UAE FTA Extends Tax Filing Deadline for New Businesses

UAE FTA Extends Tax Filing Deadline for New Businesses. In a significant move aimed at providing relief to newly established businesses, the UAE’s Federal Tax Authority (FTA) has extended the deadline for corporate tax filings and payments for certain entities. This extension applies to businesses with shorter tax periods, offering them more time to comply with their tax obligations.

Extended Deadline for Tax Filing

Businesses whose tax periods end on or before February 29, 2024, can now file their corporate tax returns and settle their payments by December 31, 2024. This extension primarily benefits companies established on or after June 1, 2023, whose financial year concludes before or on February 29. The FTA decision reflects an understanding of the complexities faced by new entities adjusting to the UAE’s corporate tax system, particularly those with tax periods shorter than the standard 12-month duration.

Khaled Al Bustani, the FTA Director General, highlighted the rationale behind the extension, stating, “Our goal is to encourage timely and accurate tax filings by offering a reasonable time frame for taxpayers to fulfil their obligations, thereby alleviating undue pressure and potential administrative penalties.” This move is part of the authority’s broader strategy to ensure smooth tax compliance and foster a conducive business environment.

UAE Corporate Tax Regime

The UAE introduced its corporate tax system starting from the financial year beginning on or after June 1, 2023. The corporate tax rate has been set at a standard statutory rate of 9%, applicable to businesses earning profits exceeding Dh375,000 ($102,100). Income below this threshold remains subject to a 0% tax rate, making the system fair and supportive of small businesses and start-ups.

The corporate tax structure aligns with international best practices and strengthens the UAE’s position as a competitive global business hub. By implementing a relatively moderate corporate tax rate, the UAE ensures that it remains attractive to multinational corporations while also contributing to the country’s ongoing economic diversification efforts.

Impact on Newly Formed Businesses

The businesses most affected by this deadline extension are those formed after June 1, 2023, and those whose financial year ends on or before February 29, 2024. These companies face a shorter tax period in their initial year of operation. For such entities, the FTA’s extension provides additional time to get their financial records in order, submit accurate tax filings, and ensure compliance with the new tax regulations without rushing to meet a tight deadline.

New businesses often experience various operational challenges in their early stages, and complying with tax regulations can add complexity. This extension demonstrates the UAE government’s understanding of these challenges and its commitment to supporting business growth by easing administrative burdens where possible.

Encouraging Compliance and Avoiding Penalties

One of the key messages from the FTA is the importance of compliance with corporate tax regulations. The FTA has been urging eligible businesses to register for corporate tax since earlier this year.

Companies that have not yet registered may face significant penalties. To avoid such penalties, resident businesses were required to complete their tax registration by June 30, 2024. Failure to do so could result in administrative penalties, with fines as high as Dh10,000.

Juridical persons, including those whose trade licences were issued in March or April, are also urged to ensure their corporate tax registration is completed by the prescribed deadlines. The FTA continues to emphasize that non-compliance will lead to strict enforcement measures, including financial penalties.

Turnover Threshold for Corporate Tax Applicability

The UAE Ministry of Finance has clarified that businesses will only be subject to corporate tax if their annual turnover exceeds Dh1 million. This threshold was confirmed in May last year, and it ensures that only substantial business activities are taxed, further promoting a business-friendly environment. By establishing this turnover limit, the UAE government seeks to strike a balance between maintaining its status as an attractive location for small and medium enterprises (SMEs) and ensuring that large, profit-generating corporations contribute to the nation’s tax base.

The income derived from business or business-related activities will fall under the scope of corporate tax, while income from non-business activities remains excluded. This approach aims to protect individuals and small businesses from excessive taxation while ensuring larger enterprises contribute their fair share.

Encouraging Tax Registration

The FTA has taken a proactive stance in ensuring that all eligible businesses register for corporate tax. The authority has provided clear guidelines on the registration process and has implemented strict penalties for non-compliance. Business owners are encouraged to understand the implications of the corporate tax law and take the necessary steps to ensure their registration and tax filings are completed within the extended timeframe.

Businesses should work closely with tax professionals to understand their obligations, particularly in the case of newly formed entities that may be unfamiliar with the UAE’s tax system. Leveraging professional expertise can help businesses avoid administrative penalties and ensure that their financial reporting is accurate and compliant with the law.

Conclusion

The FTA decision to extend the tax filing deadline reflects the UAE’s commitment to fostering a supportive and business-friendly environment. By providing additional time for newly established companies to file their corporate tax returns, the UAE government is demonstrating its understanding of the unique challenges faced by new businesses, particularly in their first year of operation.