How do you comply with the UAE Corporate Tax Penalty Waiver?

The introduction of the corporate tax regime in the United Arab Emirates (UAE) has marked a historic milestone in the country’s economic development. The UAE Corporate Tax Law, which was enacted on 1 June 2023, is designed to align the nation with global tax standards while maintaining its attractiveness as a business hub. The Federal Tax Authority (FTA) has rolled out a Corporate Tax Penalty Waiver Scheme to support a smooth transition into the new tax environment. This blog will provide a detailed and up-to-date guide on how businesses can comply with the UAE Corporate Tax Penalty Waiver and avoid unnecessary fines.

Overview of UAE Corporate Tax Regime

The UAE corporate tax is a federal tax levied on the net profits of corporations and other business entities. The law was introduced through Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses. Here are the key features:

• Standard tax rate: 9% on taxable income exceeding AED 375,000
• 0% rate: On taxable income up to AED 375,000 to support small businesses
• Applicability: All UAE-based companies except for certain exempted entities (e.g., government bodies, qualifying free zone persons)

The objective is to create a competitive environment that fosters transparency and international cooperation.

Understanding the Penalty Framework

The FTA has laid out a strict administrative penalties regime for businesses that fail to comply with corporate tax regulations. The penalties cover issues such as:

1. Failure to register for corporate tax
2. Late filing of tax returns
3. Non-payment or late payment of tax dues
4. Incorrect data submissions or failure to maintain records
5. Failure to inform the FTA about changes in business details

Penalties can range from AED 1,000 to AED 50,000 or more, depending on the type and severity of the violation.

What is the Corporate Tax Penalty Waiver?

To encourage early compliance and reduce the burden on businesses during the transition, the UAE Cabinet issued Decision No. 75 of 2023, introducing a Penalty Waiver and Installment Scheme for eligible companies.

This waiver allows businesses to avoid or reduce administrative penalties imposed before or during the initial phase of corporate tax implementation if they fulfill certain conditions.

Key Highlights:

• Applicable to penalties incurred before 31 December 2023
• Waives up to 70%-100% of penalties depending on compliance
• Must submit waiver requests within the specified period
• Encourages voluntary disclosure and timely tax payment

Eligibility Criteria for the Penalty Waiver:

Not all entities automatically qualify for the penalty waiver. Below are the core conditions that must be met:

General Eligibility Requirements:

• The FTA must have issued the penalty before 31 December 2023
• The taxpayer must settle all due taxes before the application
• The taxpayer must not be involved in tax evasion or fraud
• The taxpayer must submit the waiver application within the approved timeframe

Installment Plans:

If taxpayers cannot pay the full amount in one go, they may request to pay in installments over 12 months, provided they justify financial hardship.

Key Compliance Steps for Businesses

To benefit from the penalty waiver and maintain full compliance, businesses should implement the following steps:

1.   Register for Corporate Tax

All taxable persons must register through the FTA’s EmaraTax platform. Ensure you:

• Have a valid Trade License
• Update your corporate structure details
• Identify if you are a qualifying free zone entity

2.   Timely Filing of Returns

Your first corporate tax return must be filed for the financial year starting or after 1 June 2023. Maintain clear timelines and reminders for:

• Filing of return (due within 9 months from the end of the financial year)
• Payment of tax liabilities

3.   Keep Proper Records

Maintain adequate books of accounts, audit trails, and transactional documentation for at least 7 years.

4.   Disclose Any Errors Voluntarily

If you made mistakes in earlier filings or payments, use the Voluntary Disclosure mechanism to correct them before the FTA finds them. This increases your chances of getting a waiver.

5.   Apply for Penalty Waiver on Time

Use the FTA portal to apply. Provide:

• Reason for the delay or error
• Proof of correction
• Tax payment receipts
• Business justification or financial impact

Common Mistakes to Avoid

Businesses often lose their eligibility for the waiver due to simple yet costly errors. Here’s what to avoid:

• Late Registration on the FTA portal
• Ignoring penalty notices
• Incomplete or inaccurate tax records
• Failure to provide adequate supporting documentation
• Assuming your free zone status exempts you, without confirming the qualifying criteria

Proactive management and regular communication with the FTA can help avoid these pitfalls.

What Happens If You Don’t Act?

While the penalty waiver initiative is generous, inaction can be costly. Businesses that ignore the grace period face:

• AED 10,000 penalty for late corporate tax registration.
• Additional fines for delayed tax returns and unpaid taxes.
• Suspension or cancellation of trade licenses.
• Legal liability and reputational damage.

It’s important to note that once the waiver window closes, the FTA will likely enforce penalties strictly, as the grace period demonstrates the government’s fairness and commitment to compliance.

How FinChoice Solutions Can Help?

At FinChoice Solutions, we specialize in helping UAE businesses navigate the evolving tax environment, including compliance with the Corporate Tax Law and leveraging available relief mechanisms like the penalty waiver.

Our Services:

• Corporate Tax Registration
• Tax Filing and Recordkeeping
• Penalty Waiver Consultation and Filing
• Voluntary Disclosure Assistance
• Installment Plan Application Support
• FTA Representation

We combine in-depth technical expertise with real-world business experience, offering clients an efficient and compliant path through the UAE’s tax ecosystem.

Reach out to FinChoice Solutions today to schedule a free consultation and ensure your business is on the right side of the law without penalties!

Conclusion

The introduction of corporate tax in the UAE is a paradigm shift for many businesses. However, the Corporate Tax Penalty Waiver Scheme offers a significant opportunity for those who may have initially faltered to reset their compliance journey. By understanding the eligibility requirements, taking timely corrective measures, and working closely with tax professionals, you can minimize or even eliminate the burden of penalties.

Compliance isn’t just about avoiding fines; it’s about future-proofing your business and building a transparent, credible operation in the UAE’s new corporate landscape. With expert guidance from trusted advisors like FinChoice Solutions, your journey through corporate taxation can be strategic, smooth, and stress-free.