Taxpayers in UAE: How to prepare yourself for first Corporate Tax Return

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Overview Of UAE CT Return 

Eligibility 

In the UAE, businesses must comply with corporate tax laws by filing annual tax return. However, exemptions are available, including government bodies, extractive/natural resource businesses meeting specific conditions, and some non-resident entities without a Permanent Establishment (PE) in the UAE. Taxable Persons must apply International Financial Reporting Standards (IFRS). However, if their Revenue is under AED 50,000,000, they can use IFRS for SMEs. 

Penalties 

Businesses to settle tax liabilities promptly through approved channels outlined by the FTA. Failure to comply with tax regulations can lead to penalties, including those for late filing, incorrect returns, and other violations like late or non-filing of declarations or failure to maintain records. Penalties vary from AED 500 to AED 20,000 depending on the severity and frequency of the offense. 

Branches 

A UAE company along with its branches (UAE) is treated as a single taxable person. Income from such branches is consolidated into the taxable income of the parent entity. Moreover, income from foreign branches or foreign permanent establishments of a UAE business is included in the taxable income and UAE corporate tax return of their UAE "head office", unless the UAE "head office" elects to claim an exemption for its foreign branch profits. This exemption applies to foreign branch profits already taxed in the foreign jurisdiction. 

Clarifications 

Businesses operating in the UAE can request clarification on tax matters from the FTA before filing returns. Obtaining tax clearance certificates is vital to confirm the settlement of all liabilities, promoting transparency and compliance in financial transactions. 

Key Financial Elements to Consider for CT Returns before filling. 

Taxpayers need to consider that FTA has the right to audit the tax return along with books and records during five years from the year of filling, it’s always advisable to prepare a file contains all the related breakdown and workings before filling instead of waiting for five years and start to prepare which can result to big risk in case something not in place or missing. 

Preparing corporate tax returns involves careful consideration of various factors to ensure compliance with tax regulations and optimize tax positions.  

The tax return form still awaiting to be released from FTA. However, Taxpayers will need to start from now on preparing themselves for first tax return filling and make sure that they will have the main books and records along with a proper breakdown and analysis which will support them during the tax return preparation process smoothly. 

Here, we provide an overview of the main key considerations involved: 

Key Elements for UAECT Returns  

01. Revenue and Income Sources 

Accurate Tracking for all revenue sources, including sales, interest, dividends, rentals, and other income types. 

02. Deductions and Expenses  

Document various expenses such as COGS, operating expenses, depreciation, bad debts, interest, charitable contributions, and R&D costs. 

03. Capital Assets 

 Monitoring transactions involving capital assets and depreciation schedules is crucial as it affects the overall CT computation. 

 04. Net Operating Losses 

Understanding Net Operating Losses is vital as they can offset future taxable income, impacting the overall CT computation. 

05. Transfer Pricing 

Formulate TP policy and maintain relevant TP documentation, such as Local File and Master File. 

06. International Tax Considerations 

Address foreign income, taxes paid, tax treaties, and foreign tax credits. 

07. Compliance and Reporting Requirements 

Stay alert of filing deadlines, complete required forms, disclose related party transactions, and ensure overall tax law compliance. 

08. Recordkeeping and Documentation 

Ensure a robust process for retrieving accurate financial records to support deductions, credits and tax positions 

09. Tax Planning Strategies 

Implement effective strategies to minimize tax liabilities, including timing income recognition, expense deductions and structuring transactions to optimize tax outcomes. 

10. Tax Accounting Methods 

Choose between cash or accrual basis and ensure compliance with tax regulations. 

By carefully considering these factors and ensuring compliance with tax regulations, companies can accurately prepare their corporate tax returns and effectively manage their tax obligations in the UAE. 

Disclaimer: Content posted is for informational and knowledge sharing purposes only, and is not intended to be a substitute for professional advice related to tax, finance or accounting. The view/interpretation of the publisher is based on the available Law, guidelines and information. Each reader should take due professional care before you act after reading the contents of that article/post. No warranty whatsoever is made that any of the articles are accurate and is not intended to provide, and should not be relied on for tax or accounting advice.