Category: corporate tax

Posted on by — Leave a comment

Avoid Costly Mistakes: A Practical Guide to First-Year Corporate Tax Filling.

Introduction

As a hardware business owner in the UAE, you’re likely aware that the corporate tax landscape is evolving. With the introduction of the new corporate tax regime, the Federal Tax Authority (FTA) is closely scrutinizing first-year tax filings. Understanding the common pitfalls and how to avoid them is crucial to ensure compliance and avoid penalties.Khaleej Times

Understanding the New Corporate Tax Landscape

The UAE’s corporate tax regime is in its inaugural year, meaning there’s no historical data for the FTA to reference. This lack of precedent places a spotlight on initial filings, making accuracy and compliance more critical than ever. Nikos Kastellanis, Managing Partner at KISA Chartered Accountants, emphasizes that filing is just the beginning of regulatory scrutiny.Khaleej Times

Common Mistakes to Avoid

  1. Misclassification of Expenses: Ensure that all business expenses are accurately categorized. Misclassifying expenses can lead to inflated deductions and trigger audits.Khaleej Times
  2. Overlooking Permanent Establishment Obligations: If your business operates in multiple jurisdictions, be aware of the tax obligations in each. Failing to recognize a permanent establishment can result in non-compliance.
  3. Inadequate Transfer Pricing Documentation: For businesses with related-party transactions, it’s essential to maintain documentation that aligns with the arm’s length principle. This includes justifying intra-group charges like royalties.Khaleej Times
  4. Incorrect Free Zone Tax Claims: Not all income qualifies for the 0% tax rate in free zones. Ensure that you meet the criteria for a Qualifying Free Zone Person (QFZP) and properly segment and disclose income from mainland clients.Khaleej Times
  5. Inconsistencies Between VAT and Corporate Tax Filings: Discrepancies between VAT turnover and corporate tax filings can raise red flags. Ensure consistency across all tax filings.Khaleej Times

Why These Mistakes Are Risky

The FTA is expected to take a proactive stance on enforcement. With no prior-year benchmarks, every tax position is under scrutiny. Audit rates tend to spike within two years in jurisdictions introducing corporate tax for the first time, as tax authorities establish credibility early.Khaleej Times

corporate tax

Practical Steps to Ensure Compliance

  • Conduct an Internal Tax Health Check: Review your financial statements and tax filings for accuracy. Identify and correct any discrepancies before submission.
  • Ensure Consistency Across Tax Filings: Align your VAT and corporate tax filings to prevent inconsistencies that could trigger audits.Khaleej Times
  • Maintain Robust Documentation: For free zone entities, document economic substance and classify income accurately. For related-party transactions, prepare comprehensive transfer pricing files.Khaleej Times
  • Partner with Experienced Auditors: Engage auditors who understand both compliance and risk. They can provide insight-driven advice and act as early warning systems.Khaleej Times

What to Expect Post-Filing

After the September 30 deadline, the FTA is likely to initiate reviews focusing on free zone claims, loss-making entities, and filings that don’t match VAT data. Being flagged can affect your company’s standing with banks, investors, and partners. A tax inquiry can quickly escalate into reviews of anti-money laundering, Know Your Customer (KYC), and Know Your Business (KYB) compliance.Khaleej Times

Conclusion

Navigating the new corporate tax regime in the UAE requires diligence and attention to detail. By understanding common pitfalls and taking proactive steps to ensure compliance, your hardware business can avoid penalties and maintain a strong reputation in the market. Remember, the goal isn’t just to file taxes but to do so accurately and responsibly.

For more details from Khaleej Times please check here.