UAE Accounting Compliance

Corporate Tax: the numbers that decide everything else

The federal corporate tax regime charges 0 percent on taxable income up to 375,000 dirhams and 9 percent above it, for taxable persons that are not qualifying free zone persons. A separate regime applies to very large multinational groups under the global minimum tax rules, which is unlikely to affect an owner-managed client base.

Two points are worth being firm about with clients. First, registration is a separate obligation from filing, it is not triggered by having taxable income, and an administrative penalty applies for registering late. Second, the return and the payment are both due within nine months of the end of the tax period, so a client with a December year end is working to a September deadline, not a following-December one.

The tax period follows the financial year in the entity’s books, so a firm’s first job on any new corporate tax client is usually to establish what the financial year actually is, rather than assuming it matches the trade licence anniversary.

Small Business Relief, and when electing is wrong

Small Business Relief lets a resident person elect to be treated as having no taxable income where revenue does not exceed 3 million dirhams in the current tax period and in every previous tax period. The relief was introduced with an end date attached, applying to tax periods ending on or before 31 December 2026, so check whether it has been extended before building a multi-year plan on it.

The election is not automatically beneficial. Electing means no taxable income, and no taxable income means no tax loss to carry forward. A client with genuine early-stage losses may be better off outside the relief, carrying those losses forward against future profits. A client just under the revenue threshold with modest profits is usually better off inside it. This is a calculation, not a default.

It is also a revenue test rather than a profit test, and it looks at every previous tax period, so a single year above the threshold is not something the client grows back out of.

The free zone question, answered properly

The most common misunderstanding in the UAE market is that a free zone licence delivers 0 percent. It does not. A free zone entity is within the corporate tax regime like any other, and 0 percent applies only to the qualifying income of a qualifying free zone person, with everything else taxed at 9 percent. Meeting the conditions is an annual test, not a status conferred at incorporation.

The conditions have to hold together. If any of them fails, the entity ceases to be a qualifying free zone person for that tax period and, under the regime as drafted, for the following four tax periods, which turns a single year’s slip into a five year consequence. That asymmetry is why the de minimis working should be prepared during the year rather than at the return.

• Maintain adequate substance in a free zone: real people, real premises, real expenditure, with the core income-generating activities actually carried out there
• Derive qualifying income as defined in the regime, which turns on the activity and the counterparty rather than on the address
• Not have elected to be subject to the standard corporate tax rules
• Comply with the arm’s length principle and keep transfer pricing documentation
• Keep non-qualifying revenue within the de minimis limit, being the lower of 5 percent of total revenue or 5 million dirhams
• Prepare audited financial statements, which is an obligation in its own right and not merely evidence for the others

VAT: registration, returns and the two mistakes

VAT is charged at 5 percent. Registration is mandatory once taxable supplies and imports exceed 375,000 dirhams over the previous twelve months, or where they are expected to exceed it within the next thirty days. Voluntary registration is available from 187,500 dirhams, measured on taxable supplies or on taxable expenses, which is what makes it useful for a pre-revenue business recovering input tax.

Returns are filed for the tax period the authority assigns, monthly or quarterly, and are due within 28 days of the end of that period. The two errors that generate most of the reassessment work are treating exempt supplies as zero-rated, which changes the input tax recovery position entirely, and missing the reverse charge on services bought from outside the UAE, which is invisible on a bank statement and shows up on a review.

Tax invoice formalities matter more here than practitioners coming from other jurisdictions expect. An invoice missing a required particular is a real problem for the recipient’s recovery, not a formatting quibble, and it is worth checking a client’s invoice template once rather than correcting it transaction by transaction.

UBO registers, ESR and transfer pricing

Ultimate beneficial owner registers must be maintained by the entity and kept current with its licensing authority, with changes notified within the short window the rules set and administrative penalties for failing to do so. Because the notification window is short and the authorities differ in how they administer it, treat any ownership or management change as an immediate filing question rather than a year end one.

Economic Substance Regulations applied to relevant activities such as holding company, headquarters, distribution and service centre, and intellectual property business. They were abolished for financial years ending after 31 December 2022, so for most clients this is now a historical exercise: know which periods the client fell inside, keep the notifications and reports on file, and be ready for penalty reconsideration correspondence relating to those periods.

Transfer pricing applies more widely than firms expect, because the arm’s length principle covers connected persons as well as related parties, which brings owner remuneration and shareholder transactions into scope for ordinary owner-managed businesses. A disclosure form accompanies the return for taxable persons within its scope, while local file and master file obligations only bite above revenue thresholds set by ministerial decision, thresholds high enough that most owner-managed clients fall outside them. The documentation is not the hard part; identifying every connected person transaction in the first place is.

Records, audits and what the FTA asks for

The corporate tax law requires records and supporting documents to be kept for seven years following the end of the tax period, and the VAT legislation sets its own retention periods, longer again for records relating to real estate. Working to the longest applicable period across a client’s obligations is simpler than tracking several.

An FTA review starts with the return and works back to the underlying books, so the reconciliation between the trial balance and the figures filed is the single most useful working paper a firm can prepare at the time rather than afterwards. Contracts, invoices, import and export documentation, bank statements and the transfer pricing analysis are the supporting layer beneath it.