The UAE has long been a tax-friendly destination for businesses. However, with the introduction of corporate tax, companies now face strict compliance rules. Failure to comply with corporate tax laws can result in financial losses, damaged reputations, and even legal action or penalties. The first step toward compliance would be to understand the corporate tax penalties. Accurate record-keeping, filing on time, and cooperation with the tax authorities are necessary by businesses. Knowing the effects of non-compliance, companies can be best prepared and able to avoid expensive mistakes. Let’s see how! Tax Gian helps businesses avoid legal actions and penalties from the FTA by ensuring compliance with the CT regulations on part of the businesses.
Understanding Corporate Tax in the UAE
Corporate tax in the UAE was introduced under Federal Decree-Law No. 47 of 2022 to align with global tax practices. Effective June 2023, businesses earning more than AED 375,000 annually must pay a 9% corporate tax. The tax applies to various business structures, including:
- Limited Liability Companies (LLCs)
- Public Joint Stock Companies (PJSCs)
- Foreign companies with a permanent establishment in the UAE
Free zone businesses may qualify for exemptions, but they must meet strict criteria. To enforce compliance, Cabinet Decision No. 75 of 2023 introduced penalties for violations. These penalties apply to late filings, incorrect tax returns, and failure to cooperate with tax authorities.
Penalties for Corporate Tax Noncompliance
1. Late Filing of Tax Returns
If a business fails to file its corporate tax return on time:
- An AED 500 fine per month, or part thereof applies for the first 12 months.
- If the delay exceeds 12 months, the penalty increases to AED 1,000 per month, or part thereof.
2. Late Payment of Corporate Tax
Businesses are supposed to pay taxes on time. If they fail to do so, they are liable to:
- A 14% annual interest on unpaid taxes calculated monthly or part thereof.
3. Failure to Maintain Accurate Financial Records
Companies are supposed to maintain financial records for at least five years. If they fail to do so:
- A fine amount of AED 10,000 is imposed for the first offence.
- If it is committed again within a period of 24 months, the fine is doubled to AED 20,000.
4. Incorrect Filing of Tax Returns
Filing incorrect tax returns, whether due to errors or miscalculations, results in:
- AED 500 penalty, unless corrected before expiry of the deadline for submission of Tax Return.
5. Failure to Report Tax Modifications
Any change in tax records has to be reported to the Federal Tax Authority (FTA). Failure to do so by a business will result in:
- Fine of AED 1,000 for each violation
- AED 5,000 in case of repeated violation within 24 months.
6. Non-Cooperation with Tax Auditors
If the business does not provide the required documents during the audit
- A fine of AED 20,000is applicable
7. Tax Evasion
In case a business tries to evade taxes through fraudulent activities or false reporting;
- Fines are imposed severely
- Legal action is taken
- Possible suspension of business licenses
Correcting Errors: Voluntary Disclosure
The UAE allows businesses to correct mistakes through voluntary disclosure. If a company realises an error in its tax filings, it can report it before an audit. However, late voluntary disclosures attract penalties:
- A 1% monthly fineapplies to the tax discrepancy.
While voluntary disclosure helps businesses fix mistakes, timely and accurate filing remains the best approach.
Common Compliance Issues
1. Keeping accurate records
- Small businesses and start-ups might lack bookkeeping.
- Without correct records, one can’t easily file taxes
2. Timing Issues
Some firms have many complications in terms of financial well-being. Consolidating the accounts in time can avoid delayed filing with resulting penalties
3. Awareness of Taxations Rules
The Federal Tax Authority is always introducing amendments to the taxation rules. Companies need to stay updated and must be prepared to avoid last-minute rush and penalty
How Businesses Can Avoid Corporate Tax Penalties?
✓ Stay Informed
- Monitor tax law updates from the Ministry of Finance and FTA.
- Attend seminars and training sessions on corporate tax compliance.
✓ Keep Accurate Financial Records
- Maintain detailed financial records for at least five years.
- Invest in accounting software to track tax-related transactions.
✓ Hire Tax Professionals
- Engage certified accountants and tax consultants like Tax Gian.
- Professional guidance ensures compliance and minimises risks.
✓ Use Automated Tax Solutions
- Tax software helps businesses file returns accurately and on time.
- Many tools include alerts for tax deadlines.
Why Choose Tax Gian in UAE?
Ignoring tax compliance can damage a company’s financial health. Accumulated fines reduce profits and harm business reputation. Persistent noncompliance could lead to legal actions or business license suspensions. Don’t worry, this is where Tax Gian helps. By letting you stay informed, helping you keep proper records, and by giving expert advice, expert consultants at Tax Gian help businesses ensure compliance and avoid unnecessary penalties.
