Corporate Tax Registration is mandatory for businesses operating in the UAE. Failure to comply within the designated timeframe will result in a hefty penalty of AED 10,000. However, registration is merely the first step in a broader compliance journey. Following registration with the Federal Tax Authority (FTA), businesses must fulfill a series of ongoing obligations, the most prominent of which is tax filing.
In this blog, we will delve into the intricate post-registration requirements that businesses must navigate. From maintaining accurate records to optimizing tax incentives, we will provide comprehensive insights into the critical responsibilities every business must uphold after registering with the FTA.
Corporate Tax Return – The heart of the Corporate Tax
Post Corporate Tax Registration, the ultimate Corporate Tax compliance is the Return filing.
A tax return typically consists of a comprehensive form that outlines income, expenses, and other pertinent taxation details. The primary outcome of this process is the determination of the final tax liability owed to the UAE government. In addition to the main form, the submission often includes various attachments, schedules, and any necessary elections.
It is important to note that the tax authority reserves the right to request additional documentation and relevant information from the taxable entity to ensure compliance with regulatory requirements.
The Process
Tax Filing typically includes the following steps:
- Gathering Financial Information
This step involves collecting comprehensive financial data, including the income statement, balance sheet, and cash flow statement. Additionally, supporting documents such as invoices, receipts, and other evidence of income and expenses must be compiled. - Calculation of Taxable Income
This is your income as per the tax laws; therefore, accounts for all the allowable deductions, incentives, and exemptions. - Preparing the Tax Return
With all necessary information in hand, the next step is to prepare the tax return form as required by the FTA. This includes providing detailed information on income, deductions, credits, and any tax payments made during the reporting period. - Submission and Payment
The final step is to review the completed tax return, submit it via the FTA’s electronic portal, and pay the associated tax liability. This submission must occur within nine months from the end of the relevant tax period, in accordance with tax regulations.
Other Ongoing Obligations
Beyond tax filing, businesses in the UAE must adhere to a range of ongoing obligations to remain compliant with tax laws. Below, we outline these obligations in detail:
1. Record-Keeping
One of the primary ongoing responsibilities for an entity or taxable person is detailed record-keeping. These documents are essential for preparing tax returns and may also be required later, such as during an audit. According to Article 56 of the tax law, a taxpayer must retain all relevant documents and records for seven years from the end of the tax period to which they relate. These records should:
- Support the information in the tax return and any other submissions made to the tax authority.
- Enable the tax authority to determine the taxable income readily.
2. Tax Compliance and Reporting
A critical aspect of tax compliance is the timely reporting to the tax authority. For example, tax returns must be filed within nine months from the end of the relevant tax year. Additionally, businesses must file returns for other applicable taxes, such as VAT. It is important to note that VAT and Corporate Tax are distinct, with different filing requirements and deadlines. Furthermore, specific documentation is required for transactions involving related parties, which is covered in the next section.
3. Informing Authorities about Amendments
In the event of document renewal or changes to the company’s legal documents and information, the updated documents and information must be uploaded to the tax portal through a Taxable Person/Corporate Tax Amendment application within 20 business days of the document’s expiry or change. Failure to submit these amendments on time will result in penalties from the FTA.
4. Transfer Pricing Documentation
The tax authority may require a taxable person to disclose details of transactions with related parties as part of their tax return. This disclosure includes information regarding transactions with related parties and connected persons, in a format prescribed by the authority.
If transactions with related parties during a tax period meet the conditions set by the Ministry, the taxable person must maintain both a master file and a local file in the prescribed format. Unless otherwise directed, this documentation must be submitted to the authority within 30 days of a request. Additionally, the taxable person must provide evidence supporting the arm’s length nature of these transactions upon request, also within 30 days or as otherwise directed by the authority.
5. Tax Optimization
Effective tax optimization is a key component of managing tax liability. The UAE tax law provides various incentives and reliefs that businesses can leverage. To maximize the benefits of these incentives, taxable persons must explore available tax reliefs thoroughly. Identifying allowable deductions, credits, and exemptions is essential to minimizing tax liability. In some cases, a business may consider restructuring to achieve better tax optimization; however, it is vital to distinguish between legitimate tax planning and illegal tax evasion.
The Way Forward
You must be proactive and take well-thought-of actions to maintain compliance and optimize the tax strategy. Some of these actions include:
1. Engagement with Tax Authorities
Regular correspondence with tax authorities may be necessary, particularly in relation to audits or dispute resolution processes.
2. Ongoing Training for Employees
Keeping your core employees up to date about the latest tax laws and regulations.
3. Engagement of a Tax Advisor
Engaging a tax advisor can be invaluable for navigating complex tax issues and assisting with strategic tax planning.
4. Regular Review of Tax Strategies
Periodically reviewing tax strategies and compliance status is crucial to adapt to any regulatory changes and ensure ongoing compliance.
5. Conducting Audits
Performing both internal and external audits to verify the accuracy and fairness of financial information is a key aspect of maintaining compliance.
6. Utilization of Compliant Accounting Software
Implementing accounting software that adheres to UAE tax regulations can significantly streamline tax-related processes.
7. Implementation of Automated Systems
Automating systems for invoicing, expense tracking, and financial reporting can enhance efficiency and accuracy in tax management.
Conclusion
This blog provides an in-depth exploration of the obligations that follow corporate tax registration. You can streamline the tax filing process by staying informed about your responsibilities, leveraging advanced technology, and seeking professional advice. Proactively managing your tax strategy helps you avoid penalties and positions your business for sustained growth and long-term success.
Why Creative Zone Tax & Accounting?
Given the complexities of tax matters, businesses often seek professional guidance. Engaging a tax consultant can help ensure compliance with tax laws, minimize the risk of penalties, and allow the business to focus on its core operations. Professional advice can be invaluable in navigating the intricacies of tax obligations and optimizing tax strategies.
At CZTA, we understand that managing corporate taxes can be daunting. Our experienced professionals provide comprehensive tax solutions tailored to your business needs. Contact us today to learn how we can add value to your financial journey. Click here to contact us.
