UAE Corporate Tax: Businesses need to recheck these facts before registration

The announcement concerning the UAE Corporate Tax (CT) registration deadline stirred considerable attention among business owners and accountants. Many are hastily reaching out to tax consultants to verify their risk of incurring the Dh10,000 penalty for delayed registration by the March 1, 2024, which is the effective date of decision and not the registration deadline. All this without paying close attention to the finer details.

The introduction of this deadline comes with good reason. Khalid Al Bustani, Director-General of the Federal Tax Authority (FTA), voiced concerns over the present state of corporate tax registration in a recent interview. He highlighted that the deadlines were set to encourage businesses to complete their registration before the year's end, aiming to prevent a last-minute surge in applications.

The staggered deadline, starting from May 31, 2024 and onwards, offers ample time to comply. Yet, businesses should approach this deadline seriously, as some might find it challenging to register before the deadline. Here's why:

Auto-populated VAT profile on CT registration application

Successful corporate tax registration largely hinges on a business's existing VAT registration status and amendments. Currently, most corporate tax registration details on the portal are auto-filled based on the business's VAT profile.

Should this information be outdated or incorrect, businesses must first update their VAT profile — a process that can extend up to 60 calendar days, as per the latest guidelines on the Emaratax portal.

In our experience, common discrepancies in VAT profiles include:

Incorrect legal status classification

Numerous businesses have mistakenly chosen the wrong legal entity status during VAT registration in the year 2017, leading to issues such as sole establishment registered as a ‘legal person’ instead of a ‘natural person’. A ‘legal entity’ in one emirate registered as a branch of head office in another emirate, branch of a foreign entity registered as an LLC, co-operative society registered as an LLC etc.

Correcting these errors is crucial but complicated, as the portal currently restricts amendments to entity status. At this point in time, Businesses will have to de-register and re-register for VAT with the correct entity status or wait for the FTA to allow status change.

Expired trade licenses

Many businesses have neglected to update their VAT profiles with renewed trade licenses, an oversight that can hinder the corporate tax registration process.

Branches not included in VAT profile

Often, businesses have registered for VAT using only their head office trade license, omitting branch licenses. The corporate tax registration guidelines, however, mandate the inclusion of all branch trade licenses.

Retail companies having multiple stores in each emirate will have a big task at hand in collating all the trade licenses, and by any chance, if any branch trade license is up for renewal or not updated, time for update and add these branch licence details in the VAT and corporate tax profile will just add more days to the task.

Outdated authorized signatory details

Failure to update the renewed Emirates ID and passport details of authorized signatory can complicate the registration process. There are instances where the signatory has left organisation many years ago, yet the details are not updated in the VAT profile. Businesses will have to update signatory details with a notarized copy of power of attorney before submitting the corporate tax registration application.

Potential Penalties under VAT

While some companies may navigate corporate tax registration without penalties, delays in updating the VAT profile could lead to unavoidable fines of up to Dh10,000. It's prudent to set an internal deadline for VAT and corporate tax applications to mitigate the risk of penalties under both tax regimes.

There's a prevailing view among senior management that registration compliance is merely administrative task and can be delegated to junior staff. However, overlooking the meticulous review and accurate completion of the process could result in risk of substantial tax liabilities and administrative fines if carried in incorrect business profile for an extended period.