Businesses in the UAE should take immediate notice of the administrative penalties under the corporate tax regime.
For self-assessment tax regimes across the world, penalties work as a deterrent to non-compliance and tax evasion. With technological advances, tax authorities are getting better equipped to detect non-compliance.
Additionally, the UAE tax procedures have also been updated on certain critical aspects. Some of the updates should have a positive impact on the tax fraternity.
- Corporate tax fines: UAE Ministry of Finance introduces New Tax Procedures Law and penalties
- UAE free zone-based manufacturing gets 0% corporate tax, but keep an eye on these details
- UAE Corporate Tax: Businesses have 9-month window to get filings right and stay clear of penalties
- UAE startups need more than a mindset change on corporate tax
Corporate tax registration
The business owners and respective finance teams are primarily concerned about corporate tax registration. They do not want to incur penalties for being late with the registration. The Ministry of Finance (MoF) has clarified in its Frequently Asked Questions (FAQs) that taxpayers are required to register before they file their first corporate tax return.
To illustrate, for a company following the financial year of January to December, the first corporate tax return for 2024 will be due by September 30, 2025. The company can register any time before that. No specific penalty seems to have been prescribed for the delay in obtaining corporate tax registration.
Certain taxpayers - qualifying public benefit entities or qualifying investment funds - would be required to obtain the registration within the prescribed time to avail of the corporate tax exemptions. (AskPankaj and Gulf News are introducing a smart package for corporate tax registration and advisory.)
Every person is required to keep the required records and specified information such as accounting records, invoices, etc., for a prescribed period. The companies must also retain all documents that support entries in the accounting records and commercial books of the business.
Failure to maintain such records could result in a penalty of Dh10,000 the first time. An additional penalty of Dh20,000 will be imposed in each case of repeated violation within 24 months.
Failure to present such records or other documents in Arabic language - whenever requested by the Federal Tax Authority (FTA) - would result in a penalty of Dh5,000. Failure to inform the FTA of any case that may require the amendment of the information pertaining to the taxpayer’s tax records could also result in progressive penalties.
Penalties for voluntary disclosures
The corporate tax return and corresponding tax payment are not due until 9 months from the end of the financial year. Businesses should take note of the penalties for delayed tax payments and voluntary disclosures to correct any errors.
For delay in settling the tax due as per the corporate tax return, a penalty of 14 per cent per annum would be payable on a monthly basis. Where an error is corrected through a voluntary disclosure (VD) or tax assessment, a monthly penalty of 1 per cent of the ‘tax difference’ will be calculated from the original due date until the date of voluntary disclosure or tax assessment.
An additional fixed penalty of 15 per cent of the ‘tax difference’ would be imposed if the voluntary disclosure is not submitted before being notified for a tax audit.
The voluntary disclosure regime under the corporate tax is different from that under VAT. The scheme could have a significant financial impact should a free zone taxpayer is found ineligible for 0 per cent preferential rate, or a transfer pricing adjustment is made for any taxpayer, at a future point in time.
Penalties – either fixed or progressive - have been prescribed for various other violations. Such violations include failure to submit a tax return within the prescribed time, failure to inform the Federal Tax Authority about the appointment of a legal representative, submitting an incorrect tax return, obstructing or non-cooperation during a tax audit, and failure to submit necessary declarations by the exempt persons or by partners of an unincorporated partnership.
Update in tax procedures
For all three tax regimes - VAT, excise tax, and corporate tax - the FTA can notify a person through means including text messages on mobile phones, notifications through smart applications, and notifications through the FTA’s electronic systems.
For becoming tax agents, it is no longer required for the tax agent to be able to communicate in both Arabic and English. Fluency in either of the language is acceptable. This is a welcome move as it will enable global talents to explore UAE as a preferred destination to work. It will also result in a natural enhancement of the tax discussions in the region.
Clarity brought through the updated tax procedures - and a specific penalty framework - would be highly useful for the business community. It will help large businesses as well as small ones to plan for the tax regime with certainty and confidence.
With the growing importance of taxation in the country, business owners would need to ask the right questions to comprehensively understand its actual implications.