The Federal Tax Authority (FTA) introduced a penalty waiver that waives the corporate tax registration penalty. There is a hefty penalty (AED 10,000) for any entity that misses the specified corporate tax registration application deadline. However, the FTA penalty waiver can apply to entities that do not meet the corporate tax registration submission deadline (conditions apply). This mechanism or initiative intends to support the business sector, specifically taxpayers, in meeting their tax obligations smoothly.
What is the FTA Late Registration Penalty Waiver in the UAE?
Before going into further detail, let’s first understand corporate tax registration and the associated deadline. In the UAE, most businesses, including the free zone entities, must register for corporate tax. However, there is a specified deadline for registration. FTA Decision No. 3 of 2024 specifies the corporate tax registration timeline for various taxable persons. Read our blog on: Corporate tax registration deadlines for further details.
If a taxable person does not meet the stipulated registration timeline, a penalty of AED 10,000 applies. However, there is a way to avoid this hefty penalty at the moment. It is through the FTA late registration penalty waiver. The waiver applies to taxable persons who submit their tax return within seven months from the end of their first tax period. However, for corporate tax-exempt persons, they must submit the annual declaration within seven months from the end of their first financial year.
The difference is just two months. Normally, businesses need to file corporate tax returns within 9 months from the end of the relevant tax period. However, to qualify for the waiver, taxpayers must file their first tax return within 7 months of the end of their first tax period.
Who is Eligible for a Late Registration Penalty Waiver?
The penalty waiver aims to reduce the financial burden on businesses and allow them to continue their compliance journey. FTA describes the following entities, which are required to register for corporate tax, as the target group for the waiver.
Entities that have:
- Incurred an administrative penalty due to the late submission of the registration application.
- Not submitted the registration application.
It is worth noting that there is no separate application for the penalty waiver to apply. However, it is automatic. So what must businesses do to ensure it applies?
Well, the taxable person must
- Submit their corporate tax return within seven months from the end of their first tax period.
- Or in the case of exempt status, they must submit the annual declaration within seven months of their first financial year.
For example, a business has its first financial year-end as 31st December 2025. The normal filing date will be nine months from 31st December 2025, i.e., 30th September 2026. However, to benefit from the penalty waiver, the filing due date will be 31st July 2026 (seven months after the financial year-end). Let’s summarize our example below:
First financial year-end: 31st December, 2025.
Normal filing due date: 30th September 2026.
Filing due date to claim the penalty waiver: 31st July, 2026.
Visit FTA’s portal to have a penalty waiver eligibility check.
Examples of Situations Where Waiver Applies
The Federal Tax Authority provides a clear and understandable explanation of how and when it applies. Let’s understand some examples.
Instance 1:
The taxpayer submitted the late registration application and received the penalty, but did not pay. The taxpayer, however, submits the tax return within seven months from the end of their first financial year. The penalty waiver will apply, and thus, there will be an exemption from the penalty.
Instance 2:
The taxpayer submitted the late registration application, received the penalty, but did not pay. The taxpayer has not submitted the tax return yet for their first tax period. To benefit from the penalty waiver, the taxable person must submit the tax return within seven months from the end of their first tax period.
Instance 3:
The taxpayer submitted the registration application, received a late registration penalty, and paid it. However, the first tax return is still due. In case the taxable person submits the tax return within the seven months from their first financial year-end date, the authority will refund the amount to their tax account.
Instance 4:
The taxpayer did not submit the corporate tax registration application at all. In this case, they must first complete the registration and then submit the tax return within seven months of their first tax period. This, in turn, will result in a waiver in case of penalty.
Please note that entities with exempt status will submit the annual declaration.
What should Businesses do Before Filing for a Penalty Waiver?
The FTA late registration penalty waiver applies automatically if an entity follows the prerequisites mentioned in the above discussion. There is no need for an election or submission of any form. As a result, it simplifies the overall procedure and allows the taxpayers to smoothly fulfill their tax obligations.
Summary
There are very few instances where the UAE’s FTA reconsiders or waives a penalty. Well, it is possible in case of late corporate registration and waiver of penalties. However, there are certain conditions discussed in detail in our blog. The most important condition is to submit the corporate tax return within seven months from the end of the first financial year. However, exempt entities will need to submit the annual declaration within the same seven-month deadline. Ideally, firms must comply with tax laws at all times and avoid non-compliance. For this reason, they must onboard a local tax consultant.
Creative Zone Tax & Accounting (CZTA)
At CZTA, we provide professional services for business registration and corporate tax registration, accounting, and tax consultancy. Our curated tax team can analyze your specific circumstances and advise whether there is a chance of obtaining an FTA penalty waiver. For expert services, contact us today.
Frequently Asked Questions (FAQs)
The FTA late registration penalty waiver waives the administrative penalty for the late submission of corporate tax registration applications within the specified deadline. The waiver applies to taxable persons who submit their tax return within seven months from the end of their first tax period. However, for corporate tax-exempt persons, they must submit the annual declaration within seven months from the end of their first financial year.
There is no application; it applies automatically. The penalty waiver applies to all entities required to register for corporate tax who have either
Incurred an administrative penalty due to the late submission of the registration application.
Not yet submitted their registration application.
There is no specific documentation, election, or submission of a form for the FTA penalty waiver. It applies automatically if conditions are met.
There is a waiver of penalty if there is a late submission of the corporate tax registration. It applies automatically if the businesses submit their corporate tax return within seven months from the end of their first financial year-end.
There is clear and detailed guidance provided by the FTA. If followed properly, there are fewer chances of mistakes. For streamlined tax filing and other tax responsibilities, contact us.
