On November 11, 2024, the Federal Tax Authority (FTA) published the Corporate Tax (CT) return guide to assist taxpayers with the preparation of their first UAE CT return. The guide offers much-needed clarity on the UAE CT return format and tax compliance process, including the requirement of over 500 data points to complete the CT return.
UAE CT is applicable at a rate of 0% on taxable income up to Dh375,000 and 9% on taxable income above this amount. The CT return must be submitted within nine months of the end of the financial year. Qualifying free zone persons (QFZP) are subject to UAE CT at 0% on qualifying income where certain conditions are met.
Global minimum tax (pillar two)
On December 9, 2024, the Ministry of Finance confirmed that the UAE will introduce a Domestic Minimum Top-up Tax (DMTT) of 15%, applicable to large groups with consolidated revenues exceeding EUR 750 million and with operations in more than one jurisdiction from January 1, 2025. As part of this release, the Ministry confirmed that new laws will accompany the new legislation on tax incentives and reliefs within the UAE.
Tax records
The CT return requires taxpayers to verify the taxable person’s details. This information is crucial as it will be reflected in the CT return and dictate which tax schedules the taxpayer must complete. Inaccuracies must be revised by the taxpayer (and approved by the FTA) before the taxpayer can complete the CT return. The FTA is allowing taxpayers to amend their tax records without penalty until March 31, 2025. Therefore, it is advisable for taxpayers to review their tax records and make necessary updates to avoid complications when filing their first CT return.
Tax elections and applications
Taxpayers need to assess if they want to make certain tax elections or applications in their first CT return. Some of these elections, such as the transitional rules and the realization basis, must be made in the first tax period. Furthermore, if a taxpayer wants to form a CT tax group for the FY24 calendar year, they must submit their application to the FTA by December 31, 2024.
Transfer pricing
From a transfer pricing (“TP”) perspective, taxpayers will have to disclose details about their transactions with related parties, as well as payments or benefits made to Connected Persons, once certain thresholds are reached.
Taxpayers who have a total combined value of transactions with related parties exceeding Dh40 million will be required to disclose each individual transaction where the aggregate value per category (services, goods, intellectual property, etc) exceeds Dh4 million.
For Connected Persons, taxpayers must disclose the value of the payment or benefit provided where the aggregate payment or benefit provided to the Connected Person (together with its related parties) exceeds Dh500,000.
In addition, taxpayers will be required to disclose any discrepancies between the gross transaction value and the arm’s length value. If a downward TP adjustment is required (i.e. an adjustment that reduced the amount of tax payable), taxpayers must first obtain approval from the FTA before implementing the adjustment.
It is important that businesses complete their TP assessment before completing their CT return, and in some instances, this may need to be done before the end of the financial year.
Qualifying free zone persons
Taxpayers aiming to avail the 0% CT rate on qualifying income must ensure they comply with all relevant conditions (e.g. de-minimis test, substance requirements, audited financial statements, TP, etc.) before filing their CT return. Hence, conducting an early review of the QFZP status is important.
Operational readiness
Taxpayers need to undertake a substantial amount of data collection and analysis before completing their CT return. Taxpayers should identify the relevant data points required to them and understand what analysis must be completed prior to filing their CT return, e.g. choosing which tax elections or applications to make, TP assessments, QFZP analysis, etc. Consideration should also be given on how technology could enhance and improve the compliance process. Additionally, it’s advisable to establish governance structures for CT return preparation, processing and maintaining an audit trail. A similar exercise should be undertaken by taxpayers who will be subject to the Pillar Two rules.
Given the complexity and the amount of information required, some of the data points might not be readily available for finance/ tax teams. To ensure a smooth tax compliance process, we recommend taxpayers start collecting the relevant data sooner rather than later. This will allow ample time to gather all the necessary data points and reduce the likelihood of errors or omissions in the CT return, as penalties will arise if a taxpayer submits an incorrect CT return.
