Telephone Numbers
Telephone Numbers
For detailed information +90 542 381 3868'Call.
Dubai corporate tax is an official tax paid on the taxable income of companies operating in the UAE and is administered by the Federal Tax Authority (FTA). Many business owners still act under the misconception that the UAE is completely tax-free, delaying registration and declaration processes, which directly leads to penalties.
Especially newly established companies begin operating after obtaining their license without researching their corporate tax obligations and later have to ensure retroactive compliance. However, a proper accounting system, timely tax registration, and regular financial reporting are the most critical elements in minimizing tax risks in Dubai.
The corporate tax system in Dubai is applied based on a company’s taxable income. The biggest mistake in practice is that companies treat their accounting profit as directly taxable profit. This can lead to incorrect tax calculations and incomplete or inaccurate declarations. The current corporate tax rate in force is 9%.
Taxable income is not simply a basic figure derived by subtracting expenses from revenue. The net profit determined after adjustments for non-deductible expenses, related-party transactions, and other tax adjustments is taken as the basis. If this distinction is not made, companies may unknowingly face the risk of underreporting.
Many companies in the UAE consider accounting profit and taxable income to be the same. However, while financial statements are prepared in accordance with IFRS, tax calculations must be made in line with FTA regulations. In particular, depreciation, provisions, and certain management expenses are evaluated differently for tax purposes.
During FTA audits, one of the most questioned issues is whether expenses were incurred for commercial purposes and whether they are supported by sufficient documentation. Uninvoiced expenses, recording personal expenses as company costs, and unexplained transfers pose serious risks.
Almost all commercially licensed companies operating in Dubai fall within the scope of corporate tax under certain conditions. Although the application may differ depending on whether the company is mainland or free zone, tax registration is mandatory for most businesses.
Mainland companies are directly subject to the corporate tax system as they operate within the UAE domestic market. Service, trading, and consultancy companies in particular may face administrative penalties if they operate without completing tax registration.
Free zone companies are not automatically exempt from tax. The type of activity, source of income, and compliance criteria are decisive factors. Many companies neglect the registration process due to the misconception that “free zone = no tax.”
Qualifying Free Zone Person status may provide advantages to companies that meet certain conditions. However, in order to maintain this status, appropriate activities must be carried out, accurate accounting must be maintained, and regular reporting must be ensured. Otherwise, the company may fall under the standard corporate tax regime.
Exemptions generally apply to certain sectors, public benefit organizations, or entities subject to special regulations. However, many companies assume they are exempt without verifying their official exemption status, creating serious compliance risks before the FTA.
Failure to complete corporate tax registration on time is one of the most common reasons companies in the UAE face penalties. Company owners often assume that tax registration is automatically created after obtaining a license; however, a separate application must be submitted through the FTA system.
In cases of late registration, not only administrative penalties but also retroactive compliance obligations may arise. Therefore, the tax registration process should not be delayed once company formation is completed.
The FTA may impose administrative fines on companies that fail to register for corporate tax on time. The penalty amount may vary depending on the duration of the delay and the company’s compliance history. Companies that fail to register within the first year are particularly at higher risk.
In practice, many companies register late due to a change of accountant, incorrect consultancy, or lack of information. However, “not knowing” does not eliminate the penalty process; therefore, official deadlines must be closely monitored.
To remove a late registration penalty, it may be necessary to initiate a formal objection or reconsideration process within the FTA system. During this process, the reason for the delay, supporting documents, and the company’s intention to comply must be clearly presented.
Applications submitted with incomplete or weak explanations are usually rejected; therefore, professional preparation of the application is of great importance.
You can check your company’s penalty status and eligibility criteria through the FTA portal. Registration, penalty, and compliance information are regularly updated in the system. Check your company’s status for the removal of penalties related to late corporate tax registration through the FTA portal.
FTA inquiry screen Penalty Waiver and Registration Inquiry via the Official FTA Tax Portal
One of the most sensitive issues in FTA reviews is expense management. Recording expenses in company accounts that do not reflect commercial reality, lack documentation, or are personal in nature is considered tax non-compliance.
Uninvoiced expenses or unexplained bank withdrawals are among the first items examined during audits. In the UAE, accounting records must be supported by documentation, and missing documents create serious tax risks.
Recording personal expenses paid with a company card as business expenses is a common mistake, especially among small businesses. Such transactions artificially reduce the tax base and may result in penalties.
Payments made to shareholders, affiliated companies, or managers must comply with market conditions. Otherwise, there may be a risk of adjustment and penalties under transfer pricing rules.
Many company owners attempt to increase expenses by paying themselves or relatives high salaries to reduce the tax base. However, this may be questioned by the FTA in terms of commercial reality.
Paying a high salary to a person who does not have an active role in the company or determining compensation inconsistent with job responsibilities is considered risky during audits. For example, assigning a salary significantly above industry standards to someone without a relevant degree or experience is a risky approach.
High bonus and incentive payments granted without a management resolution may not be accepted as deductible expenses. All salary and incentive payments must be supported by contracts and payroll records.
Confusing profit distributions with salary payments is one of the most common accounting mistakes in Dubai. Proper classification of payments made to shareholders is critical both for tax calculation and financial transparency.
Profit distribution must be aligned with a management resolution, financial statements, and accounting records. Otherwise, such payments will not be treated appropriately.
Rushed profit distributions or irregular transfers at year-end closings may negatively affect the tax base and financial reporting. Planned cash management helps prevent such mistakes.
The fundamental step in corporate tax calculation is determining taxable income by adjusting accounting profit for non-deductible expenses. Many companies in the UAE make incorrect tax calculations because they fail to make this distinction.
For example, if a company has annual revenue of AED 1,200,000 and documented expenses of AED 700,000, its accounting profit would be AED 500,000. If there are AED 50,000 in non-deductible expenses, the taxable profit would be assessed as AED 550,000. If small business relief applies, tax advantages may be available up to certain thresholds, and corporate tax at 9% is calculated on the remaining amount.
Small Business Relief is an application designed to reduce the tax burden for eligible companies below a certain revenue threshold. However, this relief is not automatic and requires application and fulfillment of compliance conditions.
Many businesses misinterpret this relief and assume they are not required to file a declaration, which may create penalty risks in the future.
Companies with annual revenue below specified limits and conducting genuine commercial activities may benefit from small business relief. However, not overstating expenses, ensuring accurate financial reporting, and complying with FTA regulations are among the fundamental conditions.
In Dubai, the corporate tax return must be submitted through the FTA system within a specified period following the end of the company’s financial year. One of the most common mistakes is not knowing that the filing deadline is calculated based on the financial year-end, not the company’s license date.
Missing the filing deadline leads to late penalties and additional audit risks. Therefore, annual planning of accounting and tax calendars is a critical requirement for professional compliance.
+90 542 381 3868
+971 58 5204103