Corporate Tax fines in UAE: Be Aware Of The Penalties

As a business owner in the UAE, you need to be aware of the penalties that come with tax violations. Understanding tax law and ensuring compliance can help your business avoid penalties and stay competitive. This blog will cover corporate tax fines and tax penalties, common types of tax violations, how to avoid tax fines, and the impact of tax penalties on businesses in the UAE.

Understanding Corporate Tax Fines in the UAE

Corporate tax fines in the UAE are a common occurrence. Businesses have to register for Corporate Tax (CT) and make the payments on time, as failure to do so will result in fines and penalties. The Federal Tax Authority sets the regulations for Corporate Tax, and businesses must stay compliant with them to avoid penalties.

Businesses are also required to keep records of their tax activities, such as accounting and filing, among others. Failure to comply with any of these rules can result in fines and penalties. To stay compliant with tax laws, businesses should be prepared for the implementation of Corporate Tax in the UAE.

Corporate Tax Penalties in the UAE

UAE federal Corporate Tax (effective for tax periods starting on or after 1 June 2023) applies broadly to taxable persons (with limited exceptions such as extraction of natural resources). Administrative penalties are set out in Cabinet Resolution No. 75 of 2023 — for example, failure to keep required records is penalised at AED 10,000 (AED 20,000 if repeated within 24 months); other penalties include monthly penalties and percentage-based penalties depending on the violation. Value Added Tax (VAT) is levied on a majority of goods and services. Federal Decree-Law No. 47 of 2022 (the Corporate Tax Law) contains Chapter Seventeen - “Tax Returns and Clarifications.” Article 53 of that Decree-Law requires a Taxable Person to file a tax return no later than nine months from the end of the relevant tax period (subject to Article 51 and any directions by the Authority).

The tax authority also ensures that tax liabilities are correctly calculated and paid by issuing notices or taking other legal action to ensure the timely payment of taxes. The Corporate Tax law contains rules on voluntary disclosure and the administrative penalties that can apply; Cabinet Resolution No. 75 of 2023 specifies how voluntary disclosures are treated (including fixed and percentage/monthly penalties in certain cases). Separately, the FTA has from time to time announced targeted penalty-waiver initiatives (for example, limited waivers for late corporate tax registration penalties), but there is no single unconditional blanket ‘amnesty’ in the legislation - relief is subject to the conditions published by the FTA or set out in the Cabinet resolutions.

Common Types of Corporate Tax Violations in the UAE

Under UAE federal tax law, corporate tax violations are categorized into four types: non-registration of a company, failure to pay Corporate Tax, non-payment of penalties, and tax evasion.

Failure to register and complete payments for Corporate Tax can lead to fines and penalties. Penalties for non-compliance with tax laws are outlined in the Cabinet resolution provided by the Federal Tax Authority. Oil companies and foreign banks are liable to pay Corporate Tax. Excise tax is applicable on certain goods that are harmful to human health or the environment. Value-added Added Tax is also levied on a majority of goods and services.

In summary, businesses operating in the UAE must adhere to federal tax laws and regulations to avoid penalties for corporate tax violations.

How to Avoid Corporate Tax Fines in the UAE?

Register for corporate tax in the UAE and complete payments promptly to avoid fines and penalties. Make sure you are aware of the fees and penalties for non-compliance with the Corporate Tax Law as set out by Cabinet Resolution No. 75 of 2023 (the table of administrative penalties for the Corporate Tax Law). These provide a comprehensive overview of the administrative penalties for violations of tax law as well as the various types of corporate tax violations and their respective penalties.

Understand the details of the imposed administrative penalties for violations of tax law. To stay compliant, businesses must familiarize themselves with UAE Corporate Tax law and regulations that must be followed to stay compliant with CT laws and regulations. Seek professional advice from an accountant or tax professional to ensure that corporate tax regulations are being met.

The Impact of Corporate Tax Penalties on Businesses in the UAE

Companies in the UAE are subject to corporate tax on their net income. Non-resident juridical persons with a Permanent Establishment in the UAE are also within the scope of Corporate Tax.

Companies found non-compliant with Corporate Tax regulations are liable to fines and penalties. Value-added Added Tax is also levied on goods and services in the UAE. It should be noted that companies must register for Corporate Tax and complete payments promptly to avoid fines and penalties.

Companies should also note that penalties for late payment of Corporate tax can shoot up to 15% of the tax due, so businesses must be tax-compliant as much as possible.

Conclusion

To avoid corporate tax fines in the UAE and to ensure your business is running smoothly, it is essential to understand the tax law of the country first. You can do this by approaching a tax consultant or a lawyer who can guide you through tax procedures and corporate tax penalties. Besides, understanding how corporate tax violations occur and how they can be avoided helps you ensure no corporate tax fines are imposed on your business. The above-mentioned details provide a brief overview of corporate tax penalties in the UAE and their impact on businesses operating in the country. To know more about Corporate Tax fines and penalties, please do not hesitate to contact Reyson Badger.