The UAE has introduced corporate taxation aligned with international standards to ensure a transparent and fair income tax system. Businesses must comply with filing deadlines and other tax obligations to avoid penalties. Failure to comply with UAE corporate tax requirements can result in potential penalties, including fines for late registration, late filing, and late payment.
The Ministry of Finance issued important amendments through Cabinet Decision No. 75/2023, effective from August 1, 2023. These amendments set out administrative penalties and fines for violations under Federal Decree-Law No. 47/2022 on corporate taxation, and highlight the role of tax authorities in enforcing compliance and imposing penalties for non-compliance.
UAE Introduces AED 10,000 Penalty for Late Corporate Tax Registration
Starting March 1, 2024, the UAE Ministry of Finance will enforce a AED 10,000 penalty for late corporate tax registration. The fine amount for late registration is clearly set at AED 10,000. Announced on February 27, 2024, this aims to encourage timely registration and tax compliance. Businesses should act promptly to avoid this fine. However, the Federal Tax Authority (FTA) has provided a waiver for this penalty if an entity files its first corporate tax return within three months from the original due date. This grace period encourages timely compliance while offering some flexibility for businesses adjusting to the new tax requirements.
If a taxable person fails to maintain proper records as required by the corporate tax law, they face a penalty of AED 10,000. A repeated violation within 24 months doubles the penalty to AED 20,000, demonstrating how penalty increases are applied for repeated offenses.
This underscores the critical importance of corporate tax compliance and accurate record keeping. If you’re unsure whether your records meet Federal Tax Authority (FTA) standards, BCL Globiz’s expert tax professionals can help review your status and guide you on avoiding unnecessary penalties.
The penalty amount for late registration is consistent with fines for value-added tax (VAT) and excise tax late registrations.
The fines outlined by the Federal Tax Authority are part of the broader framework of penalties under the UAE corporate tax law, which businesses must understand to avoid financial and regulatory exposure.
Violations and Penalties for UAE Corporate Tax
Federal Decree-Law No. 47 of 2022 (the Corporate Tax Law) and its updates, including Cabinet Decision No. 10 of 2024, specify penalties for various violations. The fines are detailed in Cabinet Decision No. 75 of 2023, based on infractions of the Corporate Tax Law and Tax Procedures Law.
| No. | Violation Description | Administrative Fine/Penalty in AED |
|---|---|---|
| 1 | Failure to keep records and necessary information as per Corporate Tax and Tax Procedures Law. Repeated violation within 24 months results in higher fines. | AED 10,000 per violation; AED 20,000 for repeated violations within 24 months. |
| 2 | Not providing requested information, records, or paperwork in Arabic to the FTA. | AED 5,000 |
| 3 | Failure to submit deregistration application by the deadline. | AED 1,000 per month, up to AED 10,000 maximum. |
| 4 | Failure to notify the FTA of changes requiring updates to tax records. | AED 1,000 per infraction; over AED 5,000 for repeated violations within 24 months. |
| 5 | Legal Representative’s failure to notify appointment to the FTA within the specified timeline (obligation to notify appointment). | AED 1,000 (paid from the legal representative’s own funds). |
| 6 | Legal Representative’s late filing of the tax return (failure to file the tax return on time). | AED 500 per month for the first 12 months, increasing to AED 1,000 monthly thereafter (paid from legal representative’s own funds). |
| 7 | Failure to file an income tax return by the due date (late filing). | AED 500 per month for the first 12 months, AED 1,000 per month after the 13th month. |
| 8 | Failure to pay the payable tax on time (late payment). 14% annual penalty charged monthly on the unpaid tax amount, starting from the due date (the day after the payment deadline). | |
| 9 | Filing an incorrect tax return that is not amended before the deadline. | AED 500 fixed penalty. |
| 10 | Filing a voluntary disclosure to correct mistakes in a tax return, tax assessment, or refund application. | 1% monthly penalty on the tax difference, starting the day after the relevant deadline. |
| 11 | Failure to submit a voluntary disclosure when aware of a tax audit. | Fixed penalty of 15% on the tax difference plus a monthly 1% penalty on the tax difference until disclosure is submitted or tax assessment is issued. |
| 12 | Failure to provide necessary support to the tax auditor during an audit. | AED 20,000 (paid by the person, legal representative, or tax agent, as applicable). |
| 13 | Failure to submit required declarations on time. | AED 500 per month for the first 12 months, AED 1,000 per month thereafter. |
| 14 | Failure to submit corporate tax registration application by the deadline. | AED 10,000 |
Importance of Accurate Record Keeping under Corporate Tax compliance
- Accurate record keeping is essential for meeting the Federal Tax Authority (FTA) requirements under Federal Decree Law No. 47.
- Businesses must maintain detailed financial documents such as invoices, receipts, contracts, and bank statements.
- Proper records support the preparation of precise tax returns and provide evidence during tax audits or assessments.
- Failure to keep accurate records or submitting incorrect tax returns can lead to administrative penalties ranging from AED 1,000 to AED 20,000 for repeated violations.
- Appointing a qualified legal representative or tax agent is crucial to manage tax compliance effectively, including timely submission of appointment notifications to avoid fines.
- Well-organized records facilitate smoother tax audits by enabling prompt provision of requested documents to tax auditors.
- When errors are identified, submitting a voluntary disclosure to the FTA helps correct tax returns and minimize penalties.
- Collaborating with experienced tax consultants ensures ongoing compliance and helps businesses stay updated on evolving corporate tax regulations.
- Prioritizing accurate record keeping, timely registration, and compliance with FTA requirements reduces the risk of fines, penalties, and legal issues under UAE corporate tax law.
Frequently Asked Questions
How Can I Avoid Corporate Tax Penalties and Fines?
The key to avoiding penalties is timely registration, accurate record keeping, and filing your corporate tax return before the deadline. If you spot any errors in your submission, submit a voluntary disclosure before the deadline to avoid fines.
What happens if my business fails to file the corporate tax return on time?
Late submission of the corporate tax return results in monthly penalties starting at AED 500 per month for the first 12 months and increasing to AED 1,000 per month thereafter. It is crucial to file on time to avoid accumulating fines.
Are penalties applicable to Free Zone companies in the UAE?
Yes, all corporate tax penalties and fines apply equally to Free Zone companies and mainland businesses. Ensuring compliance is essential regardless of your business location within the UAE.
Can I submit a voluntary disclosure if I discover an error after filing my tax return?
Yes, submitting a voluntary disclosure to the Federal Tax Authority helps correct errors or omissions in your tax return and can reduce penalties by demonstrating proactive compliance.
What are the required documents I need to maintain for corporate tax compliance?
Businesses must keep accurate records including invoices, receipts, contracts, bank statements, and other financial documents. These are essential for preparing tax returns and supporting tax audits.
How to Choose the Right Tax Consultant in the UAE?
Preparation is vital before dealing with corporate tax matters. Consider expert corporate tax advising services like BCL Globiz, which specialize in helping businesses avoid penalties and ensure full compliance.
Our team, led by experts with over 10 years of experience in taxation, VAT consulting, and corporate tax, is dedicated to supporting your business growth while maintaining compliance with UAE tax regulations. You can reach out to us at info@bcl.ae
