Common Mistakes to Avoid in UAE Corporate Tax Filings

Most of the companies in UAE follow the calendar year as the financial year which means the first tax year for most of the companies is from 01 January 2024 to 31 December 2024. As per Article 48 of UAE Corporate Tax Law, the taxable person shall submit the Corporate Tax return within 9 months from the end of the tax period. This means, most of the company’s Corporate Tax filings open on 01 January 2025 and the deadline for filing and tax payment is 30 September 2025.

In this article, we outline certain common mistakes that may happen while filing Corporate Tax Returns. This is based on the practical experience of tax filings which Flying Colour Tax Consultant is done for those companies whose first period is from 01 June 2023 to 31 December 2023.

The mistakes in the Corporate Tax filing can lead to administrative penalties which are already published by Federal Tax Authority through Cabinet Decision No.75 of 2023. Corporate Tax return, especially in the first tax year, looks detailed and a bit complicated as many elections are required to be done by the companies at the time of first tax filing. Let us together understand the common mistakes which are highly probable by the taxable person at the time of Corporate Tax return filing.

1. Small Business Relief

All resident taxable persons are eligible for Small Business Relief till the tax period ended 31 December 2026. Those who are eligible for Small Business Relief pay no tax. Read more for Small Business Relief.

Key points to be taken care of most of the taxpayers' misconceptions regarding Small Business Reliefs are as below;

• • Small Business Relief is only available for Companies. This is wrong and any taxable person who is resident for UAE Corporate Tax purposes can be eligible for Small Business Relief. This means that small Business Relief can be availed by a natural person also who is a resident. On the other hand, small business relief cannot be availed by non-residents even if the non-resident person is a company (Example: a foreign company’s branch in UAE).
  • Small Business Relief is not automatic. The taxable person shall elect the small business relief at the time of filing the Corporate Tax return.
  • Small Business Relief election is revocable. Unlike most of the elections in UAE Corporate Tax which are irrevocable, Small Business Relief election can be revoked each tax period.
  • If any taxable person elects small business relief, if the company is on loss, such loss cannot be carried forward to future tax periods.
  • Those who avail small business relief must keep all the records for 7 years from the end of the tax year.

2. Historic assets in transitional rules

The immovable properties, intangible assets, financial assets and liabilities held by the company before the implementation of Corporate Tax and which are expected to sell after the Corporate Tax at gain shall make certain elections to avoid paying Corporate Taxes on the gain generated prior to Corporate Tax implementation. This election is very important and many taxpayers can make mistakes in this election.

3. Corporate Tax on a realization basis

At the time of filing a Corporate Tax return, FTA asks for the taxation on a realization basis or unrealized basis. If any taxable person by mistake not making the election on a realization basis, they end up paying taxes on unrealized gains as well.

4. Election of Free Zone benefits

Subject to conditions, a Free Zone person may be eligible for 0% Corporate Tax on their profit. All free zones are by default coming under this eligibility whereas a Free Zone person can voluntarily elect to pay the normal Corporate Tax rate. Those who elect can avail of all reliefs under UAE Corporate Tax law like 0% tax on taxable profit up to AED 375,000, Small Business Relief etc. This election is very important for all Free Zone companies. Read more conditions for a free zone company to become eligible for 0% Corporate Tax. Keep in mind that the election to pay corporate tax at the normal rates is irrevocable for the current tax period and 4 subsequent tax periods.

5. Conversion of Sole establishment to Limited Liability Company

During the tax period, any sole establishment is converted to a Limited Liability Company, such cases are eligible for Business Restructuring Relief and the taxable person has to elect this relief to avoid tax payment on this conversion.

6. Election for foreign branch exemption

Any UAE company that has a foreign branch shall elect wisely for the exemption of foreign permanent establishment. If this exemption is not elected, the UAE Company shall consider foreign branch income and expenses for the Corporate Tax computation of the UAE parent entity. At the same time, those who have not been elected can claim a Foreign Tax Credit. Once elected, the exemption is applicable for all branches which are eligible for Foreign Permanent Establishment Exemption.

7. Exempt Income and related expenses

UAE Corporate Tax Law allows certain incomes as exempted and does not require to consider for tax calculations. Any expenses relating to exempt income also shall not be considered for Corporate Tax calculations, except interest paid for a loan to get exempt income. The income is exempted and the expenses are not excluded can lead to a wrong tax declaration.

8. Disallowed expenditures

This is the area where most taxpayers may make mistakes in judging the disallowed expenditures under UAE Corporate Tax. The calculations of Corporate Tax start from the Profit and Loss account and certain adjustments are required to arrive at the taxable income on which Corporate Tax liability is applicable. Disallowed expenditures identification is crucial while filing Corporate Tax return and add back such expenditures to profit. Example: - fines and penalties, 50% of business entertainment expenses to anyone other than employees etc.

9. Related party and connected person adjustments

Most of the companies have either a related party transaction or a connected person payment (Example: - transaction within the group, salary to owner etc.) Such transactions are required to be aligned as per Transfer Pricing regulations to arrive at the correct taxable income. An error in determining the Arm’s Length calculation of the related party or connected person payment can lead to a wrong tax return.

The above outlined are very few. There are many adjustments, elections, and applications required at the time of Corporate Tax return filing. The mistakes in the tax filings are not justifiable as the authority has clarified most of the elements of UAE Corporate Tax by now. A highly skilled tax expert, like Flyingcolour Tax Consultant, is required for companies to prepare and file tax returns without any mistakes.

To learn more about How to Avoid Common Mistakes in UAE Corporate Tax Filings?, book a free consultation with one of the Flyingcolour team advisors.

Disclaimer: The information provided in this blog is based on our understanding of current tax laws and regulations. It is intended for general informational purposes only and does not constitute professional tax advice, consultation, or representation. The author and publisher are not responsible for any errors or omissions, or for any actions taken based on the information contained in this blog.