Benefits of Outsourcing Corporate Tax Compliance of your Company

Corporate Tax Services: Expert Guidance to Avoid Penalties & Fines

The United Arab Emirates is going through a change of phase with the inception of Corporate Tax. Being a business Owner/CEO or any other person who is responsible for the success of the entity should know about the country’s laws and regulations and the best way to comply in order to avoid the friction in the business.

In this article, we are giving insights into why you require an expert or a team of experts to handle your tax matters in the UAE, especially to handle the first direct tax in the UAE, which is Corporate Tax.

Corporate Tax Registration

The first step to take in the tax regime is to get registered for Corporate Tax and get the tax registration number. It may sound very easy, but there are many mistakes people make while registering for Corporate Tax and end up with the hassle of fines, amendments, and even cancellation and reapplying. Below are the few common mistakes in our observation.

Once VAT is registered, no need to register for Corporate Tax? We have come across cases, where the business owners are thinking once VAT registration is done, there is no need for Corporate Tax. Federal Tax Authority has clarified it many times through their workshops, and FAQs that VAT registration is not the same as Corporate Tax registration. Those who have done the VAT registration shall obtain a Tax Registration Number for Corporate Tax as well.
Two separate accounts are required for VAT and Corporate Tax registrations. Using different credentials for VAT and Corporate Tax or creating 2 tax accounts, one for VAT and another one for Corporate Tax. As per the guidelines from FTA, if the business is already registered for VAT, the Corporate Tax registration shall be done in the same taxable person created for VAT purposes. There should not be a different account created or the same account, but different taxable persons also shall not be done.
Which legal type is required to be selected while registering for Corporate Tax? Selecting the correct legal type is very important. The registrant may be a company, a partnership, or even a natural person. Each legal type is different, and their Corporate Tax implications may be different. Foreign companies’ branches have a different legal type, Family Foundation has a different legal type, etc.
How to handle dual licenses in Corporate Tax registration? There are businesses that have dual licenses for their businesses. Should they register both licenses separately? The answer is no, Dual licenses the business should show as their branches.
Which financial year shall be chosen, and why is it important? Depending on the financial year of the company, the first tax period may be a period from 6 months to 18 months. Please keep in mind that whatever benefits are in the corporate tax law (for example: 0% Corporate Tax for the taxable profit up to AED 375,000/-, small business relief, etc.) are available for a tax period, and it is very crucial to choose the first tax year.

The above examples are very few, and many more are there while registering for Corporate Tax. The ignorance of the law may end up in big trouble, and it may look simple at first glance, which it may not.

Corporate Tax Impact Assessment

Each business shall make an understanding of what their position is in Corporate Tax. What are all the preparations a business should take care to comply with Corporate Tax Law in the UAE? What are the benefits available under UAE Corporate Tax Law? If it is a free zone company, whether they should go for 0% Corporate Tax or voluntarily pay 9% Corporate Tax? Like these, there are many questions to be answered, and it is highly recommended that all businesses get help from experts like Flyingcolour Tax Consultants to do an impact assessment for Corporate Tax.

There are many elections to be done while submitting the Corporate Tax returns, and most of them are irrevocable. It is very important to do an analysis of such elections and consider the pros and cons to make wise long-term decisions. Example: A company that has real estate assets shall elect where they are looking for transitional rule relief. This rule is applicable to give relief to businesses that are holding assets prior to Corporate Tax applicability and intending to sell after Corporate Tax applicability. Want to know more, Read here.

Another example of an election is the foreign permanent establishment exemption election. Corporate Tax Law allows the businesses in UAE that have branches in the foreign country to exempt the profit or loss generated by their foreign branches. If they elect for exemption, they are not required to consider their foreign branches in Corporate Tax calculations. Please note that there are conditions for this election. Once the exemption is elected, foreign tax credit relief will not be available to such foreign branches. This election is optional, and if the business is not elected this exemption, they need to include the profit or loss of the foreign branch in the UAE Corporate Tax computation. At the same time, the UAE parent company can claim the Foreign Tax Credit. Sometimes, the exemption election is good, sometimes it is not good in terms of Corporate Tax liability.

Another example is that a free zone company may be eligible for 0%, subject to conditions. If the free zone company violates one condition, it ceases to be eligible for 0% Corporate Tax in the current tax year and the coming 4 years. Want to know these conditions? Read here. At the same time, Free Zone companies can choose voluntary tax payment under normal tax rates (0% for taxable profit up to AED 375,000/- and 9% for taxable income above AED 375,000). Those who elect voluntary corporate tax payments, such as free zone companies, can enjoy all the benefits and reliefs under the UAE Corporate Tax Law. Example: Small Business Reliefs, Tax Grouping, Losses Transfer, etc. Keep in mind the voluntary tax payment election is also irrevocable in the current tax year and subsequent 4 tax years.

Still, many things are there that you need to analyze before going for the first Corporate Tax return. Do not worry, Flyingcolour Tax Consultant provides detailed Corporate Tax impact assessment services. The Corporate Tax assessment is required not only for the existing businesses but also for those investors who are planning to start their business in the UAE.

Preparation of Financial Statement

UAE has adopted the accounting standard, which is International Financial Reporting Standards (IFRS). Those who are maintaining their books of accounts depend on the annual revenue; multiple options are available:

Cash basis of accounting for those businesses whose annual revenue is less than AED 3 million
IFRS for SMEs for those companies whose annual revenue is less than AED 50 million
Full IFRS applicability for those companies whose annual revenue is more than AED 50 Million.

It is important to maintain the books of accounts as the approved accounting standard because the computation of Corporate Tax starts from accounting profit before tax. We have written a detailed article about the computation of corporate tax, Read here.

Auditing of Financial Statements

Audited financial statements are mandatory for the below businesses under the UAE Corporate Tax Law;

Those businesses that have annual revenue of more than AED 50 million.
Qualifying Free Zone person

Transfer Pricing requirements and Arm’s Length Principle for businesses

If the business is having any related party transactions (for example: selling to a group company) or connected person payments (for example: owner salary), the Arm's Length Principle shall be followed, and for any transactions that are not at Arm’s Length, the necessary adjustments are to be made while preparing Corporate Tax returns. Transfer pricing documentation like Master File and Local File shall be maintained by UAE companies that have annual revenue of more than AED 200 million.

By reading this, you must have understood why your business requires an expert team to manage the Corporate Tax. Already discussed is less than what is to be discussed. Do not worry, we Flyingcolour Tax Consultants provide end-to-end services in Corporate Tax and make sure that your business is aligned with UAE Corporate Tax Law.

To learn more about Benefits of Outsourcing Corporate Tax Compliance of your Company, 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.