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:
- 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.
- Complete Transfer Pricing Assessments: Before closing your financial accounts, conduct a thorough transfer pricing assessment to avoid needing downward adjustments that require FTA approval.
- Prepare for Elections: Make your tax elections during the first tax period, as they will carry forward to future periods.
- 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.