As the year draws to a close, businesses in the UAE with a tax period from 1 January 2024 to 31 December 2024 are racing against the clock. The 31 December 2024 deadline to submit the application for forming a UAE Tax Group is fast approaching, and it’s one that could significantly impact your company’s tax strategy.

Forming a Tax Group under the UAE Corporate Tax Law can offer a range of benefits, from simplified filings to potential cost savings. However, if you miss the deadline, your business may face the consequences of being taxed individually, which could lead to higher liabilities and greater administrative work.

What is the UAE Tax Group under the Corporate Tax Law?

A Tax Group allows multiple entities, such as a parent company and its subsidiaries, to consolidate their tax filings and be treated as a single taxable entity for the purposes of UAE Corporate Tax. By forming the UAE Tax Group, businesses can optimize their tax obligations, streamline compliance, and reduce administrative burdens. However, there are specific requirements and deadlines that must be met for businesses to qualify for this option.

Key Conditions for Forming the UAE Tax Group Under Corporate Tax Law

To qualify for forming a Tax Group under the UAE Corporate Tax Law, businesses must meet several specific conditions. These criteria ensure that only eligible entities can benefit from the consolidation of tax filings and other advantages of being part of a UAE Tax Group.

Residency Requirement:
Only resident entities in the UAE are allowed to form or join a Tax Group.

Eligible Entities:
The entities wishing to form a UAE Tax Group must be juridical resident persons (i.e., registered companies). Natural persons and unincorporated partnerships (even if applied to be treated as a separate taxable person) are not eligible.

Parent-Subsidiary Relationship:
A Tax Group can only consist of a parent company and its subsidiaries, and certain criteria must be met:

• The parent company must hold at least 95% of the subsidiary’s shares and voting rights.
• The parent must be entitled to at least 95% of the subsidiary’s profits and net assets.

Exemption Status:
Neither the parent company nor any subsidiary in the proposed Tax Group can be exempt from Corporate Tax, nor can they be a Qualifying Free Zone Person (a company benefiting from specific tax exemptions in certain zones).

Financial Year Consistency:
To form a Tax Group, all entities—parent and subsidiaries—must share the same financial year and adhere to consistent accounting standards across the group.

Getting Ready to Form the UAE Tax Group? Start with Corporate Tax Registration

Before you can submit the application to form a Tax Group, it is essential that each member entity—both the parent company and all subsidiaries—obtain individual Corporate Tax Registration. This registration is a mandatory prerequisite for all entities seeking to be part of the UAE Tax Group under the Corporate Tax Law.

The process involves registering each entity with the Federal Tax Authority (FTA), which ensures that they are recognized for tax purposes. Only after each entity has successfully completed this registration can the application to form the Tax Group be submitted to the FTA for approval. This step is crucial as without it, the application will not be processed, and the opportunity to form a Tax Group for the tax period may be lost.

Advantages of Forming a Tax Group

Simplified Compliance: By consolidating tax filings into a single return, businesses can simplify the compliance process, saving time and resources.

Cost Savings: Streamlined filing could lead to cost savings, as for companies there are no fees for filing CT returns on the portal or for external consultants to manage CT matters.

Improved Cash Flow: A Tax Group allows entities to offset tax losses from one member against taxable profits from another, which can optimize cash flow and potentially reduce the overall tax burden.

No Transfer Pricing for General Transactions Within the Group: Transactions between group members are eliminated when calculating taxable income, which reduces the need for complex transfer pricing documentation and administrative oversight.

At MS, we specialize in providing tailored tax advisory services to businesses in the UAE. Our experienced team can guide you through every step of the process, from Corporate Tax registration to UAE Tax Group formation, ensuring full compliance and optimizing your tax strategy. With our deep knowledge of UAE tax laws and our commitment to delivering exceptional service, we’re here to help you with this important transition with ease.

If your business was established on or after June 1, 2023, and your tax period ends on or before February 29, 2024, the final deadline for Corporate Tax filing deadline is December 31, 2024. This is your critical moment to ensure compliance with the UAE’s Corporate Tax requirements.

To support your filing process, the Federal Tax Authority (FTA) has published a comprehensive Corporate Tax Return Filing Guide, which is designed to help businesses understand the filing process, regulatory changes, and avoid common mistakes.

How to Prepare for Your Corporate Tax Filing Deadline:

Organize Your Financial Documents

The first step to ensure meeting the corporate tax filing deadline is gathering all the required documents. This includes your financial statements, income statements, invoices, receipts, and any records supporting your deductions or credits. Organizing these early on will save you time and effort as you approach the filing deadline. By having all your financial data organized in one place, you minimize the chances of overlooking important details, leading to a more accurate tax return.

Stay Updated on Tax Regulations

Corporate tax laws can change, and it’s important to stay informed about the latest rules and regulations to avoid potential penalties. The FTA regularly issues updates on tax laws that may affect your corporate tax filing deadline. The Corporate Tax Return Filing Guide is an excellent resource to keep track of any modifications to tax laws. Understanding these regulations will help you avoid mistakes and also provide opportunities to optimize your tax position.

Double-Check for Accuracy

 Accuracy is crucial when it comes to Corporate Tax filing. Ensure that your financial data is correctly recorded, and your tax calculations are accurate. Take extra time to verify all the details before submitting your tax return. Errors or omissions can lead to delays, penalties, or even audits. If you’re unsure about specific calculations or deductions, it’s a good idea to consult with a tax professional to meet the corporate tax filing deadline. They can help review your return and ensure that everything is in compliance with current regulations, helping you avoid costly mistakes.

What Happens If You Miss the Corporate Tax Filing Deadline?

The deadline to file your Corporate Tax Return for applicable entities and make any outstanding payments is December 31, 2024. If you miss this date, your business could face significant penalties:

Non-Filing Penalty: If you fail to file your return on time, you will be penalized AED 500 per month for the first 12 months. After that, the penalty increases to AED 1,000 per month. Over time, these penalties can add up and become a substantial financial burden for your business.

Late Payment Penalty: If you do not pay your tax by the corporate tax filing deadline, a 14% annual penalty will be charged on the outstanding amount, compounded monthly. This can result in a significant increase in your tax liability as the penalty compounds over time.

How MS Can Help You Meet Your Corporate Tax Filing Requirements

At MS, we offer expert assistance throughout the Corporate Tax filing process. Our experienced team will help you gather, organize, and review your financial documents, ensuring everything is in order for a smooth filing. We will also calculate your tax liabilities, ensuring full compliance with the latest UAE tax laws. If there are any changes in tax regulations, we’ll ensure you’re informed and equipped to optimize your tax return.

Additionally, we provide proactive reminders as the corporate tax filing deadline approaches, so you never miss a critical step. With MS by your side, you can confidently meet the December 31, 2024, deadline and avoid costly penalties.

If your business was incorporated on or after 1st June 2023 and has a tax period ending on or before 29th February 2024, the clock is ticking! With the first corporate tax return filing deadline set for 31st December 2024, now is the time to ensure your tax filings are accurate and error-free.

Read on to discover the common mistakes in corporate tax filing to avoid as you prepare for this crucial deadline!

1. Inaccurate or Incomplete Financial Statements

One of the most significant mistakes businesses make is submitting inaccurate or incomplete financial statements. This often happens due to poor bookkeeping practices, which can result in miscalculations of taxable income. Incorrect financial statements can lead to either overpayment or underpayment of taxes, potentially triggering audits or penalties.

How to Avoid It:

• Maintain Detailed Records: Keep comprehensive records of all financial transactions, including invoices, receipts, and bank statements.
• Categorize Transactions Accurately: Ensure personal expenses are not mixed with business expenses.
• Retention Period: Retain records for the legally required period (usually five years) to ensure they are available in the event of an audit.

2. Failure to Claim Eligible Deductions and Exemptions

Many businesses fail to claim all the deductions and exemptions available under UAE corporate tax law, which can lead to overpayment of taxes. Companies may overlook tax benefits such as small business relief or sector-specific reliefs, losing out on potential savings.

How to Avoid It:

• Stay Informed About Deductions: Regularly review available deductions, including sector-specific reliefs and small business exemptions.
• Consult a Tax Advisor: Work with a tax professional to ensure all applicable benefits are claimed.

3. Improper Classification of Income and Expenses

Another frequent error is the improper classification of income and expenses. Businesses sometimes misclassify personal expenses as business-related or fail to properly distinguish between different types of income. This can lead to an incorrect calculation of taxable income, resulting in errors in tax filings.

How to Avoid It:

• Accurate Classification: Ensure that all income and expenses are classified correctly in your financial records.
• Review Regularly: Periodically review income and expenses to ensure they are categorized properly.

4. Lack of Conformity with Transfer Pricing Regulations

For companies involved with related parties (e.g., subsidiaries, directors, or shareholders), failure to comply with transfer pricing regulations can result in tax adjustments and penalties. Incorrect documentation of intercompany transactions can trigger audits.

How to Avoid It:

• Adhere to the Arm’s Length Principle: Ensure that transactions between related parties are priced similarly to transactions with unrelated third parties.
• Document Transactions Thoroughly: Keep detailed records of all intercompany transactions to comply with UAE transfer pricing rules.

5. Poor Record-Keeping and Documentation

Inadequate record-keeping and poor documentation practices can make it difficult for a business to substantiate claims for tax deductions and exemptions. Missing invoices, receipts, and contracts can lead to lost tax benefits or errors in tax filings.

How to Avoid It:

• Organize Documents Properly: Maintain a structured system for storing records related to all financial transactions.
• Stay Compliant: Keep all relevant documents (e.g., contracts, invoices, receipts) for the legally mandated period.

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

Companies operating in the UAE must register for corporate tax and obtain a Tax Registration Number (TRN). Failing to do so can result in hefty penalties and interest charges, as it constitutes a violation of tax laws.

How to Avoid It:

• Register on Time: Ensure that your business is registered for corporate tax as soon as it meets the relevant criteria.
• Set Reminders: Use tax management tools to help you track important filing and registration deadlines.

7. Misjudging Tax Liabilities

Many businesses miscalculate their tax liabilities by either underestimating or overestimating them. This can result from errors in calculating taxable income, misunderstanding deductions, or applying the wrong tax rate.

How to Avoid It:

• Engage Tax Professionals: Consult with tax experts to accurately calculate your tax liabilities.
• Regularly Review Tax Liabilities: Conduct quarterly or annual reviews to ensure accuracy in tax planning and filings.

8. Missing Out on Tax Incentives

The UAE offers various tax incentives, including relief for small businesses, exemptions for free-zone entities, and tax credits for qualifying expenses. However, many businesses fail to take advantage of these incentives, leading to higher tax payments.

How to Avoid It:

• Stay Updated on Incentives: Regularly review the tax incentives available to your business.
• Develop a Tax Strategy: Work with a tax advisor to incorporate these incentives into your tax strategy.

9. Overpaying on Transactions Between Related Parties

For transactions between related parties (e.g., payments to directors or shareholders), businesses may overpay or underpay, which can trigger tax audits. The UAE tax system follows the “arm’s length principle,” meaning that related-party transactions should be priced similarly to transactions with unrelated third parties.

How to Avoid It:

• Follow the Arm’s Length Principle: Ensure that payments to related parties are fair and comparable to those made to independent third parties.
• Document All Transactions: Keep thorough records of related-party transactions to avoid complications during audits.

What Happens When You Make Mistakes in Corporate Tax Filing

Failing to comply with tax regulations in the UAE can lead to serious consequences for businesses. The penalties for mistakes in corporate tax filing can range from fixed amounts for late submissions to percentages based on unpaid taxes. Interest may also be charged on unpaid taxes, further increasing a business’s financial liability. In addition, mistakes in corporate tax filing can also damage a company’s reputation and relationships with clients, partners, and investors.

How MS Helps You Avoid Mistakes in Corporate Tax Filing

At MS, we make corporate tax filing simple and error-free. Our experienced team will help you avoid mistakes in corporate tax filing like misclassifying expenses, missing out on eligible deductions, or failing to meet transfer pricing requirements. We ensure your financial documents are accurate, calculate your tax liabilities with precision, and guarantee compliance with the latest UAE tax laws. From start to finish, we manage the entire filing process, ensuring your return is submitted on time—so you can avoid the mistakes in corporate tax filing and the associated penalties.

Is your company ready to meet the 31st of December 2024 deadline for Corporate Tax Return filing and payment? If your business was incorporated on or after 1st June 2023, with a tax period ending on or before 29th February, this is your critical moment to act!

To guide you through this critical process, the Federal Tax Authority (FTA) has introduced a comprehensive Corporate Tax Return Filing Guide—your ultimate resource for staying compliant. Let’s explore the essential updates, step-by-step filing procedures, and practical tips to help you file accurately and on time.

How to Prepare for Your Corporate Tax Return Filing Process?

Organize Your Financial Documents

The first step in preparing for the Corporate Tax filing is to gather all the necessary financial documents. This includes your financial statements, invoices, receipts, and any other relevant documents that support your tax deductions and credits. Organizing these documents early on will streamline the filing process and ensure accuracy when submitting your tax return. Having everything ready well in advance can help you avoid delays and reduce the risk of errors during the corporate tax return filing.

Stay Informed on Tax Regulations

Tax laws are subject to change, and it is important to stay updated on any new developments or modifications to corporate tax regulations. Understanding the latest rules issued by the UAE government and the FTA will ensure that you are compliant with the current tax environment. The new Corporate Tax Return Filing Guide from the FTA is a valuable resource that provides clarity on the latest changes and requirements. Additionally, staying informed allows you to take advantage of any opportunities to minimize your tax liabilities through available tax planning strategies. This proactive approach will help avoid mistakes and ensure your filing is in line with all applicable requirements.

Avoid the Common Mistakes in Filing

As the deadline approaches, it is essential to verify that all financial data and tax calculations are accurate. Double-check your documents to ensure there are no discrepancies or missing information. This is the time to resolve any uncertainties you may have regarding your corporate tax return filing. If you are unsure about any aspect of your Corporate Tax filing, consulting with a tax professional can help prevent costly mistakes. Submitting incorrect or incomplete filings can result in penalties, so taking the time to review everything thoroughly is crucial.

What if you miss the deadline for Corporate Tax Return Filing?

The final day for filing your Corporate Tax Return and paying any outstanding taxes is 31st December 2024. Missing this deadline can result in significant financial penalties:

Non-filing Penalty: AED 500 per month for the first 12 months, escalating to AED 1,000 per month thereafter. Over time, this penalty can accumulate and significantly affect your business’s finances.

Late Payment Penalty: Any unpaid tax after the deadline will incur a 14% annual penalty, calculated monthly on the outstanding balance. This penalty compounds over time, increasing the financial burden on your business.

To avoid these penalties and ensure smooth business operations, it is critical to meet the deadline for both filing your return and settling your tax liabilities.

How MS Can Support Your Corporate Tax Return Filing

At MS, we offer comprehensive services to help you in the Corporate Tax filing process with ease and precision. Our expert team will assist you in gathering and reviewing your financial documents, ensuring all necessary information is accounted for. We will accurately calculate your tax liabilities, ensuring compliance with the latest UAE tax regulations, and handle the entire filing process to ensure everything is submitted on time.

We offer proactive reminders as the deadline approaches, so you never miss a critical step. Our team remains up-to-date with any changes in tax laws, including the new Corporate Tax Return Filing Guide, and provides strategic guidance to help minimize your tax liabilities.

On November 11, 2024, the Federal Tax Authority (FTA) unveiled a pivotal corporate tax return guide to simplify the journey for businesses filing their first UAE Corporate Tax (CT) returns. Packed with in-depth insights, this guide breaks down essential steps, from navigating complex procedures to managing transfer pricing (TP) disclosures and tax elections. With the clock ticking toward the first filing deadline on December 31, 2024, businesses must act swiftly to ensure they are ready and compliant for the corporate tax return.

Key Takeaways from the UAE Corporate Tax Return Guide

The guide introduces several important concepts and procedures that businesses must be aware of when filing their tax returns. Let’s dive into the key insights from the corporate tax return guide:

1. Accurate Information is Crucial

The UAE CT return consists of 20 schedules. However, only the applicable schedules will be presented to the taxpayer based on the information entered during the tax registration process on the EmaraTax portal. Accuracy is essential here: the details you provide during registration determine which schedules will appear, so it is crucial to ensure that all fields are completed correctly to avoid irrelevant or incorrect schedules from being included.

2. Transfer Pricing Reporting Requirements

One of the significant elements in the recently published corporate tax return guide is the detailed reporting requirements related to transfer pricing. If a business has related-party transactions exceeding AED 40 million, disclosure of aggregate related-party transactions per category (e.g., sale of goods, provision of services, IP, interest) is mandatory. Additionally, any transactions with connected persons exceeding AED 500,000 must be disclosed. It is important to note that dividends paid to related parties do not count toward these thresholds.

For businesses that need to make transfer pricing adjustments that reduce taxable income, preapproval from the FTA will be required. Furthermore, errors in previous tax returns that result in a reduction of tax by AED 10,000 or less can be corrected in the current period’s return.

3. Electing Tax Regimes

Tax elections made during the first tax period will be final, and these elections will automatically carry over to subsequent years. This includes elections related to the 0% rate for free zone persons, the realization basis of taxation, and the application of transitional rules. The corporate tax return guide reinforces that it is important to make these elections carefully, as they impact your tax filing for multiple periods.

4. Mandatory Attachments and Employee Data

Businesses are required to attach financial statements to their CT return. For free zone persons like the ADGM and DIFC, the average number of full-time employees (calculated from the beginning and end of the year) must also be reported.

5. Managing Data for Tax Filing

Given the granular level of detail required for completing the tax return, businesses should ensure they have access to all the necessary data points, many of which may not be easily obtainable from the General Ledger (GL). This includes HR employee data and other specifics relevant to transfer pricing and business activities. The corporate tax return guide asks the businesses to consider implementing a technology solution that can automate the process and help govern the required tax schedules effectively.

6. Free Zone Persons (QFZP) and Substance Requirements

Free Zone Persons (QFZPs) who have opted out of the Free Zone regime will not see the relevant fields in the CT return for the current and next four tax periods. QFZPs must disclose information about the level of substance maintained in the Free Zone, including the average number of full-time employees, operating and capital expenditures, and details about outsourced activities. If core-income generating activities are outsourced, the QFZP must provide additional details about the outsourcing provider, including their name, corporate tax registration number, and total expenditures spent on outsourcing.

Now that you’ve gone through the key takeaways from the corporate tax return guide, it’s crucial to stay on top of UAE Corporate Tax filing requirements to ensure everything is in order, here are the key next steps for businesses:

1. Review EmaraTax Information: Ensure that all data on the EmaraTax portal is complete and accurate. This is crucial for determining which schedules will appear on your tax return.
2. Complete Transfer Pricing Assessments: Before closing your financial accounts, conduct a thorough transfer pricing assessment to avoid needing downward adjustments that require FTA approval.
3. Prepare for Elections: Make your tax elections during the first tax period, as they will carry forward to future periods.
4. Meet Free Zone Requirements: If you’re a QFZP, ensure that all substance-related requirements and disclosures are ready and accurate.

Understanding the Corporate Tax Return Guide: How MS Makes Compliance Easy

The UAE Corporate Tax return guide offers a thorough overview of the filing requirements and provides detailed information that taxpayers must review and interpret to successfully complete their first CT return. With the introduction of these new regulations by the FTA, MS supports clients through every stage, from preparing financial statements and assessing TP policies to completing the CT return and related disclosures. Our team also helps ensure your data is ready for compliance, supports tax provisioning for reporting, and ensures all necessary documentation is in place.

As the UAE’s tax landscape continues to evolve, in September 2024, the Federal Tax Authority (FTA) introduced Decision No. 7 of 2024, providing critical updates for businesses regarding Corporate Tax Returns. This decision grants an important extension for companies incorporated, established, or recognized on or after 1st June 2023, allowing them to file their Corporate Tax Returns and settle their Corporate Tax Payable by 31st December 2024, provided their tax period ends on or before 29th February. 

While this extension may offer some breathing room, it serves as a timely reminder for businesses to prioritize their corporate tax preparation and follow the necessary steps for corporate tax filing. It’s an opportune moment to review compliance measures, align with the latest regulations, and safeguard against the financial repercussions of late filings. Preparing your corporate tax return is not just about meeting deadlines; it’s about ensuring that your business is well-positioned for success in a dynamic economic environment. 

Key Steps for Corporate Tax Filing Preparation 

1. Tax Registration: 
   All companies must obtain a tax registration number from the FTA. To do this, provide the necessary documents and details as required by the authority. 

2. Record Keeping: 
   Maintaining accurate records of all financial transactions and relevant tax documents is essential for compliance with UAE tax regulations. Effective record-keeping will simplify the tax return preparation process. 

3. Preparation of Tax Return: 
   Calculate your taxable income based on the maintained records, taking into account any applicable tax deductions and exemptions under UAE tax laws. Ensure that all calculations are thorough and accurate to avoid discrepancies. 

4. Filing of Tax Return: 
   Submit the completed tax return to the FTA through their E-Services platform. As one of the key steps for corporate tax filing, it’s vital to ensure that the submission is made on or before the stipulated timeline to avoid penalties. 

5. Payment of Tax: 
   Fulfill your tax liability as determined by the filed tax return. Make the payment before the due date to remain compliant with tax regulations. 

6. Tax Audit: 
   Be prepared for a potential tax audit. If the FTA selects your return for audit, you may need to provide additional information or documentation to verify the details submitted in your tax return. 

Not adhering to Crucial Steps for Corporate Tax Filing? Here’s the Penalties for Non-Compliance 

Failure to meet the Corporate Tax filing deadline can result in serious financial repercussions for your business. It’s crucial to understand the penalties that come with non-compliance and follow the necessary steps for corporate tax filing: 

• Non-Filing Penalty: Companies that do not submit their tax returns by the deadline will face a penalty of AED 500 for each month during the first year. After the initial 12 months, this penalty increases to AED 1,000 per month. Over time, these cumulative penalties can create a significant financial burden. 

• Failure to Settle Payable Tax: In addition to penalties for late filing, any unpaid tax amounts will incur a 14% annual penalty, calculated on a monthly basis. This penalty applies to the total outstanding tax due after the deadline, exacerbating the financial consequences for businesses that do not comply. 

To avoid these repercussions, it is essential to follow all compliance requirements, file tax returns on time, and settle any payable tax promptly. Taking these steps for corporate tax filing will help ensure that your business remains in good standing with the UAE tax authorities and avoids unnecessary financial penalties. 

How MS can assist you in easing your steps for Corporate Tax filing 

At MS, we provide comprehensive support for corporate tax filing, helping businesses fulfill their tax obligations efficiently and accurately. Our process includes assistance in steps for corporate tax filing. Our expert team meticulously calculates tax liabilities and manages the entire filing process to ensure compliance with UAE regulations. We stay informed about any changes in tax legislation and offer strategic tax planning to help clients minimize their liabilities. Additionally, we oversee filing deadlines, provide timely reminders, and offer post-filing support to address any penalties or disputes that may arise. 

The Federal Tax Authority (FTA) continues to provide flexibility for businesses adapting to new tax regulations in the UAE. FTA Decision No. 7 of 2024 introduces extended deadlines for corporate tax filing and payment, offering relief to businesses incorporated after 1 June 2023. This decision is particularly relevant for companies with shorter tax periods, ensuring they have additional time to meet their tax obligations. However, for businesses with tax periods ending after 29 February 2024, the standard nine-month rule remains unchanged.

What is FTA Decision No. 7 of 2024 of Corporate Tax Filing and Payment?

FTA Decision No. 7 of 2024 applies to taxable persons incorporated, established, or recognized in the UAE on or after 1 June 2023. These businesses have been granted an extension if their tax period ends on or before 29 February 2024. They are now required to file their tax return and settle corporate tax payable by 31 December 2024. Prior to the entry into effect of FTA Decision No. 7 of 2024, entities would have had to file its Tax Return and settle the Corporate Tax Payable by 30 September 2024.

Here is an example:

Company A, incorporated in Dubai on 12 June 2023, has chosen its financial year to run from January to December. Consequently, its first tax period spans from 12 June 2023 to 31 December 2023. However, in light of FTA Decision No. 7 of 2024, Company A’s deadline to file its corporate tax return and settle any payable tax has been extended. The new deadline for these actions is now 31 December 2024, providing the company additional time to fulfil its tax obligations.

Corporate Tax Filing and Payment: Who Does the Extension Apply To?

The decision mainly affects businesses with short tax periods, particularly those incorporated mid-year. Below is a breakdown of how the extended deadlines of corporate tax filing and payment apply to different businesses:

1. Tax Period Ending 31 December 2023
   For businesses incorporated in June or 1^st July 2023, and those operating on a January to December financial year, the original deadline for filing tax returns and settling tax liabilities was 30 September 2024. However, this has now been extended to 31 December 2024, providing an additional three months to meet their obligations.

• Tax Period Ending 31 January 2024
  Businesses incorporated in June, July, or 1^st August 2023, operating on a February to January financial year, had an initial deadline of 31 October 2024. This has also been extended to 31 December 2024, giving them extra time to complete their tax filings and settle any payable taxes.
• Tax Period Ending 29 February 2024
  For companies incorporated in June, July, August, or 1^st September 2023 with a March to February financial year, the previous deadline of 30 November 2024 has now been pushed to 31 December 2024, allowing additional time to fulfill their corporate tax responsibilities.

• Short Tax Period due to Cessation of Business
  Businesses that ceased operations, dissolved, or liquidated by 29 February 2024, were initially required to settle their tax filings by the earlier deadlines based on their tax periods. With the new extension, all applicable businesses now have until 31 December 2024 to file their returns and settle their tax liabilities.

Corporate Tax Filing and Payment: Key Takeaways for Businesses

• New Deadline for Certain Entities: If your business was incorporated or recognized on or after 1 June 2023, and your tax period ends on or before 29 February 2024, you have until 31 December 2024 to file your tax return and settle your corporate tax payable.
• Penalties from 1 January 2025: Administrative penalties will apply from 1 January 2025 for businesses that miss the new deadlines set by the FTA.

Corporate Tax Filing and Payment: Penalties for Non-Compliance

Failing to meet the filing deadline can lead to severe financial consequences for your business. Understanding the penalties associated with non-compliance is essential:

• Non-filing Penalty: Businesses that fail to submit their tax returns on time will incur a penalty of AED 500 per month for the first 12 months. After this period, the penalty increases to AED 1,000 per month. This cumulative effect can lead to significant financial burdens over time.
• Failure to Settle Payable Tax: In addition to filing penalties, any outstanding tax amounts will attract a 14% annual penalty, which is calculated monthly. This penalty applies to the total payable tax that remains unsettled after the deadline, further compounding the financial implications for non-compliant businesses.

How MS Can Assist in Corporate Tax Filing and Payment

At MS, we provide comprehensive support for corporate tax filing, ensuring that businesses fulfil their tax obligations efficiently and accurately. Our process begins with a thorough assessment of each client’s tax requirements, followed by organizing financial records and identifying the correct tax period. Our team of experts calculates tax liabilities with precision and manages the entire filing process to ensure compliance with UAE regulations. We stay informed on the latest tax law updates and offer strategic tax planning to help minimize liabilities. Additionally, we handle filing deadlines by sending timely reminders and offer post-filing support to address any penalties or disputes.

The Federal Tax Authority (FTA) has issued Decision No. 7 of 2024, introducing a vital extension for filing Corporate Tax Returns and settling Corporate Tax Payable for specific taxpayers. For businesses incorporated, established, and recognized on or after 1st June 2023, with the tax period ended on or before 29th February, the new Corporate Tax Return and payable deadline is 31st December 2024.

Corporate Tax Filing: Penalties for Non-Compliance

Failing to meet the filing deadline can lead to severe financial consequences for your business. Understanding the penalties associated with non-compliance is essential:

• Non-filing Penalty: Businesses that fail to submit their tax returns on time will incur a penalty of AED 500 per month for the first 12 months. After this period, the penalty increases to AED 1,000 per month. This cumulative effect can lead to significant financial burdens over time.
• Failure to Settle Payable Tax: In addition to filing penalties, any outstanding tax amounts will attract a 14% annual penalty, which is calculated monthly. This penalty applies to the total payable tax that remains unsettled after the deadline, further compounding the financial implications for non-compliant businesses.

Preparing for Your Corporate Tax Filing

As the deadline approaches, it becomes increasingly important for businesses to ensure they are fully prepared for their corporate tax filing. Here are several strategies to help you get ready:

1. Gather Your Financial Documents: Start by collecting all necessary financial statements, invoices, receipts, and other relevant documentation. Having these organized and ready for review will streamline the filing process and help ensure accuracy in your tax return.
2. Review Tax Regulations: The corporate tax landscape is dynamic, with regulations subject to change. It’s essential to stay informed about any updates or modifications to corporate tax regulations that may impact your filing. Regularly reviewing official communications from the UAE government and tax authorities can help you stay ahead.

Even though the deadline may seem far off, preparing for your corporate tax filing is paramount. This is not just a compliance exercise; it’s an opportunity to ensure that your business is aligned with the new tax regulations and to avoid the financial penalties associated with late submissions. Prioritizing your corporate tax filing preparation will not only protect your business interests but also set a solid foundation for your organization’s future growth and success in the evolving economic environment.

Corporate Tax Filing: How MS can help

Our company offers end-to-end support for corporate tax filing, ensuring businesses meet their tax obligations with ease and precision. We start by assessing each client’s tax requirements, organizing financial documents, and identifying the appropriate tax period. Our expert team calculates tax liabilities accurately and handles the entire filing process, ensuring compliance with UAE regulations. We stay updated on any changes in tax laws and provide strategic tax planning to help clients reduce liabilities. Additionally, we manage filing deadlines, offering timely reminders, and post-filing support to address penalties or disputes.

As the corporate tax return filing deadline for entities established in June 2023 approaches on September 30^th 2024, businesses have a critical opportunity to minimize their tax liability by taking advantage of tax deductions and credits. But how do these tools impact your corporate tax return? Tax deductions reduce your taxable income, while tax credits directly lower the tax you owe, making them essential for optimizing your return.

Let’s look at the interlink between Corporate Tax Return Filing and Tax Deductions and Credits.

How Corporate Tax Return Filing and Tax Deductions and Credits are Related

Corporate tax return filing is the process where businesses report their taxable income and calculate their tax liabilities. Tax deductions and credits play a crucial role in this process by helping reduce the taxable income and, in turn, the total tax payable. Deductions allow businesses to subtract eligible expenses like operating costs and depreciation from their gross income, while tax credits directly lower the final tax bill.

What are Tax Deductions and Credits?

In the UAE corporate tax framework, tax deductions and credits serve as powerful tools for reducing the tax burden, but they work differently:

• Tax Deductions reduce the taxable income, which indirectly lowers the amount of tax payable by decreasing the base on which the tax is calculated.
• Tax Credits provide a direct reduction in the tax owed, effectively reducing the final tax liability by the amount of the credit.

Eligible Business Expenses for Tax Deductions in the UAE

Businesses can deduct certain expenses that are incurred “wholly and exclusively” in the production of taxable income. Understanding these qualifying expenses is crucial for any business filing corporate tax returns in the UAE.

Here’s a breakdown of some common eligible deductions:

• Operating Expenses: These include day-to-day business costs like rent, utilities, and employee salaries.
• Depreciation: The gradual reduction in value of fixed assets such as machinery, vehicles, and equipment can be deducted over the useful life of the asset.
• Interest on Business Loans: Interest payments on loans directly used for business operations can be deducted from taxable income.
• Cost of Goods Sold (COGS): This includes the direct costs associated with producing or acquiring the goods sold by the business.
• Professional Fees: Payments to professionals like accountants, lawyers, or consultants related to running the business are eligible.
• Research and Development (R&D): Expenditures on innovation, product development, and technological advancements.
• Employee Benefits: Salaries, bonuses, and other compensation tied to employee performance can be deducted.
• Bad Debts: Debts that are proven to be uncollectible and are written off during the financial year.
• Advertising and Marketing: Expenses incurred to promote the business, such as marketing campaigns, can also be deducted.

Non-Deductible Expenses

Not all expenses are deductible. Some costs are explicitly non-deductible under UAE tax law. These include:

• Fines and Penalties: Legal penalties or fines incurred by the business are not tax-deductible.
• Dividends Paid: Payments made to shareholders in the form of dividends are not deductible.
• Personal Expenses: Costs that are not directly related to business operations, such as personal travel or luxury expenses, are non-deductible.
• Certain Entertainment Expenses: While business-related client entertainment may sometimes be deductible, extravagant or unnecessary costs are generally excluded.

Specific Tax Credits Available in the UAE

While tax credits are less common than deductions, they can provide substantial relief to businesses engaged in specific activities or industries. Examples include:

• Foreign Tax Credits: If a business has paid taxes on foreign-sourced income, it can claim a credit to offset taxes owed in the UAE, thus avoiding double taxation.
• Research and Innovation Credits: Businesses involved in R&D may benefit from tax credits, especially in Free Zones like DIFC or ADGM, where innovation is encouraged.

These credits allow businesses to reduce the total tax owed, often providing direct savings that can be reinvested into the business.

Sector-Specific Tax Deductions and Credits

Certain industries, such as manufacturing, technology, and renewable energy, may enjoy additional tax benefits. Businesses operating in Free Zones or engaged in government-backed sectors may qualify for unique tax deductions or credits designed to promote sustainability, technological development, or capital investment.

For example, businesses in renewable energy might be eligible for deductions or credits related to energy-efficient investments or equipment. Similarly, tech companies engaged in innovation may qualify for credits tied to R&D activities.

Maximizing Tax Deductions and Credits: Strategic Planning

To fully benefit from the UAE’s corporate tax deductions and credits, businesses need to adopt a strategic approach. Here are a few tips:

1. Maintain Accurate Documentation: To claim deductions and credits, proper documentation is essential. Ensure that every expense is well-documented with receipts and invoices.
2. Amortize Assets: By spreading the cost of high-value assets (like machinery or equipment) over their useful life, businesses can manage depreciation deductions effectively.
3. Leverage Loss Carryforwards: If your business incurs losses in a given year, those losses can often be carried forward to offset taxable income in future years, helping to reduce your future tax liability.
4. Expense Timing: Plan your major expenses (e.g., purchases, investments) in a tax-efficient manner to optimize deductions for the current tax year.

Penalties for Incorrect Claims

Misreporting deductions or claiming non-eligible expenses can result in fines, penalties, and even audits by the FTA. It’s important to ensure that all claims are legitimate and supported by proper documentation to avoid penalties or reputational damage.

Effectively managing your corporate tax return involves a keen understanding of how tax deductions and credits can be utilized to your advantage. By carefully planning and documenting eligible expenses, leveraging available credits, and adopting strategic approaches to expense timing and asset amortization, businesses can substantially reduce their tax liabilities. As deadlines approach, a proactive and informed approach to tax planning will be invaluable in achieving the best possible financial outcomes for your business.

Tax Deductions and Credits: How MS can help

At MS, we specialize in guiding businesses through the complexities of corporate tax return filing in the UAE. Our team provides comprehensive support in identifying eligible tax deductions and credits, ensuring that you maximize your tax savings while maintaining compliance with regulatory requirements. We assist in maintaining accurate documentation, strategizing expense timing, and leveraging loss carryforwards, all tailored to your specific business needs. Let us help you turn tax obligations into opportunities for growth.

The introduction of Corporate Tax in the UAE had sparked a wave of anxiety among businesses, largely due to confusion and misunderstandings surrounding the new rules.

One of the most prevalent myths is that taxes are only payable from January 1, 2024. However, this is not true for businesses whose first UAE corporate tax return filing period falls between June and December 2023. For these companies, the initial tax return deadline is September 30, 2024, setting a vital benchmark for future filings.

Let’s clear the air and focus on what your first tax period will actually look like and how to effectively prepare.

Understanding Your First Tax Period for First UAE Corporate Tax Return Filing

Since the announcement of the UAE corporate tax law on June 1, 2023, businesses have been through a sea of changes. One area where confusion persists is the ‘tax period,’ which is the financial year or part of the year for which a tax return must be submitted.

Under the law, businesses have some flexibility in defining their financial year. They can align with the Gregorian calendar year (January to December) or select a custom 12-month period that matches their reporting practices. The law applies to all entities incorporated under the UAE Commercial Companies Law, such as mainland companies, free zones, trusts, civil companies, and even foreign entities operating in the UAE through branches or headquarters.

A common sticking point is determining the commencement of the first tax period. For most businesses, this period begins with the first financial year starting on or after June 1, 2023, typically January 1, 2024. However, newly incorporated companies might face more complexity, with their first financial year ranging from six to 18 months.

First UAE Corporate Tax Return Filing: Examples to Illustrate the First Tax Period

To provide more clarity, let’s look at some scenarios:

1. Company A: Established on February 1, 2023, and aligned with the Gregorian calendar, the initial financial period runs from February 1 to December 31, 2023. However, the first UAE corporate tax return filing period will start on January 1, 2024 – the first financial year beginning after June 1, 2023.
2. Company B: Incorporated on June 2, 2023, with a financial year from January to December, will see its first tax period run from June 2 to December 31, 2023. The tax return for this period is due by September 30, 2024. This breaks the myth that the first UAE corporate tax return filing is due only by September 30, 2025.

Key Points on Tax Obligations and Financial Year Flexibility

While businesses can choose their financial year, this flexibility does not alter their corporate tax obligations. Whether a company’s first tax period is shorter or longer than 12 months, the AED 375,000 income threshold for the zero percent corporate tax rate remains unchanged. Likewise, the small business relief limit of AED 3 million in revenue still applies. Companies with revenues exceeding AED 50 million must provide audited financial statements, regardless of the length of their tax period.

Additionally, for tax periods shorter or longer than 12 months, certain rules, such as the general interest deduction limitation, adjust proportionately. This ensures fairness in deductions and maintains the integrity of tax calculations.

First UAE Corporate Tax Return Filing: Special Considerations for Non-Resident Entities

The corporate tax law also provides guidance for non-resident persons operating in the UAE through a permanent establishment or dependent agent:

• Permanent Establishment: For non-residents with a fixed place of business, the first tax period begins six months after the entity has been operational. For instance, a company that began operations on February 1, 2022, and continues past June 1, 2023, would have its first tax period starting from January 1, 2024.
• Dependent Agents: The tax period for non-residents operating through a dependent agent begins immediately after June 1, 2023. A non-resident agent effective from March 1, 2023, will have its first tax period begin on March 1, 2024.

Foreign juridical persons effectively managed and controlled in the UAE are considered resident persons under the law. A foreign company with a financial year from January 1 to December 31 will have its first tax period starting from January 1, 2024, if managed and controlled in the UAE during this time. Similarly, a foreign entity with a financial year from September 1 to August 31 would have its first tax period starting on September 1, 2023, if under UAE management and control.

Deregistration Requirements

Businesses must deregister for corporate tax if they cease operations due to dissolution, liquidation, or other reasons. However, the expiration of a business license alone does not suffice for deregistration. Even if a company winds down its operations during its first tax period, it is required to register for corporate tax according to the law.

Optimize Your First UAE Corporate Tax Return Filing with MS

Our team at MS provides solutions to your business with its unique tax obligations, from understanding your first tax period to aligning your financial year effectively. We assist with tax registration, compliance, and financial reporting, ensuring your documentation is accurate and submitted on time. With continuous updates and strategic insights on evolving tax regulations, we keep you ahead of the curve, allowing you to focus on growth while we manage your tax responsibilities.