Corporate Tax Registration: Vital Preparations Before the Deadline

Corporate Tax Registration: Vital Preparations Before the Deadline
by Aswani

The United Arab Emirates (UAE) ushered in a new era with the introduction of Corporate Tax (CT) in 2023. This significant development in the UAE’s tax framework necessitates careful consideration for businesses and individuals operating within the country. To ensure a seamless transition to this new tax environment, the Federal Tax Authority (FTA) has established a deadline of May 31, 2024, for companies to register for Corporate Tax. To help you navigate this important change, we’ve compiled a comprehensive blog outlining the essential steps you should take before the Corporate Tax registration deadline. This informative resource empowers you with the knowledge required to adapt effectively to this evolving landscape.

A Reminder on UAE Corporate Tax Registration

The Federal Tax Authority (FTA) recently issued a crucial reminder for businesses operating in the UAE regarding Corporate Tax registration. FTA Decision No. 3 of 2024 underscores the importance of timely registration to avoid penalties that could reach AED 10,000.

What You Need to Know?

The deadline for Corporate Tax registration was May 31, 2024. However, depending on your company’s status, there may still be options to avoid penalties. Here’s a breakdown:

  • Resident Businesses:
    • Companies established before May 31, 2024 have a grace period ranging from May 31st to December 31st, 2024, to register based on their license issuance date.
    • Companies formed after the decision’s effective date need to register within three months of starting operations.
  • Non-Resident Businesses:
    • The deadline for registration varies based on your specific business activity and presence in the UAE (e.g., having a permanent establishment). This timeframe can range from three to nine months.

Strategic Steps for Corporate Tax Registration: Vital Preparations Before the Deadline

1.Leveraging UAE Free Zone Tax Benefits

Free Zone businesses in the UAE can enjoy a 0% corporate tax rate, contingent upon achieving Qualifying Free Zone Person (QFZP) status. As the QFZP criteria can be intricate, it’s imperative for Free Zone entities to promptly assess their eligibility.

In Abu Dhabi, corporate tax advisors offer indispensable assistance throughout the QFZP process, including:

  • Conducting a Comparative Analysis to weigh QFZP benefits against the standard 9% UAE corporate tax rate.
  • Crafting Compliance Plans to adapt transactions, pricing, agreements, and documentation to meet QFZP requirements.
  • Conducting Economic Substance Reviews to ensure compliance with the UAE’s economic substance regulations.

2. Optimizing Your Business Structure for Tax Efficiency

The structure of your business can significantly impact your tax liabilities, particularly concerning corporate tax grouping and the treatment of income (such as dividends and gains). Here’s how a comprehensive review can be advantageous:

  • Identify Opportunities for Tax Savings: Identifying inefficiencies or limitations in your current legal structure may uncover substantial tax-saving opportunities. This could involve exploring options for tax grouping or addressing restrictions that may impede it.
  • Mitigate Tax Risks: Evaluating your funding structure can reveal hidden risks or overlooked opportunities. For instance, you may uncover limitations on deducting interest expenses or identify areas where non-deductible capital is being utilized, potentially reducing your tax liability.

3. Assessing Financial Profile and Transfer Pricing

i) Financial Profile Examination:

An essential aspect of navigating the UAE’s Corporate Tax landscape involves scrutinizing your company’s financial profile. This includes:

  • Reviewing Accounting Policies: Overlooking accounting entries and policies may result in unforeseen tax consequences. Analyzing crucial expense categories (such as entertainment, interest, and exempt income) and their corresponding policies helps uncover potential tax implications.
  • Seeking Expert Advice: Collaborating with Abu dhabi’s premier corporate tax advisors can offer valuable insights and strategies for optimizing your tax position based on your financial profile.

ii) Transfer Pricing (TP) Compliance:

Ensuring compliance with transfer pricing regulations is paramount under the UAE’s Corporate Tax regime. Consider the following:

  • Establishing a Tax Group: Forming a tax group can be a strategic move to potentially simplify TP rules for specific transactions.
  • Intercompany Agreements (ICAs): Maintaining well-defined ICAs with related parties is crucial for demonstrating arm’s length transactions in your TP documentation.
  • Developing TP Policy and Documentation: Proactively establishing a clear TP policy and comprehensive documentation showcases your commitment to compliance. Addressing this crucial aspect early avoids last-minute rushes.
  • General Anti-Avoidance Rules (GAAR): Stay mindful of GAAR regulations, designed to prevent tax avoidance through artificial or abusive structures. Collaborating with tax advisors facilitates effective navigation of these regulations.

4. Uncover Tax Relief Opportunities with Claims & Elections Review

The UAE’s Corporate Tax law provides various tax relief provisions to alleviate the burden on businesses. These include options like Small Business Relief, Qualifying Group Relief, and Business Restructuring Relief. Here’s how you can leverage them:

  • Identify Potential Relief: Assess if your company qualifies for any of these tax relief provisions. A detailed analysis could unveil significant tax savings opportunities.
  • Evaluate Pros and Cons: Each relief option comes with specific criteria and implications. Consulting with Dubai’s top corporate tax advisors enables a thorough evaluation of the advantages and disadvantages associated with each claim or election.

5. Preparing Your Operations for UAE Corporate Tax Implementation

As the UAE gears up for Corporate Tax implementation, it’s crucial to assess your company’s operational readiness. Here’s where to focus:

I. Accurate Record-Keeping:

Maintain thorough books of accounts to accurately track income, expenses, assets, and liabilities. Ensure transparency and disclosure of all financial activities.

II. Verifiable Balance Sheet:

Ensure last year’s balance sheet reflects only genuine assets and liabilities, supported by relevant documentation.

III. Entity-Specific Records:

If operating across multiple entities, maintain separate trial balances for each entity to facilitate clear tax calculations and reporting.

IV. Adherence to Accounting Standards:

Ensure compliance with inventory management practices and International Financial Reporting Standards (IFRS) in your accounting practices.

V. Segregated Transactions:

Clearly differentiate between Free Zone and mainland transactions in your accounting records to avoid confusion.

VI. Preparing Your Operations for UAE Corporate Tax Implementation

As the UAE gears up for Corporate Tax implementation, it’s crucial to assess your company’s operational readiness. Here’s where to focus:

VII. Accurate Record-Keeping:

Maintain thorough books of accounts to accurately track income, expenses, assets, and liabilities. Ensure transparency and disclosure of all financial activities.

VIII. Verifiable Balance Sheet: 

Ensure last year’s balance sheet reflects only genuine assets and liabilities, supported by relevant documentation.

IX. Entity-Specific Records: 

If operating across multiple entities, maintain separate trial balances for each entity to facilitate clear tax calculations and reporting.

X. Adherence to Accounting Standards:

Ensure compliance with inventory management practices and International Financial Reporting Standards (IFRS) in your accounting practices.

  • Segregated Transactions:
    Clearly differentiate between Free Zone and mainland transactions in your accounting records to avoid confusion.
  • Tax Alignment:
    Maintain consistency between sales figures reported for VAT purposes and those used for Corporate Tax calculations.
  • Justified Investments:
    Document capital accounts to substantiate investments and expenditures, providing clear documentation for all transactions.
  • Reconciliation:
    Verify all bank account transactions against reported turnover to maintain accuracy in financial records.

HLB Abu dhabi’s Expertise in Mitigating Deadline Concerns

We acknowledge that the recent deadline may have caused anxieties for some businesses. However, HLB Abu Dhabi alleviates these concerns through our comprehensive suite of services tailored to address your specific needs. Our team of qualified tax professionals possesses a profound understanding of the UAE Corporate Tax framework and can provide the following:

  • Registration Facilitation: We will meticulously guide you through the registration process, ensuring all requisite documentation is filed accurately and timely, minimizing the risk of penalties.
  • Meticulous Record Review and Analysis: Our team will conduct a thorough review of your financial records, identifying and addressing any irregularities or inconsistencies that may cause potential tax implications.
  • Customized Tax Planning Strategies: HLB Abu Dhabi collaborates closely with you to develop a tax-efficient strategy that optimizes your financial position while adhering to all applicable regulations.
  • Continuing Support and Guidance: We remain your trusted advisor, providing ongoing support and expert insights as the UAE’s tax environment continues to evolve.

Don’t Hesitate to Contact us Today

For a consultation and to learn more about how HLB Abu Dhabi can assist you in achieving optimal tax compliance and ensuring the continued success of your business within the UAE, please call us at +971 506048017 or email us at abudhabi@hlbhamt.com.