Are UAE's newly formed companies meeting 3-month deadline for tax registration?

Dubai: As more businesses launch in the UAE, some of the newly created SMEs seem to be ignoring one key requirement – that they will need to immediately start on their tax registration requirements too.

In fact, the rule set by the Federal Tax Authority mandates that the tax registration must be done in 3 months.

“For companies incorporated after March 1, 2024, the deadline for submitting a tax registration application is 3 months from the date of incorporation,” said Sumayya Zain, CEO of Hallmark International Advisors. “Any failure to do so will result in a penalty of Dh10,000 for delayed registration.”

What this essentially means is that newly incorporated companies cannot afford to waste any time to get started on their tax registration requirements. The key for them is to submit the application on schedule – whether the FTA comes back asking for more inputs is a secondary matter. Just file.

“We have seen many SMEs remaining ignorant about their tax registration obligations, believing they have the luxury of more time,” said a tax consultant. “They don’t.”

Sumayya seconds that observation – “A leading corporate services provider in the UAE stated that several new businesses have not yet registered or were unaware of the strict deadline.

“The rule is pretty straight-forward: If a company is incorporated on June 16, 2024, the last date for registration will be September 16, 2024.

“It is essential for all business owners to understand that corporate tax registration is mandatory for all entities conducting business activities in the UAE, including on the mainland, free zone, and offshore companies. It does not matter whether the companies are operational, generating revenue, or making a profit.”

That’s the key. The tax registration deadlines for newly formed companies stand irrespective of whether they are still far from meeting the financial cut-off points to be paying a corporate tax of 9%.

What about free zone based companies?

Companies newly set up or about to in UAE designated free zones may be eligible for tax benefits of 0% corporate tax - but they must still register and file tax returns.

This week Dubai offered more incentives for free zone companies to set up branch operations on the mainland. But they will still need to meet the guidelines issued under the UAE’s corporate tax regime.

“Many business owners mistakenly believe that UAE-registered offshore companies conducting business activities outside the UAE do not need to register for corporate tax,” said Sumayya. “That’s incorrect. “Offshore companies operating in UAE must register for corporate tax and file tax returns, even if they are not conducting activities inside the UAE.”

Don’t confuse with VAT requirements

Tax consultants say owners of new businesses should not mix up VAT and corporate tax requirements. With VAT, the new business has to reach a certain threshold - of Dh375,000 in sales - for a registration. On corporate tax, it’s as immediate as it gets.

Foreign companies and tax registrations

• Foreign companies with a ‘place of effective management’ (POEM) in the UAE - even if they do not hold a UAE license - are considered ‘tax residents’ and must register.

• For foreign companies incorporated after March 1, 2024, with a POEM in the UAE, the deadline to register is three months from the end of their financial year, even if they do not hold a UAE license. For Example: If a BVI company is incorporated on April 1, 2024, and follows an April-March financial year, the deadline for corporate tax registration in the UAE will be June 30, 2025.