Your first Corporate Tax filing sets the baseline for your enterprise’s tax positions for the succeeding years. Ensuring you are confident and aware of the filing obligations and reliefs could save your business from risks and costs.  

Whether you are a Group structure or a single entity, the Corporate Tax Legislation (Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses) provides for specific methods to calculate your tax liability and claim a range of eligible reliefs. Your business must now carefully prepare its first return to ensure compliance while minimizing their tax liabilities. This guide covers the key aspects of calculating and filing corporate taxes in the UAE, with additional tips, common mistakes, and practical insights to help businesses succeed. 

What Is Taxable Income? 

The basis for corporate tax calculation is not the accounting profit for the entity. The starting point for the taxable income calculation is defined as: 

• • The accounting net profit (or loss) reported in its financial statements prepared in accordance with internationally acceptable accounting standards. 

However, in determining the taxable income a variety of adjustments are necessary to the accounting net profit (or loss). Those adjustment include any or all of the below items: 

1. Unrealised gains and losses (subject to the election made regarding the application of the realisation principle); 
2. Exempt income such as qualifying dividends and capital gains; 
3. Income arising on intra-group transfers; 
4. Deductions which are not allowable for tax purposes; 
5. Transactions with Related Parties and Connected Persons; 
6. Transfers of tax losses within the group where relevant; 
7. Incentives or tax reliefs; and 
8. Any other adjustments as specified by the Minister. 

Therefore computing the tax liability varies based on the legal entity type, nature of business and income, whether the entity is in a Group and/or has international operations. In addition, a range of transitional provisions should also be considered to ensure the tax computations are accurate and can pass any FTA audit.  

The Preparation Phase: A Critical Foundation 

The preparation phase is the critical to form an accurate view of your corporate tax model and liabilities. Skipping steps or rushing the process can lead to errors, penalties, and missed opportunities for tax optimization. 

Step 1: Organize Financial Records 

As discussed, accurate financial records are essential for determining the taxable income computation supporting your tax return. The accounting must comply with International Financial Reporting Standards (IFRS). All elements must be included and specific attention to expanding and segregating income and expense categories is advisable. This can include: 

• Revenue streams (domestic and international).
• Operational costs, including rent, salaries, and utilities.
• Detailed asset registers, including depreciation schedules.
• Any loans, liabilities, or interest payments.

Best practices managing your accounting should include using accounting software such as Zoho Books. Zoho Books is UAE FTA Certified and provides native support for IFRS and Corporate Tax reporting and audits. Even well implemented software requires the technical understanding of the law to make the informed decisions. This manual process may require attention from an expert’s review; and it is prudent to conduct regular internal audits to identify discrepancies. 

Step 2: Identify Taxable and Non-Taxable Income 

Not all income is subject to UAE corporate tax. Businesses must segregate taxable and non-taxable revenues for accurate calculations, or you will increase your tax liabilities. The income should be identifiable into separate and specific income streams including: 

• Taxable Income: Revenue from business operations within the UAE or tied to a permanent establishment.
• Non-Taxable Income:
• Dividends from qualifying shareholdings.
• Capital gains on the sale of qualifying shares.
• Foreign income not tied to UAE operations.

These elements play a role in assessing the true taxable income for any enterprise. Without this segregation, the taxable income will be inaccurate and most likely increase tax payments or reduce losses. 

Step 3: Determine Deductible Expenses 

The UAE Tax Law specifies the range and limits on deductible expenses including Director Salary and expenses. Not all expenses or full amounts are deductible.  

Maximizing deductible expenses can significantly reduce your taxable income, but they must meet specific criteria. 

 A range of expenses are eligible; however, limits and conditions exist in specific categories. A set of examples are below: 

Your accounting model implemented with sufficient granularity can reduce risks and costs. Retrospective assessments can be challenging and often lead to errors.  

In the event your enterprise has not structured the accounting model, advice from professionals such as SimplySolved is recommended to implement and manage a more efficient reporting model. This can prove to be very helpful in future tax periods and further simplify internal procedures during the tax closing periods. 

Step 4: Assess & Review Transfer Pricing Requirements 

UAE transfer pricing regulations apply if your business engages in transactions with related or connected parties. UAE transfer pricing rules ensure transactions are conducted at arm’s length, reflecting market rates. To manage your obligations, your business must: 

1. Document all related-party transactions.
2. Prepare a transfer pricing policy that aligns with the FTA guidelines.
3. Maintain supporting evidence, such as market analysis and agreements.

Failing to document related-party transactions can lead to scrutiny during audits. These transactions will be a key area for attention under FTA audit due the ease of assessing errors. The rules under the UAE cover a broad definition for related parties and failing to address adjustments will incur risk of penalties for underpayments. 

Step 5: Leverage Available Tax Incentives 

Under the Legislation, the UAE has designed a system that promotes the lowest possible rate of Corporation Tax at 9% and a range of incentives to support enterprises. There are specific conditions and procedures to avail such incentives. 

 FTA procedures require preparation and clarity in the submission, or your business may fail to exercise an incentive. This is especially valid for Free Zone Exemptions and therefore advice should be taken if unclear on any aspects of the system. A range of incentives are available and the key ones include 

Small Business Relief: 

Businesses below AED3M turnover threshold can benefit from tax relief. 

Free Zone Incentives: 

Eligible free zone entities can enjoy a 0% tax rate on qualifying income, provided they: 

• Maintain economic substance.
• Do not conduct business with the UAE mainland (except under specific conditions) and satisfy Qualifying Income rules

Working with specialist tax advisors such as SimplySolved can help to identify all applicable incentives and ensure compliance with eligibility criteria. 

Step 6: Closing FY Financial Statements 

Under the Tax Procedures law, your financial statements must adhere to IFRS and provide a clear summary of your business’s financial position. Accounting records must be supported by a range of documentation and disclosed during any FTA assessment. The financial statements include: 

• Profit and loss statement.
• Balance sheet.
• Cash flow statement.
• Notes and disclosures.

The Federal Tax Procedures Law increased demands for a wider range of documentation supporting the accounting and tax entries. As such greater rigor is necessary to manage the compliance obligation necessary to support any audit. Attention to these requirements is necessary to minimize risks and ensure full deductibility of expenses. 

Filing Your Corporate Tax Return 

Once you have determined the taxable income calculation and have collated all necessary supporting documentation, filing can be administered through your FTA Portal registered account. 

You must submit the return before the deadline (9 months after the financial year-end) to avoid penalties and make payment. Subject to the nature of your business and complexity of your filing, the procedural steps vary in scope and requirements. At a summary level the filing procedure involves: 

1. Complete the Tax Return Form: Enter accurate details about revenue, expenses, and exemptions.
   
2. Upload Supporting Documents: Attach financial statements and any additional evidence requested.
3. Review and Submit: Double-check for errors before submitting.

The FTA procedures are online. Familiarity on all elements including necessary thorough preparation and documentation affecting your business will be necessary to avail any incentives. Guidance and advice should be sought for the first return to aid your understanding. 

Common Mistakes to Avoid 

For any business that is undertaking its first return, a number of common errors are easily avoided with the right planning and technical understanding of the Corporate Tax system and FTA procedures. The range of common mistakes your business should pay attention to include: 

1. Missing Deadlines– Late registration, filing, or payment can lead to significant penalties. Set reminders to stay on top of deadlines.

2. Misclassifying Income and Expenses – Failing to differentiate taxable from non-taxable income or deductible from non-deductible expenses can lead to incorrect calculations.

3. Ignoring Transfer Pricing Rules – Overlooking related-party transaction documentation can result in compliance issues and penalties.

4. Overlooking Tax Incentives – Many businesses fail to leverage available tax incentives due to a lack of awareness or poor documentation.

5. Filing Incomplete Returns – Incomplete or inaccurate returns may trigger audits or penalties. Always double-check before submission.

Recommendations for Effective Tax Management 

1. Invest in Accounting Software: Choose a solution such as Zoho Books to manage calculations and generate IFRS-compliant reports.

    

2. Hire a Tax Consultant: Professional advice from SimplySolved can help navigate complex regulations and optimize tax savings.
3. Stay Updated on Regulations: Regularly check the FTA website or subscribe to updates to stay informed about changes.
4. Plan Cash Flow: Set aside funds for tax payments throughout the year to avoid financial strain during filing season.
5. Conduct Regular Audits: Periodic financial audits can identify errors early and ensure compliance.

Conclusion 

Filing corporate taxes in the UAE may seem unclear and daunting, but with careful preparation, your business can manage the process confidently. From registering with the FTA to maintaining accurate financial records, every step plays a vital role in ensuring compliance and optimizing tax liabilities. 

By working with SimplySolved, we can help your business avoid common mistakes and leverage available incentives. As a result, your business can turn tax compliance into an opportunity for growth. Staying proactive and organized is key. 

Our standardized and comprehensive approach seeks to ensure you have full clarity on the tax strategy supported by an operational assessment to better manage your tax model in future fiscal years. This includes organizing your financial records and assessing your eligibility for tax incentives. The better prepared you are, the smoother the process will be. 

Accounting & Tax Services 

As an approved FTA Tax Agency, SimplySolved supports businesses under advisory or complete outsource basis to optimise, manage and discharge tax obligation in the UAE. Our experts possess in-depth knowledge of the UAE tax regulations and can guide you through the intricacies of the UAE Corporate Tax Law.  

By leveraging our expertise, you can streamline the process, saving time and minimizing the risk of errors. This proactive approach ensures that your Tax matter are handled efficiently, allowing you to focus on your core business activities. 

Simply Solved is an ISO 9001 & 27001 certified company and a registered FTA Tax Agency.  Our team of experienced consultants and tax agents provides high-quality, cost-effective services for all Tax matters for companies of all sizes. 

About SimplySolved

At SimplySolved, we save your time, resources, and costs. Whether you need help with Outsourced Accounting, Finance, Corporate Tax, Employee Management & Payroll and ERP & E-Commerce Integration. we have the expertise and solutions to help.

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