Understanding the UAE’s Corporate Tax Penalties in 2024

The UAE’s corporate tax was announced in 2022, and since then a series of regulations were put in effect for businesses to comply with. Along with the regulations, the penalties for non-compliance were also announced. As the corporate tax is fairly new, it can be quite possible for businesses to miss out on certain obligations, and before they know it, they may be liable to pay fines.

As we know, the UAE is renowned for the way it implements systematic procedures in every area, and taxation is no different. The Federal Tax Authority (FTA) has clearly specified the guidelines to be followed by businesses. However, the UAE has always been stringent when it comes to non-compliance. Therefore, awareness regarding the laws in place and our obligations to comply with these are necessary. This is exactly our motive behind writing this article, to educate you about the UAE’s corporate tax penalties and to help you stay on top of your tax obligations.

Below we have explained the possible violations of the tax laws and the penalties associated with them.

Missing the Corporate Tax Registration Deadline

In February 2024, the deadlines for corporate tax registration in the UAE were announced by the Ministry of Finance. The deadlines were assigned based on the month in which the business was incorporated (irrespective of the year). As an example, a business whose license was issued in the months of January or February, has been given the deadline of May 31, 2024. It is key to note that missing the registration deadlines can incur a fine of AED 10,000 for businesses. The corporate tax laws have stated that every business in the UAE whether set up in the mainland or a free zone must register for the tax. It is advisable to acquire professional tax and accounting assistance for corporate tax registration in the UAE.

Failure to Maintain Records

It is mandatory for businesses to maintain financial and bookkeeping records as per the guidelines and format stated within the corporate tax laws. Not adhering to this can result in a penalty of AED 10,000. If the same offense has been repeated within a period of 24 months from the date of the previous violation, a fine of AED 20,000 will be applicable.

Not Reporting an Amendment to the Submitted Information

It may happen at any point in time that the information you submit to the authorities may require changes. Any necessary updates must be duly notified to the authorities. Not adhering to this will be considered a violation and every such violation will cost you a penalty of AED 1,000. Also, an AED 5,000 fine has been set for a repeat of this violation within 24 months of the previous violation.

Not Submitting Requested Information in Arabic

A separate penalty has been put in place if the entity fails to produce the relevant data or documents in Arabic language. As of now, a fine of AED 5,000 has been declared for this violation.

Not Notifying the Appointment of a Legal Representative

You are permitted to appoint an individual to represent you for corporate tax purposes. Such an individual is referred to as a legal representative. However, it is mandatory to formally notify the authorities about any such appointment within the specified timeframes, and this is the responsibility of the legal representative. Not doing so will incur a penalty of AED 1,000 and will be borne by the legal representative.

The Legal Representative’s Failure to File Timely Tax Returns

If you have appointed a legal representative to submit tax returns, and if this has not been done before the allotted deadlines, an AED 500 penalty will be imposed on the legal representative every month after the timeline has passed. If a period of 12 months has passed since the deadline has passed, a penalty of AED 1,000 shall be payable from the 13th month onwards.

The Registrant’s Failure to File Timely Tax Returns

If you as the registrant have not filed the returns before the allotted deadlines, you will be liable for an AED 500 penalty every month after the timeline has passed. If a period of 12 months has passed since the deadline has passed, a penalty of AED 1,000 will be imposed from the 13th month onwards.

Not Filing Accurate Tax Returns

An incorrect tax return will attract a penalty of AED 500. However, this will be waived if the necessary amendments are made to the tax return before the filing deadline.

Submitting Erroneous Tax Returns, Tax Assessment, or Tax Refund Application (But a Voluntary Disclosure is Submitted Later)

If you have filed erroneous tax returns, tax assessments, or tax refund applications, a penalty of 1% of the tax difference will be levied every month until you have filed a voluntary disclosure regarding the same. Voluntary disclosure is a means through which you can notify the authorities regarding any unintentional errors or omissions in your submissions.

Not Submitting a Voluntary Disclosure Regarding Erroneous Tax Returns, Tax Assessment, or Tax Refund Application

It is necessary to submit a voluntary disclosure if you have filed incorrect tax returns, tax assessment, or tax refund application, and not doing this will result in a penalty equal to 15% of the tax difference.

In addition to the above penalty, a penalty of 1% of the tax difference will also be imposed in the following ways:

1. If you have filed a voluntary disclosure after receiving a notification of a tax audit, you will be liable for a monthly penalty amounting to 1% of the tax difference every month until the date of filing the voluntary disclosure.
2. If the voluntary disclosure has not been filed, a penalty of 1% will be applied starting from the date following the tax return due date, tax refund application submission date, or tax assessment notification date and until the date of issuance of the tax assessment.

Not Facilitating the Tax Auditor

The ‘Tax Person’ (natural or a juridical person) subject to a tax audit must ensure the necessary cooperation and assistance. All the information requested as part of the audit process must be duly provided. In case the ‘Tax Person’ or the tax agent or the legal representative does not cooperate, a penalty of AED 20,000 will be imposed.

No Submission or Late Submission of Tax Declaration

Penalties can also be applicable if the tax declaration has not been submitted. Also, the submission must be completed before the given due date. If this submission has not been made, and on a timely basis, penalties shall be levied. A monthly penalty of AED 500 will have to be paid from the date following the due date for the first 12 months. From the 13th month onwards, a penalty of AED 1,000 will be levied.

Not Paying Tax Within the Timelines

If the payment of the tax due has not been made within the specified timelines, a monthly penalty will be applied. The penalty will be 14% of the unpaid tax per annum.

Not Filing a Timely CT Deregistration Application

While registration for corporate tax is an important obligation for businesses, deregistration is also necessary when required. For example, a business that is dissolved or liquidated will have to deregister, and not filing an application for the same within a specific timeframe will result in a penalty ranging from AED 1,000 to AED 10,000.

Managing all corporate tax obligations on your own can be an overwhelming task. It is highly advisable to secure professional services to stay on top of your taxes. InZone offers top-notch tax and accounting services in Dubai and across the UAE. From registration to advisory, filing to representation, we offer all-round assistance when it comes to corporate tax.