Common Mistakes in UAE Corporate Tax Returns

Written By Akshaya Ashok, Reviewed By Reyees K P

Published on 06/12/2024

The United Arab Emirates (UAE) Corporate Tax Law, which took force on June 1, 2023, represents a paradigm shift in the overall tax landscape of the country. As businesses in the UAE get accustomed to this new regulatory framework, getting their corporate tax returns correct and on time can help businesses avoid financial penalties and fines, as well as reputational damages. We will navigate some of the most frequent mistakes in UAE corporate tax returns and suggest some ways to avoid them, hence keeping businesses compliant and riskless under the new corporate tax regime.

Common Mistakes in UAE Corporate Tax Returns

The filing process of corporate tax returns in the UAE can be a bit tricky, and businesses often make common mistakes that may lead to penalties and compliance issues. These are a few of the most common mistakes:

Inaccurate or Incomplete Financial Statements

The most serious error is that the financial statements submitted by a taxpayer are often misleading or incomplete. This happens due to bad bookkeeping practices, where the actual taxable income gets miscalculated. The inaccurate documents may lead either to excess payment or less payment of taxes, which can initiate audits or penalties.

Failure to Claim Eligible Deductions and Exemptions

Incorporated businesses often fail to claim permitted deductions and exemptions under UAE corporate tax law. As a result, organizations might be paying more tax than they would have had they brought all these benefits to light. This includes not taking the benefits of small business relief or certain sector-specific relief.

Inaccurate Classification of Income and Expenditure

The common mistake about the classification of income and expenses. The businesses are likely to misclassify personal expenses as business-related or fail to distinguish the different types of income, which leads to an incorrect taxable income.

Lack of conformity with the transfer pricing regulations

Companies involved with related parties will be required to conform to the requirements of transfer pricing. Failure to document the transactions correctly can lead to the tax authority making adjustments that attract penalties.

Lack of Proper Documentation and Record-Keeping

Poor record-keeping and lack of proper documentation can severely hinder a business's ability to substantiate its claims for tax returns. All financial transactions including invoicing, receipts, and contracts require proper records.

Failure to Register for Corporate Tax or Obtain a Tax Registration Number (TRN)

Lastly, it is important that companies and institutions are registered for corporate tax and obtain a Tax Registration Number (TRN). Failure to do so would attract serious penalties since it forms a contravention of tax laws to operate without being registered.

Many of these common mistakes are what businesses can use to take effective action to ensure error-free filing and compliance with corporate tax regulations in the UAE.

Consequence for Mistakes in UAE Corporate Tax Returns

It has dire consequences in cases of corporate tax returns, as mistakes in such can cause severe problems to businesses operating within the UAE. The level of penalties and fines for non-compliance could start at fixed amounts for late submissions to percentages based on unpaid taxes. Interest might also be charged on unpaid taxes, leading to further financial liability for businesses.

It may also tarnish the reputation and relationships of a company with its clients and partners, especially when viewed as untrustworthy because of the failure to comply. An additional risk for taxpayers may involve increased chances of audit and investigation by the FTA. It is therefore important for businesses to correctly keep their records, be updated on tax obligations, and avail themselves of professional advice whenever necessary.

How to Avoid Common Mistakes in UAE Corporate Tax Returns

• Qualified tax professional or consultant: Hire a qualified tax professional or consultant who is conversant with the UAE corporate tax laws and regulations to ensure your accurate and compliant tax return
• Accurate and complete financial statements: Maintain clear and accurate financial records that incorporate balance sheets, and income statements, amongst other essential supporting documents.
• Conduct regular tax audits and reviews: Carry out regular reviews and audits of your tax returns to detect and correct errors or discrepancies.
• Maintain adequate records and bookkeeping: Maintain detailed records of all tax-related documents including invoices, receipts, and records of payments.
• Monitor UAE corporate tax laws and regulations: Understand changes to UAE corporate tax laws and regulations and stay in line.
• Corporates tax registration and obtain TRN: Ensure compliance with UAE corporate tax by registering for corporate tax and obtaining a TRN.

Best Practices for UAE Corporate Tax Compliance

• Implement a framework for tax compliance: Develop policies, procedures, and controls to ensure compliance with tax.
• Establish Tax Governance Structure: Define the tax governance structure including roles and responsibilities to ensure tax compliance.
• Provide periodic tax training and education: Ensure workers understand UAE corporate tax laws and regulations by providing them with periodic tax training and education.
• Carry out tax risk assessments and mitigation strategies: Perform regular tax risk assessments, and develop mitigation strategies that can help minimize tax risks.

Conclusion 

All businesses should ensure their UAE corporate tax returns are accurate and filed on time to avoid penalties, fines, and reputational damage. We firmly believe that compliance is the only way to avoid costly mistakes while ensuring business continuity. Avoiding common mistakes, such as inaccurate financial statements and adequate documentation, is paramount for ensuring compliance. If you are still unsure about your obligations in terms of UAE corporate tax, you are encouraged to call for the services of a tax professional or seek consulting services from a highly reputable firm of tax advisory. Reyson Badger, a trusted tax advisory firm, can provide expert guidance and support to ensure your business meets all UAE corporate tax requirements and maintains optimal compliance.

Written By

Akshaya Ashok

Akshaya Ashok is a content writer specializing in creating content focused on accounting and auditing. With over two years of experience, she has developed expertise in crafting professional content for the financial sector.