Corporate taxes play a vital role in boosting a country’s economy by providing revenue for investing in initiatives that develop infrastructure. The federal budget for UAE for the years 2022 to 2026 is set at AED 290 billion. Corporate taxes are an important source of revenue generation for funding such a hefty budget. The UAE’s corporate tax policy reflects its dedication to abide by the international standards of maintaining transparency in the taxation process. Thus, it’s important for businesses operating in the UAE to understand how the corporate tax law affects businesses and what can be the possible consequences of non-compliance with the tax regulations.
What is the duration of a corporate tax return?
The duration for corporate tax return filing in the United Arab Emirates (UAE) is once a year. Companies registered in the UAE are typically required to file their corporate tax returns annually. Companies need to register for corporation tax with the FTA for filing a tax return.
Penalties for Corporate Tax Violations
Cabinet Decision No. 75 of 2023 and Cabinet Decision No. 10 of 2024 govern corporate taxation in UAE. The cabinet decisions outline multiple penalties for corporate tax violations. The amount charged in penalty depends upon the nature of violation.
| S no. | Nature of Violation | Penalty in AED |
| 1. | Failure to provide tax documents and records in Arabic when requested by the authority is a corporate tax law violation liable to penalty. | AED 5,000 |
| 2. | Not maintaining proper tax records and information in accordance with the corporate tax law. | AED 10,000 is charged for a violation and the penalty is increased to AED 20,000 if a second violation also happens in the first 24 months. |
| 3. | Failure to submit the deregistration application by the deadline, in case of cessation of business operations is also a corporate tax violation that leads to penalty. | AED 1,000 is charged for late deregistration applications and the penalty increases every month by AED 1,000 up to a maximum penalty of AED 10,000. |
| 4. | Not informing the tax authority regarding an event that calls for an amendment in the tax records. | AED 1,000 is charged for failure in timely notify the authority and repeated violations during the subsequent 24 months will lead to a charge of AED 5,000. |
| 5. | The company’s legal representative fails to notify the authority regarding his/her appointment by the applicable deadline. | Legal representative is charged AED 1,000 from his/her personal funds. |
| 6. | Filing an incorrect tax return is also a corporate tax law violation liable to penalty. However, making corrections in the tax return before the due date saves one from penalty. | AED 500, if tax return not corrected before the due date. |
| 7. | Failure to pay the taxes within the applicable timeframe is also a corporate tax law violation that results in a penalty. The penalty is calculated monthly and is applicable from the day after the due date. The due date for the payment of unpaid taxes is typically 20 business days. | 14% per annum is charged on the amount of unpaid tax on a monthly basis. |
| 8. | Filing an incorrect tax return is also a corporate tax law violation liable to penalty. However, making corrections in the tax return before the due date saves one from penalty. | AED 500, if tax return not corrected before the due date. |
| 9. | The correction in tax return, application or tax assessment is made by submitting a voluntary disclosure after the due date. | 1% penalty is charged monthly on the tax difference (the amount of error) starting from the day after the due date of tax return submission till the day of voluntary disclosure. |
| 10. | Failure to disclose known errors in tax return, when one is aware about the ongoing audit. | 1% monthly fine on the amount of tax difference applicable form a relevant date (such as the filing date of your return) and an additional 15% penalty is charged on the tax difference. |
| 11. | Failure to comply with the tax auditor during an audit is also a corporate tax violation that ultimately leads to penalty. | AED 20,000 to be paid by the legal representative of the company. |
| 12. | Not submitting the required tax declaration to the tax authority in accordance with the corporate tax law. | AED 500 is charged per month for 12 months, if the declaration is not submitted by the due date. From the 13th month, the fine is increased to AED 1,000 per month. |
| 13. | Failure to submit the corporate tax registration application by the due date. It is mandatory for a business operating in the UAE to register with the tax authority so that it can be recognized as a corporate taxpayer. | AED 10,000 |
In a nutshell, understanding and complying with the corporate tax laws is a must for businesses operating in the UAE. This article has clearly elaborated on the range of corporate tax violations that lead to penalties under the corporate tax law. The amount charged in penalty depends upon the nature of the corporate tax violation. These strict tax regulations show UAE’s commitment to maintaining tax transparency in accordance with global standards. To effectively ensure compliance with the corporate tax law, it is advisable for businesses to seek the expertise of the Tax Consultants in UAE.
Read more: How to Register for Corporate tax in UAE?
Choose the Best Corporate Tax Advisors in the UAE
To effectively ensure compliance with the corporate tax law, it is advisable for Taxable Persons to seek the expert services of Tax Consultants in UAE. Companies should keep track of their financial year-end and ensure to meet tax return deadlines. Seeking our corporate tax advisory services and maintaining accurate financial records will help businesses avoid penalties and maintain a positive standing with the tax authorities. By adhering to tax regulations and fulfilling their tax obligations promptly, corporations can ensure a conducive business environment and foster trust among stakeholders. Thus, contact us today and we shall be glad to assist you.
Frequently Asked Questions
What are some common corporate tax law violations that are liable to penalties in the UAE?
Negligence in maintaining proper tax records, failure to submit the corporate tax registration application by the due date, filing an incorrect tax return, not submitting the required tax declaration to the tax authority and failure to pay the taxes within the applicable timeframe, are all corporate tax law violations that lead to penalty in UAE.
How are corporate tax penalties determined in the UAE?
Penalties are determined by the nature and extent of the violation, including whether the violation was intentional or committed out of negligence. Repeated violations can lead to more severe penalties, including higher fines.
How can businesses avoid corporation tax penalties and fines?
Businesses that are subject to corporate tax law are advised to develop a thorough understanding regarding the requirements of corporate tax law. They should strive to maintain accurate tax records and should submit their tax returns in a timely manner. Moreover, they should stay informed about any recent updates in the corporate tax law to ensure accurate compliance.
What should a company do if they discover a mistake in their corporate tax filings?
If a company discovers that it has filed an incorrect tax return, the company should promptly report the mistake to UAE tax authorities to potentially minimize penalties. Making corrections in the tax return before the due date saves one from penalty.
