UAE corporate tax: How to keep up with changing timelines

The UAE introduced the federal corporate tax with a standard statutory rate of 9 per cent, starting from the financial year beginning on or after June 1, 2023. Silvia Razgova / The National

Business is about finding an edge. It's the competitive trading that makes the magic happen. For everything else, traders want certainty.

In saying that, no one likes a bully and regulatory regimes are there to make sure no one entity or small coterie of parties can rig it for themselves only. Occasional grumbles aside, these referees are expected to and do maintain order and collect dues in the form of taxes to pay for the underlying certainty required to make it work for all parties.

There is a thin line between evolution of marketplace rules and tinkering. A couple of weeks ago, timely communications began to be received by some companies across the UAE. Their financial years for corporate tax reporting purposes were changing. Again.

You may remember that a small number of companies suddenly found that they needed to file returns by the end of December 2024. Although the original version of this change was for the end of October 2024, with little notice having been given, it was moved forward by two months.

Across the entities that I have reviewed, it appears that the original date by which returns must be submitted and any amounts owing are settled, has not changed. I am not sure that many would mind if months were added to this date.

The UAE's corporate tax law explained: Business Extra

12:56

With law and guidance still to be released, it would have given additional time to prepare and with greater confidence complete, what for many, would be their first reporting cycle.

Instead, the additional months that must be accounted for have been backdated from the original instruction as to when corporate tax began for these entities. As these dates are likely to have passed, the implications for many might be severe.

Do check if your business has been affected. Logon to the Federal Tax Authority website and download your current corporate tax certificate. Compare the filing dates between what you already have on file against the latest copy.

Let us start with one that will add work and cost. It will more likely affect larger organisations that, while they will have the resources to manage it, may need to repeat an exercise that already keeps them busy. The annual external – now plus or minus a few months – audit.

Multinational groups at a parental level have a financial year that all its subsidiaries share. Thus, consolidated accounts can be formulated and reported upon to all stakeholders.

A new regime like the UAE’s may mean that the initial reporting period may vary. Generally, this can be changed later to ensure alignment and the regulatory authorities have indicated that this will be the case.

The most serious issue is for those who have meticulously planned for the transition to corporate tax. There is a high likelihood that the transition rules were carefully reviewed and structural decisions made as a result.

Entities might have been formed, closed or merged. Assets and liabilities moved within one or more group structures. Contracts got drawn up with careful overview by finance and legal.

With some of these entities now discovering that those changes happened on the wrong side of their carefully planned timeline, a lot of effort will be expended to gauge its impact.

Might they just shift their decisions by a few months to counter the changes?

I learnt the hard way in my junior professional years, that you cannot change the past. Having told everyone what has happened, as an accountant, it is the height of bad practice to discover an historical mistreatment or error and correct it.

At some point while reviewing current financials and comparing these to earlier periods, any changes are likely to be noticed. Without confidence in your own numbers, what can you believe and how do you make informed decisions?

External parties, particularly regulatory authorities, would be particularly aggrieved should anything be found during an audit.

Is there a route to appealing this change? On the May 16, 2023, the Ministry of Finance issued ministerial decision on transitional rules for corporate tax. This provided guidelines for adjusting a taxable person's opening balance sheet under the corporate tax law.

Given that there was much reaction and discussion on this at the time, maybe they will entertain approaches that would allow for changes that maintain an entity’s structuring status quo.

Any appeal might best begin by highlighting the benefits to the UAE of regulatory certainty.