Corporation Tax was implemented in the UAE on January 1, 2018. Since then, businesses have been subject to several requirements under the Corporation Tax Law. Each business enrolled for Corporation Tax must file tax returns with the Federal Tax Authority (FTA). However, corporate tax UAE businesses continue to make tax-related mistakes and need help.
Let’s take the example of the United Kingdom, even though Corporate Tax UAE was introduced in 1973. Research suggests that over half of small business owners make errors when completing their Corporation Tax returns, resulting in excess taxes paid to HMRC.
For this reason, however, you must be extra cautious when filing your corporate tax UAE return, and you can also watch out for some common mistakes in this process. Using this blog, we have attempted to find some of the most common Corporation Tax errors and mistakes while filing Corporation Tax returns.
Corporation Tax-related Mistakes Made By Businesses in UAE
Businesses commonly make the following errors in filing Corporate Tax UAE returns :
Late Filing Of Corporation Tax Returns
A Corporation Tax return must be filed within certain deadlines in the United Arab Emirates. Unfortunately, we have seen this Corporation Tax-related mistake on several occasions. The FTA has defined monthly and monthly deadlines to ensure that the Corporation Tax returns are filed on time. For these businesses to avoid any last-minute rush that may lead to calculation errors or omissions, it is important to remain on top of these deadlines and complete the corporate tax returns filing process well ahead of time.
During the Corporation Tax registration process in UAE by the firm, the authority specifies the deadlines for filing the Corporation Tax returns. The firm must ensure it files its Corporation Tax returns on or before the deadlines. It must ensure the corporate tax UAE return filing process is completed on time. Approaching an accounting firm for corporate tax UAE return filing will help the firms follow the filing process correctly. It will save the firm from hefty fines and penalties that may be charged, causing delays in Corporation Tax return filing.
Failure To Maintain Records
In the UAE, the Corporation Tax laws require businesses to maintain records of their transactions for at least five years (15 years in the case of real estate) to facilitate Corporation Tax filing and bookkeeping. This includes all kinds of payments, receipts, expenditures, and other documentation that supports Corporate Tax UAE filings. Unfortunately, most companies fail to maintain all these records, or even if they do, they fail to update and maintain them regularly.
The FTA makes it mandatory for all the registered entities to maintain proper records of every transaction of at least the past five years for most firms. The records may include purchase and sales records, payments and receipts, import and export records, bank statements of credit and debit transactions, salary and benefits records of the employees, Corporation Tax, and company ledgers, etc., which must be maintained and must be updated as per the requirement.
Incorrect “Tax Point”
The tax point can be defined as the transaction’s date for corporate tax UAE purposes. Consequently, ensure that the transactions that fall within the specific Corporation Tax points are included on the appropriate return during the tax period. The most common mistake occurs when supplies occur at the end of a Corporation Tax quarter. They are then included in the incorrect corporate tax UAE return.
Mistakes When Calculating Corporation Tax
Applying correct Corporation Tax rates is the most important component of preparing accurate Corporation Tax returns. Business owners need to be corrected when it comes to identifying the appropriate rate of Corporation Tax for the goods and services they offer. Due to this, calculations and payments will become more inaccurate, which may result in fines.
Firms must apply the correct Corporation Tax rates while calculating them. The firm must accurately do the calculations; otherwise, it will incur huge costs such as fines and penalties. The firm must always stay updated regarding the applicable Corporate Tax UAE rates while calculating.
Issues With Reverse Charge Mechanism
A reverse charge applies when the firm imports goods and services to the UAE. If the Tax number is linked with the customs code and is reflected in the taxable person’s account, then it becomes easy to account for the Corporation Tax. Still, usually, the firms need to link their Corporation Tax number with the portal, which results in various issues while claiming for input corporate tax UAE. For example, the firms may need to include the transactions on which the reverse charge mechanism may apply. They may also consider that those goods or services have no Corporation Tax charges. However, the import transactions are reflected on the customs portal, so the firms must be vigilant while recording the transactions and approach experts if required.
There are usually inaccuracies in corporate tax UAE transactions involving reverse charge mechanisms. That is because services and goods are imported mainly from abroad. Often, businesses must remember to include transactions covered by the reverse charge mechanism in the Corporation Tax returns they submit for return filing. Nevertheless, these transactions are included in the Corporation Tax returns of any businesses as they have to pass through customs as part of their existing procedure of filing tax. Thus, companies should be very careful and accurate in reporting transactions of this kind and get professional assistance.
Using Adjustment Columns Incorrectly
In the filing process of Corporate Tax UAE returns, businesses need help understanding the use of adjustment columns. Adjustment columns can be seen in the Corporation Tax return format of the FTA. Adjustment columns are designed for the adjustment of bad debts and sales of commercial property. Businesses correct errors in previous Corporation Tax returns using the adjustment columns. As a result, the FTA might ask questions and investigate, leading to penalties. Therefore, for businesses to comply with the Corporate Tax UAE returns, they must pay particular attention to each of the columns of information.
Bad Debt Relief
FTA offers relief for bad debts per Article 64 of the Federal Decree-Law No. 8 of 2017 on Corporation Tax. If you are paying creditors late, you must adjust your input Corporation Tax accordingly, as the corporate tax authority expects you to do so. Corporation Tax cannot be claimed on invoices that you have not paid.
Lack of proper planning and strategy regarding Corporation Tax compliance
Corporation Tax law is a new tax system for UAE-based business firms, and it may be difficult for the firms to understand and strictly comply with the new Corporation Tax law. Still, to tackle this issue, the firms must formulate a proper strategy to comply with the law. Furthermore, given the complexities, the firms may find It hard to stay updated regarding the different alterations and laws related to Corporate Tax UAE compliance; under such circumstances, it is always the best course of action to approach an accounting firm that is expert and has a professionalized and experienced team so that the firms can avoid huge penalties and stay complied to the Corporation Tax.
Businesses should have tax professionals to handle Corporation Tax-related transactions to leverage the Corporation Tax laws. A competent team is essential for compliance with Corporate Tax UAE regulations. Sometimes, the company hires the wrong group of people who need more knowledge to understand Corporation Tax implications.
Not recording Zero Rated and Exempted sales
All the entities may correctly file the output and input Corporation Tax along with the Corporation Tax payables and receivables, but they may need to record and file the zero-rated and tax-exempt sales. Therefore, the firms must try to identify the zero-rated and exempted sale, which must be accurately stated and filed with the authority.
Bringing It All Together
To minimize the chances of your company making a mistake while filing returns, you must understand where Corporation Tax return errors commonly occur and what FTA expects from you.
It is recommended to have tax experts at your aid. These help companies stay on top of their corporate tax UAE compliance requirements. These experts have accountants and tax consultants who can assist you with Corporation Tax registration, deregistration, and determining your Corporation Tax obligations.
Tax experts are always ready to render their services to clients, assisting them in accounting, bookkeeping, Corporation Tax compliance, and other fields. Corporate Tax UAE’s specialized team ensures that its clients are not exposed to business threats or losses. For example, talking about the mistakes caused by the firms during return filing, tax experts can help them by ensuring that they maintain all the required records, don’t miss out or make any delay in filing the corporate tax UAE returns, and that the firm has proper planning regarding the Corporation Tax compliance and helps to calculate accurate Corporation Tax returns.