax evasion under self-assessment tax regimes. Technologies are improving tax authorities' ability to detect non-compliance.

Registering for corporate tax

Corporate tax registration is the primary concern of business owners and their respective finance teams. They do not want to incur penalties for being late in registering. In its Frequently Asked Questions (FAQs), the Ministry of Finance (MoF) clarifies that taxpayers must register before filing their first corporate tax return.

The first corporate tax return for a company following the January-December financial year is due by September 30, 2025. Registration can be done at any time before then. Corporate tax registration seems not to be subject to any specific penalties.

It would be necessary for particular taxpayers, such as qualifying public benefit entities and qualified investment funds, to register within the prescribed timeframe in order to qualify for the corporate tax exemption.

Keeping data up to date

Accounting records, invoices, etc., must be kept for a prescribed period by everyone. Documents supporting entries in the company's accounting records and commercial books must also be retained.

If such records are not maintained, a penalty of Dh10,000 could be imposed. Repeated violations within 24 months will incur an additional penalty of Dh20,000.

A penalty of Dh5,000 would apply if such records or other documents are not presented in Arabic whenever requested by the Federal Tax Authority (FTA). A progressive penalty may also result from failing to inform the FTA of any situation that would require the taxpayer's tax records to be amended.

Penalties for voluntary disclosures

The corporate tax return and corresponding tax payment are due 9 months after the end of the financial year. The penalties for late tax payments and voluntary disclosures should be taken into consideration by businesses.

If the tax due is not settled as per the corporate tax return, a penalty of 14 percent per annum is due each month. From the original due date until the date of voluntary disclosure or tax assessment, a monthly penalty of 1% of the 'tax difference' will be calculated.

Those who fail to submit voluntary disclosures before being notified of a tax audit will be penalized an additional 15% of the ‘tax difference'.

Under the corporate tax system, voluntary disclosure is different from that under the VAT system. A future adjustment to the transfer pricing for any taxpayer, or an ineligibility for 0 percent preferential rate for a free zone taxpayer, could have a significant financial impact on the scheme.

Penalties that may apply

For various other violations, fixed or progressive penalties have been imposed. It is illegal to fail to submit a tax return within the prescribed period of time, to fail to notify the Federal Tax Authority about the appointment of a legal representative, to submit an incorrect tax return, to obstruct or not cooperate during a tax audit, or to fail to submit required declarations by exempt individuals or partners in an unincorporated partnership.

Update in tax procedures

All three tax regimes - VAT, excise tax, and corporate tax - can be notified by text messages on mobile phones, smart applications, and electronic systems maintained by the FTA.

It is no longer necessary for tax agents to be able to communicate in both Arabic and English. It is acceptable to be fluent in either language. As a result, global talent will have the opportunity to explore UAE as a preferred destination for employment. It will also result in a natural enhancement of regional tax discussions.

Clarification brought about through updated tax procedures - and a specific penalty framework - would be highly beneficial to the business community. With certainty and confidence, large and small businesses can plan for the new tax regime.

Since taxation is becoming increasingly important in the country, business owners must ask the right questions to fully comprehend its implications.

For more information and support with your business, contact Zyla Accountants today.