UAE Corporate Tax Return Guide Highlights Key Requirements for Businesses

The United Arab Emirates' Federal Tax Authority (FTA) has released a comprehensive guide to assist businesses with completing their corporate tax returns, offering practical advice while also revealing the substantial volume of data businesses will need to gather to ensure accurate filing. The guide, published on November 11, 2024, follows the introduction of the new corporate tax regime, which took effect on June 1, 2024. Under this regime, companies are now subject to a standard corporate tax rate of 9%, a significant shift from the previous tax-free environment.

The guide offers general instructions on how to file the corporate tax return through the Emara Tax portal, with specific details on how businesses can ensure their information is correct. Rachel Fox, a tax partner at Clyde & Co in Dubai, emphasizes that the guide makes it clear that certain data in the tax return will be prepopulated based on the information provided during the registration process. “It will be crucial that businesses ensure this information is correct and if not, take the opportunity to correct it prior to completing the tax return,” Fox explains.

Vishal Sharma, managing director for Alvarez & Marsal Tax in the UAE, concurs, stressing the importance of ensuring the accuracy of the data. "It is vital for taxpayers to review their readiness and have accurate data on the EmaraTax portal to ensure that all required fields are appearing and therefore can be completed while filing the return," Sharma says.

One key benefit highlighted by Fox is the grace period introduced by a recent Cabinet Decision, which allows taxpayers to update their records with the FTA without incurring penalties from January 1, 2024, to March 31, 2025. This measure provides relief to businesses, as typically administrative penalties are imposed if changes to tax records are not communicated to the FTA within 20 business days. “This measure is of real benefit to taxpayers,” Fox notes.

The guide also emphasizes the importance of documentation when filing the corporate tax return. Sharma points out that financial statements, whether audited or unaudited, must accompany the return. Additional documentation might be required, such as market value support for qualifying assets, tax residency certificates, and proof of foreign tax payments. “Taxpayers claiming foreign tax credits must provide detailed information on foreign income, tax liabilities, and supporting documentation,” Sharma adds.

The guide further clarifies the process for businesses to claim various exemptions, reliefs, and beneficial regimes. For example, businesses claiming the 0% corporate tax rate for certain income earned by Qualifying Free Zone Persons must demonstrate that they maintain adequate substance in the relevant Free Zone. To qualify, entities must provide information about their employees, operating expenses, and capital expenditure, among other details.

The issue of transfer pricing is also addressed in the guide. It notes that all transactions between related parties must adhere to the arm’s-length principle, and if such transactions are not recorded at arm’s length in the financial statements, a transfer pricing adjustment may be necessary. Fox adds that transfer pricing adjustments that decrease taxable income can only be made with the FTA’s approval. “As such, it will be important that taxpayers ensure that related party transactions are priced correctly at the outset,” she advises.

Overall, Fox concludes that the guide serves as a valuable resource for businesses, but also reveals the significant amount of data businesses will need to collect to ensure an accurate corporate tax return. “Much of this data will not historically have been required by the finance and tax teams and will likely rest with other business units,” Fox explains. She urges businesses to start preparations well in advance to avoid last-minute complications and mitigate the risk of incurring penalties.

By fLEXI tEAM