What Happens If You Don’t File Corporate Tax in the UAE?

The introduction of Corporate Tax in the UAE has brought new compliance responsibilities for businesses operating in the country. While the UAE remains a highly attractive jurisdiction due to its low tax rates and business-friendly environment, failure to meet corporate tax obligations can lead to serious financial and operational consequences. Understanding what happens if you don’t file corporate tax is essential for protecting your business and maintaining regulatory compliance.

Corporate Tax Filing Is a Legal Requirement

The process of corporate tax registration and submitting taxes is required for most UAE-based companies, whether it is on the mainland or a free zone. It is actually required that they register and pay, regardless of whether they record a profit or pay a 0 % rate of corporate tax. It has been seen that most companies are mistaken about not filing taxes if they record no profit.

A penalty will be charged if a business does not apply for a corporate tax registration within the stipulated timeframe. A penalty of AED 10,000 has been assigned by the Federal Tax Authority (FTA) in this case.

Penalties for Late or Non-Filing of Returns

After registering, every business has to present an annual corporation tax return for each financial year. Non-submission of the return or failure to meet the deadline attracts monthly charges that accumulate until the matter is remedied.

The following are penalties set in the current

• AED 500 per month (or part of a month) for the first 12 months of delay
• AED 1,000 per month after the first year until the return is filed

These fines can quickly add up, especially for businesses that delay compliance for extended periods.

Late Payment of Corporate Tax

In addition to these charges, if a company files their return but does not pay the corporate tax by the filing deadline, other charges apply. The FTA charges an interest rate of 14% per annum on the due tax.

Even if the tax liability amount is relatively small, the long-term costs to the business could be substantial. Payment and filing are both of equal importance.

Record-Keeping and Documentation Requirements

The UAE corporate tax law specifies that a company is obligated to keep proper records of accounts or supporting documents for a minimum of seven years. The records should reflect the financial position of the company correctly and be available for examination by the FTA when required.

Failure to maintain or provide records can result in:

• Penalties ranging from AED 10,000 to AED 20,000 for inadequate record-keeping
• AED 1,000 per day for failing to submit requested information

Poor documentation also increases the likelihood of audits and disputes with tax authorities.

Risks of Incorrect or Misleading Filings

Making erroneous information on a business tax return, whether knowingly or through ignorance, may lead to severe repercussions. A business may be liable for further penalties if the errors cause it to pay lesser taxes. Further, in instances where fraud or intentional misrepresentation is concerned, the penalty may be up to 200% of the unpaid tax.

Such activities can also result in the degradation of a company’s image and its relations with regulators, banks, and other investors.

Increased Audit and Business Risks

Those businesses that do not comply with corporate tax laws increase the chances of them being audited by the FTA. Non-compliance can lead to a business being thoroughly investigated, resulting in compliance costs.

Non-compliance can also impact operational business, for example, trade license renewals and approvals as well as other banking and government services. Being in a regulated environment like the UAE, having a positive non-compliance profile is of utmost importance.

Conclusion

The UAE has a business tax structure that is considered simple and competitive, while the penalty for non-compliance is severe. Non-compliance with the filing, payment, or registration process for corporate tax incurs penalties, interest, and the possibility of audit and damage to reputation.

The good news is that these risks are completely avoidable. All that is necessary is that businesses register on time, make their tax filings correctly, keep their records in order, and seek professional help if and when necessary. 

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