Most businessmen consider the UAE to be a perfect place for business development due to its favorable tax policy. However, there have been significant changes to standard tax procedures.
Penalty for Late Filing of Corporate Income Tax (CIT): 10,000 AED
In the UAE there is no excessive regulation and no need to submit a large amount of reporting. Many foreign companies do not comply with even the minimum legal requirements. This leads to the blocking of bank accounts, fines, and even revocation of licenses and banning of founders from opening new companies.
Companies in the UAE must submit four types of reporting: annual audit of financial statements, corporate tax report, ESR, and AML. Of these, the first two are mandatory for all organizations, the other two apply only to certain types of activities.
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Let’s look at each of them in more detail:
Annual audit of financial statements. Starting from 2024, all companies must carry it out, even if there is no such requirement in the rules of the free zone where the legal entity is registered.
Corporate tax report. It must be taken by all companies, there are no exceptions for freelancers. To do this, you need to register with the Federal Tax Authority (FTA) by creating a personal account on the website or in the system’s mobile application. You will need:
Traditionally, free zones are renowned for their zero-taxation policies, which attract international businesses. The changes in tax laws reflect a balance between maintaining the attractiveness of free zones and upholding the UAE’s reputation for transparent financial practices.
Companies qualifying as Qualified Free Zone Persons (QFZPs) will continue to benefit from a zero tax rate, provided their income meets specific qualifications. Income failing to meet these conditions is subject to taxation at the standard rate of 9%.
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To attain QFZP status, a company must meet the following criteria:
Starting from 2023, the introduction of corporate tax in the UAE does not entail automatic taxation of all profits received by enterprises. Several exceptions allow businesses and individuals to receive tax relief under specific circumstances:
Additionally, corporate tax does not apply to the following types of income:
These exemptions offer significant tax advantages for certain types of activities and investments in the UAE, showcasing the flexibility and attractiveness of the country’s tax system for business and investment.
This type of reporting is mandatory only for certain types of companies, such as banks, insurance companies, investment funds, asset management companies, logistics companies, financial leasing agencies, service and distribution organizations, and intellectual property and copyright management companies.
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Confirmation of economic presence in the UAE is an indicator of the legitimacy of the application of tax benefits and the real existence of the company in the country. If regulatory authorities prove that the actual activities and management of a legal entity are carried out on the territory of another state, the company may be fined 50,000 dirhams ($13,600).
The Ministry of Finance is currently continuing to work on the rules for the corporate tax regime. Obviously, fines for violations related to the payment of corporate tax are lower than fines associated with the payment of other taxes, for example, excise taxes or VAT.
However, due to the fact that the amount of fines is determined by the Ministry of Finance, businesses need to maintain and submit records. Then they must submit to the Federal Tax Administration an application for deregistration or changes to the certificate of registration for corporate tax purposes, correctly calculate the amount of tax payable, and ensure compliance with all other provisions of the Corporation Tax Law.
