Banks need to know the background and business of their customers, and the FTA needs to know the taxpayer’s complex business and relevant rules. The voluntary self-declaration idea that underpins corporation tax necessitates self-discipline and preparation to ensure error-free filing and prevent future penalties. The UAE, formerly regarded as a tax haven, is going through an unprecedented period, according to the FTA, taxpayers, and tax specialists. Additionally, now is the right time for taxpayers to receive tax evaluations from experts, who must first educate themselves before they can advise taxpayers.
When VAT was introduced in 2018, taxpayers were required to make invoices, accounting software, company contracts, new price tags, and many other changes. However, depending on the circumstances, taxpayers, whether single entities, SMEs, multinational corporations, or entities operating in free zones, do not need to make those changes to comply with corporate tax.
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In order to determine the applicable tax laws for their numerous taxable entities, they must first evaluate their complete company portfolio, including local and foreign entities, free zone corporations, and the nature of business dealings. The taxpayer can proceed with tax registration after evaluating their complete business portfolio and creating an organizational chart if they are part of a large group with complex legal structures.
According to the tax return standards, the necessary applicable field will not appear when the return is filed if the registration is inaccurate. This can delay filing or lead to an incorrect return being filed, which would result in a confirmed penalty.
For this reason, the FTA’s tax return guidance provides a comprehensive list of all the sections and schedules that could not be relevant to a given taxpayer. Other significant factors, such as excluding the revenue of “foreign permanent establishments” from taxable income, require taxpayers to make decisions or choices on their tax returns. The Small Business Relief, the transitional rules to adjust taxable income to eliminate profits or losses from preceding periods, provided the taxpayer has qualifying assets or liabilities, and the choice between the accrual or cash basis of accounting are also available.
Since they don’t have free zone activities or related party transactions, most taxpayers, SMEs in particular, have been paying attention to how expenses and deductions are adjusted to taxable income, expecting that filing a tax return will be easy.
However, new ideas of paying “connected persons,” like paying family a fixed salary or remuneration or renting a fancy car or villa, are typical perks that taxpayers use or provide to board directors and relatives at their discretion throughout time. These must now be paid following the transfer pricing rules’ arm’s length concept. This necessitates that taxpayers understand the payment to connected persons in a related industry.
The amount of a loss that the taxpayer can write off, carry forward, or offset against the qualifying group entity is yet another important matter that the taxpayer must plan for. Another important issue that needs to be planned for at the registration stage is the taxable status of eligible or ineligible foreign permanent establishments.
