Businesses in the UAE must strictly follow the Federal Tax Authority (FTA) tax return guidelines to avoid complexities in tax filings. Inputting incorrect information can significantly increase the complexity of the process, leading to errors and potential penalties.
The FTA’s tax return guidelines resemble the concept of a bank’s Know Your Customer (KYC) form. Just as banks must understand their customers’ backgrounds and business dealings, the FTA requires a clear understanding of taxpayers’ complex business structures and applicable tax provisions. The corporate tax system in the UAE operates on a voluntary self-declaration basis, requiring taxpayers to exercise self-discipline and proper planning to ensure accurate filings and avoid penalties.
A New Era of Taxation in the UAE:
From the FTA to taxpayers and tax experts, the UAE is navigating an unprecedented period of change. Once known as a tax haven, the country now emphasizes proper tax compliance. This shift makes it an opportune time for businesses to seek professional tax assessments. However, tax consultants themselves must stay informed and updated to provide accurate guidance to taxpayers.
When VAT was introduced in 2018, it necessitated changes in invoicing, accounting software, business contracts, and price tagging. In contrast, corporate tax, depending on the specifics of the taxpayer’s situation, does not mandate such extensive adjustments, whether the entity is a single entity, SME, multinational corporation (MNC), or free zone entity.
Assessing Registration Inputs:
Taxpayers must thoroughly review their company portfolios, including local and foreign entities, free zone companies, and the nature of business dealings, to determine the applicable tax provisions for each taxable entity. After completing this assessment and preparing an organizational chart (for large groups with complex legal structures), they can proceed with tax registration.
Incorrect registration can lead to complications during return filing. If the registration details are inaccurate, the applicable fields may not appear, potentially causing delays or errors in filing, which may result in penalties.
The FTA’s tax return guidelines provide an exhaustive list of all schedules and sections, even those that may not apply to certain taxpayers. Taxpayers also need to address critical decisions such as excluding income from foreign permanent establishments, utilizing Small Business Relief, or applying transitional rules to adjust taxable income related to preceding periods. Additionally, elections regarding the cash basis or accrual basis of accounting must be made thoughtfully.
Key Considerations for SMEs and New Tax Concepts:
Many SMEs focus on adjusting expenses and deductions, assuming the tax filing process will be straightforward due to the absence of free zone operations or related party transactions. However, new tax concepts, such as payments to connected persons, require careful attention. Payments like fixed remuneration, salaries to relatives, luxury car allowances, and villa accommodations for board members and relatives must now comply with the arm’s length principle under transfer pricing guidelines. Taxpayers must align these payments with industry standards.
Loss Management and Foreign Establishments:
Taxpayers must plan for the extent of loss write-offs or carry-forwards and determine how losses can be offset against qualifying group entities. Additionally, they need to address the taxability of eligible or ineligible foreign permanent establishments during the registration stage. These areas require careful planning and strategic decisions to ensure compliance with corporate tax regulations.
In conclusion, the UAE’s corporate tax system demands meticulous planning, accurate self-declaration, and a clear understanding of the FTA’s guidelines. Businesses must stay informed, seek professional advice, and align their tax practices with the new regulatory landscape to ensure seamless compliance and avoid penalties.
