The introduction of corporate taxation in the UAE has reshaped the business landscape, bringing transparency and accountability to accounting processes. However, many businesses, especially start-ups and SMEs, are still struggling to navigate the compliance requirements.
As the tax framework evolves, these businesses face challenges in aligning with regulations, which could slowdown their growth and impact the bottom line. Experts suggest that targeted support and resources are crucial to help these entities adapt to the changing environment and ensure long-term sustainability.
“Many companies, especially smaller firms with limited resources, struggle with understanding and implementing new tax regulations and maintaining accurate records,” says Manali Chopra, Director – Audit, Accounts & Taxation, at AKW Consultants.
Main challenges for SMEs
Distinguishing taxable income from qualifying income, particularly in free zones, requires precise calculations and documentation, which poses a significant challenge for businesses, Chopra points out.
“Similarly, compliance with OECD-aligned transfer pricing rules adds complexity, while revising accounting policies and updating chart of accounts (COA) set-ups further strain company resources. Optimising tax through group structuring and managing transfer pricing documentation are also substantial challenges that require expertise to navigate effectively,” she explains.
Jaison Mandapathil, Manager – Compliance & Assurance, Hussain Al Shemsi Chartered Accountants, highlights the importance of staying up-to-date with tax laws and filing deadlines.
“Accurate record-keeping is critical, yet demanding, as it requires organised documentation of income, expenses, and transactions,” says Mandapathil, adding, “Hiring services of qualified personnel to handle tax compliance and avoid penalties also adds financial strain, especially for smaller businesses with limited resources,” he points out.
Both Chopra and Mandapathil suggest that businesses leverage technology and seek professional help to streamline accounting and comply with tax regulations.
“Start-ups should streamline financial practices by investing in relevant accounting software for organised record-keeping. Engaging tax consultants ensures structured finances and compliance with UAE tax regulations,” says Chopra.
It’s essential for entrepreneurs to implement strong financial practices from the start to ensure long-term success and stability, says Mandapathil. “Organise accounting, and track income and expenses meticulously. Entrepreneurs should focus on core activities and consider outsourcing tax and compliance tasks. Digital tools can further streamline record-keeping and ensure timely filings, supporting sustainable growth.”
Corporate tax strengthens the UAE’s business landscape
As companies navigate the tax landscape and ensure compliance with accounting regulations, experts agree that the UAE’s corporate tax framework is both competitive and in line with international standards. This creates a business-friendly environment that attracts investment and drives economic growth.
“The UAE remains globally competitive with a relatively low corporate tax rate of 9 per cent. Unlike many countries with higher tax burdens, the UAE offers favourable provisions such as tax-free thresholds, exemptions for qualifying free zone entities, and no personal income tax, making it an attractive base for businesses,” says Mandapathil.
“UAE’s simplified tax framework and commitment to transparency help balance economic growth while aligning with global tax standards for multinational compliance,” he adds.
Chopra agrees, highlighting that the UAE’s favourable tax regime, which promotes transparency and accountability, makes the country particularly attractive to foreign investors.
“Corporate tax supports the UAE’s strategy to remain an attractive business hub while aligning with global standards including the OECD’s Base Erosion and Profit Shifting (BEPS) framework. With exemptions for qualifying free zone entities and small business relief, the UAE maintains an edge in promoting entrepreneurship and foreign investment,” she says. ■
Set up efficient financial systems
For start-ups and new businesses in the UAE, streamlining financial practices and ensuring compliance with corporate tax rules begins with setting up efficient financial systems and using robust accounting software,” says Manan Chadha, Managing Director, TRC Pamco Middle East.
“It’s crucial to maintain organised records of all financial documents, especially related-party transactions, and adhere to reporting deadlines. Gaining a basic understanding of UAE tax laws, including VAT, corporate tax, and transfer pricing, is essential. Furthermore, if your business engages in transactions with related parties, entities must analyse the impact of transfer pricing with help from an expert to ensure appropriate compliance with the UAE transfer pricing guidelines.”
Experts warn that businesses could face penalties for non-compliance with tax laws, including fines and legal issues. These consequences can harm a company’s reputation and finances, making it crucial to follow regulations closely.
“Starting with the basic compliance requirement, there is a Dh10,000 penalty for not registering your business for corporate tax. Failure to maintain records can lead to a penalty of Dh10,000, which will be doubled to Dh20,000 in each case of repeated violation,” says Jaison Mandapathil, Manager – Compliance & Assurance, Hussain Al Shemsi Chartered Accountants. “Under the UAE Tax Procedures Law, tax crimes like deliberate tax reduction, evasion, or concealing required documents can lead to severe penalties. Violations may result in fines up to Dh1,000,000, three times the evaded tax amount, and even imprisonment, highlighting the importance of strict compliance.”
