Navigating UAE's New Corporate Tax: Key challenges for businesses

The introduction of Corporate Tax (CT) in the UAE marks a significant shift in the business landscape. While the legislation is designed to be business-friendly, the complexities of interpretation, classification, and compliance present notable challenges, especially during the filing of tax returns.

At AKW Consultants, we’ve identified several recurring pain points businesses face when preparing and filing their CT returns:

Misclassification of tax status: Confusion often arises in determining whether a business qualifies as a Resident Person, a Non-Resident with or without a Permanent Establishment, or a Qualifying Free Zone Person. These classifications directly affect tax rates and eligibility for exemptions.

Regulatory ambiguity: As a relatively new tax regime, many businesses struggle to stay updated with evolving regulations, cabinet decisions, and ministerial guidelines. Multinational groups, in particular, must account for complexities – where required – such as transfer pricing and global minimum tax (BEPS Pillar Two).

Accounting inconsistencies: Inaccurate accounting records, misclassification of expenses, and failure to reconcile accounts can distort taxable income and trigger compliance risks.

Transfer pricing compliance: Related-party transactions must follow the arm’s length principle and, depending on thresholds, require documentation such as TP Disclosure Forms, Master Files, and Local Files.

Incorrect applications of reliefs: Reliefs like Small Business Relief, Group Relief, and Participation Exemption come with strict conditions. Misapplication or late elections can result in denial or clawback of benefits.

Avoiding these challenges requires more than just timely filing; it demands strategic tax governance. Regular compliance reviews, alignment with IFRS (where applicable), and guidance from qualified tax advisors ensure businesses not only avoid penalties but also optimise their overall tax position.