UAE corporate tax: How service providers can be a critical support

The Abu Dhabi skyline. It has now been a year since the UAE introduced corporate tax. Khushnum Bhandari / The National

Welcome to the second year of UAE corporate tax.

In particular, welcome to those entities whose fiscal year ended in May 2024, who will be the first to report and settle any tax payable by February 28, 2025.

It is worth highlighting this because many businesses are still unaware of what is required of them and by when it is needed. For the uninformed, penalties and interest await.

Moving from business owners, let us now understand the role of appointed periphery service providers.

There is a concept called duty of care that comes into play here. These parties should provide a reasonable standard of preventive advice. That said, they are not responsible for their guidance being taken correctly or being acted upon in a timely manner.

One final point given the complexities: their advice is unlikely to cover every single nuance of compliance or potential pitfall.

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Remember, there is much we do not know, because some of the points of law have yet to be communicated by the relevant authorities. Even when the information is released, it takes some time to review, interpret and be in a position to knowledgeably comment.

Moreover, some business entities might have rare aspects that require particular investigation before deciding on what actions might be taken.

Let’s start with outsourced accounting firms. Many of you use them. It would be a kindness, a duty of care, if they pressed to ensure that you were aware of the deadlines for registering for corporate tax.

Along with that, there is also annual economic substance reporting, which comes with up to two sets of deadlines depending on your entity’s operating circumstances.

With so much on the plate of the average business owner, service partners can be a critical support mechanism to ensure that these critical aspects are not forgotten.

Next, your partner in attaining or renewing your trade licence. Sometimes you need to distinguish between the supporting company and the authority that issues the licence.

We are in a period where a lot of people and businesses are moving to the region. The number of companies is rising steadily and, due to restructuring for corporate tax, even existing groups are expanding the number of entities they operate.

The partners might wish to mention to those forming new companies that they have three months to begin the registration process for corporate tax or face a Dh10,000 ($2,723) penalty.

It is not expected of them, but a friendly reminder or nudge will support the business entity. I am spending time assisting some who were not aware.

The final providers of support we are discussing today are external auditors. Specifically, those who form part of a trade licensing authority’s approved list.

There are several places you can obtain a trade licence in the UAE. Each has its own guiding purposes and uses, which comes with a corresponding list of advantages and disadvantages.

For example, a golden visa holder who fully or partly owns a Creative City Fujairah company cannot also be a salaried employee of that same entity. This has potential serious financial implications with regard to corporate tax.

Many trade licence issuing authorities are now demanding annual external audits. Also, those entities who can elect to sit outside corporate tax will require one.

In the case of the former, the auditor will need to be one approved by the authority. For the latter, we are not sure. Will the Federal Tax Authority take the view that the auditor must be one approved by the authority that issued the trade licence? That's not yet clear.

Some businesses have taken corporate tax as an opportunity to review their structure. For some it will be to prepare for a future liquidity event or a sale of their business.

An optimum structure could involve many different trade licensing authorities, all with different approved auditor lists.

Consider an international group. Not only has it been juggling cross border audits, it now has to deal with in-country multi-jurisdictional audits in the UAE involving different auditors.

As an accountant long in the tooth, I am a bit light-headed at the thought of onboarding so many practices.

To all us service providers, in this second year of corporate tax, let's show some kindness to our customers.

David Daly is a partner at the Gulf Tax Accounting Group in the UAE