Taxable persons with licenses issued in January and February, regardless of the year the license was also required to submit their Corporate Tax registration applications no later than May 31, 2024, to remain compliant with the law and avoid tax law violations.
According to the Decision, juridical persons without a license as of 1 March 2024 were also required to apply for Corporate Tax registration within three months, i.e., by 31 May 2024.
Yet, if the juridical person holds multiple licenses, the registration deadline was determined based on the earliest issued license, which then determined the maximum timeframe for submitting their Corporate Tax registration application.
Over 2024, many companies did not complete Corporate Tax registration on time and incurred penalty fines of AED 10,000 per company license. The government has recognised that there is support required for businesses and therefore has introduced a Corporate Tax Penalty Waiver. This initiative helps lower financial stress, particularly for SMEs. Initially, businesses may not have been clear on their tax position and obligations and did not seek expert guidance, such as Creation Business Consultants. Therefore, the FTA has provided a second time-round chance to promote Corporate Tax compliance.
WHAT IS THE UAE CORPORATE TAX PENALTY WAIVER 2025?
The Corporate Tax Penalty Waiver was rolled out in April 2025 as a one-time offer. Businesses and exempt entities now have a chance to act fast with expert assistance to complete registration to avoid penalties. However, this will only apply if a UAE-licensed company registers and submits their Corporate Tax return or annual statement on time.
For example, you have seven months to file from the end of your first tax period. If you meet this rule, the FTA will not charge the AED 10,000 fine. If you have already paid it, you will have the ability to speak with our tax advisors and apply for a refund.
Business scenario: If your first tax period ended on 31 December 2024, you must file by 31 July 2025 to qualify. If you miss this timeframe, the penalty will remain. Book your initial free tax consultation to see if you can benefit from the Corporate Tax Penalty Waiver, and we will work with you to ensure you qualify and meet the requirements on time.
EXEMPTED ENTITIES FROM UAE CORPORATE TAX
Certain types of businesses or organizations are exempt from Corporate Tax. These are known as Exempt Persons and include:
- Government Entities
- Government-Controlled Entities that are specified in a Cabinet Decision
- Extractive Businesses (subject to meeting certain conditions)
- Non-Extractive Natural Resource Businesses (subject to meeting certain conditions)
- Qualifying Public Benefit Entities (if listed in a Cabinet Decision)
- Public or private pension and social security funds (if listed in a Cabinet Decision)
- Qualifying Investment Funds (if applied to and approved by the Federal Tax Authority)
CORPORATE TAX GROUP
To form a Corporate Tax Group, companies must meet the following conditions:
- Common ownership: The parent company must own at least 95% of the shares, voting rights and profit distribution rights of each subsidiary.
- Tax residency: Both the parent company and subsidiaries must be tax residents in UAE.
- Unified Financial Year: All members must share the same financial year-end.
Exclusions:
Certain entities, such as Free Zone Companies benefiting from the 0% corporate tax rate (unless they opt for the 9% rate), and companies that fail the 95% ownership test, are not permitted to join a Tax Group.
Forming a tax group objective:
- Simplify tax administration, reporting and compliance.
- Enable the offsetting of profits and losses within the group members.
- Simplify the transfer of assets and liabilities and other transactions and arrangements between members of the Tax Group, (Any transactions between the group members will be eliminated from any corporate calculation purposes).
- Reduce the group’s overall corporate tax liability efficiently.
RECORD-KEEPING IS A KEY ELEMENT OF COMPLIANCE WITH UAE CORPORATE TAX REGULATIONS
To ensure compliance with UAE Corporate Tax regulations, businesses must adhere to the following record-keeping practices:
- Retain financial records such as income statements, balance sheets, ledgers, and transaction documents for a period of seven years from the end of the relevant tax period.
- Maintain employment documentation, including contracts, payroll records, and WPS (Wages Protection System) transactions, to support salary-related expenses.
- Keep supporting documents for deductible expenses and income, such as invoices, receipts, and contracts.
Proper record-keeping is essential for demonstrating tax compliance and facilitating smooth audits or reviews by the Federal Tax Authority (FTA).
UTILIZING FREE ZONES FOR TAX ADVANTAGES
Free zones in the UAE offer businesses the chance to minimize tax liabilities through various incentives.
What Free Zones Offer:
- Tax Exemptions: Many free zones provide 100% tax exemptions for a set period, often ranging from 15 to 50 years. These zones are ideal for businesses seeking tax-free profits, as well as exemptions from customs duties and VAT for certain activities.
- Popular Free Zones: Free zones such as Jebel Ali Free Zone (JAFZA) and the Dubai International Financial Centre (DIFC) offer distinct benefits depending on industry and business needs.
Advantages of Free Zones:
- Full Foreign Ownership: Free zones enable businesses to have full foreign ownership, which is attractive to international investors.
- No Import/Export Duties: Free zones often exempt companies from import and export duties, reducing operational costs for businesses engaged in global trade.
TRANSFER PRICING FOR TAX EFFICIENCY
For multinational businesses or those dealing with cross-border transactions, transfer pricing can help reduce tax exposure.
What is Transfer Pricing?
- Definition: Transfer pricing refers to the pricing of goods, services, or intangible assets between related entities. To avoid profit shifting, businesses must ensure transactions are priced according to the arm’s length principle, which ensures fairness and prevents tax evasion.
Tax Minimization through Transfer Pricing
- Income Allocation: Multinational businesses can allocate income to jurisdictions with lower tax rates, effectively reducing their overall tax liability while adhering to international tax standards.
- Documentation: UAE businesses must maintain proper transfer pricing documentation, including local files, master files, and a country-by-country report when applicable, ensuring compliance and tax efficiency.
WITHHOLDING TAX RATE IN UAE
A 0% withholding tax may apply to certain types of UAE sourced income paid to non-residents. Because of the 0% rate, in practice, no withholding tax would be due, and there are no withholding tax related registration and filing obligations for UAE businesses or foreign recipients of UAE sourced income.
Withholding tax does not apply to transactions between UAE resident persons.
MAXIMIZING CAPITAL ALLOWANCES
Capital allowances allow businesses to reduce their taxable income by claiming deductions for qualifying assets such as machinery, property, and equipment.
How Capital Allowances Work:
- Tax Benefits: By claiming capital allowances on depreciating assets, businesses can reduce their taxable income, leading to lower tax bills.
- Eligible Assets: It’s essential for businesses to understand which assets qualify for capital allowances and how to account for them accurately to maximize tax savings.
TAX INCENTIVES FOR EXPORT-ORIENTED BUSINESSES
The UAE offers several incentives for businesses involved in exports, which can help minimize tax liabilities.
Incentives for International Trade:
- VAT Exemptions: Export businesses can benefit from VAT exemptions, making it easier and more cost-effective to engage in international trade.
- Customs Duties Exemptions: Companies involved in exports can qualify for customs duties exemptions, further reducing costs and increasing profitability.
CHOOSING THE RIGHT BUSINESS STRUCTURE FOR TAX SAVINGS
The way a business is structured can directly influence its tax obligations. Choosing the right business structure is key to optimizing tax savings.
Optimizing Business Structures:
- Types of Legal Structures: Choosing between options like Limited Liability Companies (LLCs), joint ventures, or branches impacts tax liability. For instance, holding companies, offshore entities, and partnerships may offer additional tax-saving opportunities.
- Corporate Restructuring: Businesses may consider restructuring operations, consolidating or separating assets and activities, to achieve a more tax-efficient structure.
TAX TREATIES AND INTERNATIONAL BUSINESS
The UAE has signed double tax treaties (DTTs) with over 80 countries, offering significant advantages for businesses involved in cross-border transactions.
Tax Treaties Explained:
- Avoiding Double Taxation: The UAE’s DTTs help businesses avoid being taxed twice on the same income, offering relief from withholding taxes in both the source country and the UAE.
CONCLUSION
With the introduction of corporate tax in the UAE, businesses need to understand the regulations to manage their tax exposure effectively. Key strategies such as utilizing free zones, optimizing business structures, claiming capital allowances, and implementing transfer pricing practices can help businesses minimize their corporate tax liability. Additionally, businesses should explore export incentives and make use of double tax treaties to reduce costs further. By adopting a proactive tax strategy and seeking professional advice, companies can improve their profitability while remaining compliant with the evolving UAE tax environment.
At Creation Business Consultants, we specialize in helping businesses navigate tax regulations and optimize their tax positions in the UAE. If you are interested to learn more, reach out to our team of consultants, and secure your complimentary expert consultation. Our team will take you through a journey on regulations to avoid any potential compliance issues. Contact us via email [email protected] or call +971 4 878 6240 today.
