Companies operating in the UAE must file their Corporate Tax returns accurately and on time. Accurate and timely filing is essential to avoid penalties from the Federal Tax Authority (FTA). Some organizations have been fined for minor errors, misclassification, incorrect income recording, audit non-compliance, or lack of documentation. In this article, we have discussed the most common mistakes that businesses make when filing corporate tax. We have also outlined strategies to reduce risk and prevent these mistakes.
Corporate Tax in the UAE
The UAE introduced Federal Corporate Tax effective for financial years starting on or after 1 June 2023. The standard Corporate Tax rate is 9% on taxable income exceeding AED 375,000. Businesses with taxable income up to AED 375,000 qualify for a 0% rate, and eligible small businesses may elect Small Business Relief (available until tax periods ending 31 December 2026) to further reduce liability. Corporate Tax applies to mainland companies, most Free Zone companies (except Qualifying Free Zone Persons on Qualifying Income at 0%), and certain foreign branches or permanent establishments.
Common mistakes in corporate tax filing
When filing corporate tax returns, Emirati businesses may face challenges. Below are some serious mistakes and ways to avoid them.
Failure to submit or submit returns late
If returns are submitted late or not submitted at all, it will result in penalties or an increased likelihood of an audit. To avoid this, you can set up automatic reminders or consult a tax advisor who will regularly review your income streams and ensure that your accounting entries are clear.
Failure to maintain adequate records
Retain all relevant financial records and supporting documents for at least seven (7) years following the end of the relevant Tax Period, as required by the FTA.
Challenges related to the EmaraTax portal
When filing a corporate tax return in the UAE, you may encounter technical issues such as failed uploads, uploading unsupported files, incorrect file sizes, etc. These challenges may cause you to submit the return late. To solve this problem, you should prepare the necessary documents as per the requirements set out in EmaraTax to avoid errors.
Misclassification of income
Many companies misclassify taxable and non-taxable income, which leads to incorrect tax calculation. To solve this problem, you should review your income streams with a professional so that your accounting records are accurate and transparent, or you can use Hamyar Union’s software.
Misconceptions about deductible expenses
You should make sure that deductible expenses are recorded correctly in the audit because recording them incorrectly increases the audit risk. To deal with this problem, you should know the UAE tax laws well and document the expenses completely.
Errors in calculating taxable income (leading to incorrect tax liability)
You must record the correct tax rate in your accounting system. If the rate is entered incorrectly, it can lead to overpayment or underpayment of taxes, creating financial and compliance issues. To prevent these problems, use Hamyar Union’s smart and automated accounting software, which keeps your tax rates accurate and up to date.
Lack of awareness of transfer pricing rules
In transactions between affiliated companies, a lack of awareness and failure to comply with these rules leads to fines. To solve this problem, transfer pricing documentation must be prepared correctly.
Incorrect or unsupported tax claims or exemptions
Claiming tax exemptions or deductions without supporting documentation can cause your return to be considered incorrect. To resolve this issue, you need to make sure that all deductions or exemptions are documented. Check all deductions to avoid being denied or penalized.
Failure to reconcile accounts
If accounts are not reconciled correctly, it can lead to audits and future problems. To resolve this issue, you can reconcile your accounts monthly and resolve discrepancies before final filing.
What happens if you make a mistake on your corporate tax return?
Making a mistake on your tax return can have irreparable consequences for your company, both financially and in terms of your reputation. The Federal Tax Authority (FTA) may impose penalties, such as AED 500 per month (or part thereof) for late filing in the first 12 months (increasing to AED 1,000 thereafter), or AED 500 for an incorrect return (waivable if corrected before deadline or via voluntary disclosure). Late payment attracts a flat 14% annual interest rate.
Repeated errors can also result in an extensive audit. You may have to pay late interest or face increased scrutiny of your tax system in the future. In addition, your credibility will be lost in the eyes of your business partners, and investors and security agencies will be less trusting of your company.
Correcting a Corporate Tax Return in the UAE
- Understand the Cause of the Error: Log in to the EmaraTax portal and view the issue reported by the FTA and identify the reason for the error.
- Correct the Error: Correct the errors in the TRN, tax records, and ownership details.
- Use Smart Software: For accurate calculation of invoices, reporting, and reminders, etc., you can use Hamyar Union’s smart multi-user software.
- File a corrected return or Voluntary Disclosure promptly via the EmaraTax portal to minimize or avoid penalties.
- Avoid repeating errors: Conduct periodic audits to ensure that tax filings are error-free.
Misconceptions about corporate taxation in the UAE
- The UAE has no corporate tax: The UAE has implemented a federal corporate tax from June 2023.
- Free Zone companies are tax-exempt: Incorrect. Only Qualifying Free Zone Persons enjoy a 0% tax rate on Qualifying Income; non-qualifying income is taxed at 9%.
- Small businesses are not taxed: Incorrect. All companies must register for Corporate Tax and file returns (even if the tax is zero). Eligible small businesses (revenue ≤ AED 3 million) may elect Small Business Relief to treat taxable income as zero, but this relief is available only for tax periods ending on or before 31 December 2026.
The best way to accurately file taxes is to maintain and archive documents digitally. Accounts should be reconciled monthly, and deductible expenses identified. Use reliable, FTA-compliant accounting software to automate calculations, reminders, and reporting.
How does Hamyar Union accounting software work?
Hamyar Union is a comprehensive accounting and tax software that simplifies the tax filing process and minimizes errors:
- Automatic financial record keeping
- Accurate tax calculation
- Deadline reminders
- Audit-ready reports
- Expert support
