UAE Corporate Tax: Businesses must keep close track of FTA’s tax return guidelines

The UAE Federal Tax Authority's Tax Return Guideline is similar to the bank’s KYC form.

Knowing the customer’s background and business is very important for the banks, and knowing the taxpayer’s complex business and applicable provisions is as significant for the FTA. The corporate tax is based on a voluntary self-declaration concept that requires self-discipline and planning to ensure error-free filing to avoid a future penalty. 

From the FTA to the taxpayers to tax experts, we are witnessing an unprecedented time in the UAE, which was once known as a tax haven. It’s also the right time for taxpayers to get tax assessments through professionals - who themselves have to educate themselves before advising the taxpayers.

When VAT was implemented in 2018, it required changes in invoicing, accounting software, business contracts, new price tags and many more such changes by the taxpayers. However, depending on a case-to-case basis, the corporate tax doesn’t require those changes by the taxpayers, be it a single entity, SME, MNC or free zone entity.

Check the registration inputs

Instead, they must assess their entire company portfolios including local and foreign entities, free zone companies, and nature of business dealings, and then decide the applicable tax provisions to their various taxable entities. Once they assess their entire company portfolio and prepare the organisation chart - in the case of a big group with complex legal structures - the taxpayer can proceed with the tax registration.

As per the tax return guidelines, if the registration is incorrect, the required applicable field will not show while filing the return. This could cause a delay in filing or result in filing a wrong return and attract a confirmed penalty.

This is why the FTA’s tax return guide presents an exhaustive list of all the schedules and sections that may not apply to a particular taxpayer. Other key aspects where taxpayers need to decide or make certain elections on their tax returns, such as excluding the income of ‘foreign permanent establishments’ from taxable income. There is also the Small Business Relief, as well as the transitional rules to adjust taxable income to exclude gains or losses related to preceding periods if the taxpayer owns qualifying assets or liabilities, the election of the cash basis or accrual basis of accounting.

Most taxpayers, especially SMEs, have been paying attention to the adjustment of expenses and deductions to the taxable income while assuming filling a tax return will be a cakewalk as they don’t have free zone operations and related party transactions.

However, new concepts of payment to ‘connected persons’ - such as fixed remuneration or salary to relatives, luxury cars and villa accommodation rent payments - are common benefits used or given to board directors and relatives over the period by the taxpayers at their will. These now on have to be paid as per the arm’s length principle of the transfer pricing guidelines.

This requires taxpayers to be aware about the payment to connected persons in a similar industry.

The extent of writing-off or carrying forward a loss by the taxpayer, or setting off the losses against the qualifying group entity. is another key issue to be planned by the taxpayer. Taxability of eligible or ineligible foreign permanent establishment is another key area that requires planning at the registration stage.

The list is endless…