UAE Introduces AED 10,000 Penalty for Late Corporate Tax Registration: Insights from BMS Auditing

The Ministry of Finance announced on 27 February 2024 a new penalty of AED 10,000 for those registering for corporate tax after the designated deadline. This penalty aims to encourage taxpayers to adhere to tax regulations and register in a timely manner. The fine for late tax registration aligns with penalties for tardy registration for excise tax and value-added tax. Stay informed about tax regulations with insights from BMS Auditing.

Cabinet Decision No. 10 of 2024, disclosed on 27 February 2024, revises the violations and administrative penalties schedule outlined in Cabinet Decision No. 75 of 2023. The latter specified penalties imposed by the Federal Tax Authority (FTA) for violations related to the Corporate Tax Law, effective from August 1, 2023. The updated fine is slated to be enforced starting March 1, 2024. The Corporate Tax Law, in effect since June 1, 2023, establishes UAE's corporate tax as one of the world's lowest, levying a nine per cent tax on companies with profits of Dh 375,000 and above.

In December 2023, the Federal Tax Authority (FTA) issued a guide specifying entities liable for corporate tax in the UAE. The FTA encouraged individuals generating income or engaging in business activities, wholly or partially, in the UAE to consult the new guide for a comprehensive understanding of the Corporate Tax Law, associated decisions, and relevant materials accessible on the FTA's website.

Moreover, the UAE government introduced Small Business Relief (SBR) to alleviate the corporate tax implementation for small businesses. This relief applies to resident taxable entities, whether natural or juridical, with a gross business income of up to Dh 3 million in the relevant tax period and any preceding tax periods concluding on or before December 31, 2026.

Timeline for the Tax Registration of Resident Juridical Persons

1. A legal entity classified as a Resident Person, whether incorporated or formally acknowledged before the enactment of this Decision, is required to file the Tax Registration application based on the provided schedule:

• 1 January – 31 January: Deadline - 31 May 2024
• 1 February – 28/29 February: Deadline - 31 May 2024
• 1 March – 31 March: Deadline - 30 June 2024
• 1 April – 30 April: Deadline - 30 June 2024
• 1 May – 31 May: Deadline - 31 July 2024
• 1 June – 30 June: Deadline - 31 August 2024
• 1 July – 31 July: Deadline - 30 September 2024
• 1 August – 31 August: Deadline - 31 October 2024
• 1 September – 30 September: Deadline - 31 October 2024
• 1 October – 31 October: Deadline - 30 November 2024
• 1 November – 30 November: Deadline - 30 November 2024
• 1 December – 31 December: Deadline - 31 December 2024

For Persons Without a License at the Effective Date of this Decision:

     1. Three months from the effective date of this Decision

If a juridical person holds multiple licenses, the one issued earliest will be utilized.

2. A legal entity that is a Resident Person, whether incorporated or acknowledged after the effective date of this Decision, must file a Tax Registration application, as given below:

Juridical persons falling under the category of entities incorporated or recognized under the applicable legislation in the State, including Free Zone entities, are required to submit their Tax Registration application within three months from the date of their incorporation, establishment, or recognition. On the other hand, entities incorporated or recognized under the legislation of a foreign jurisdiction that are effectively managed and controlled within the State must submit their Tax Registration application within three months from the end of their Financial Year. This timeline ensures compliance with tax regulations and facilitates a smooth registration process for businesses operating in different capacities.

Tax Registration Guidelines for Non-Resident Juridical Persons in the UAE

1. Non-Resident Juridical Persons, existing before the effective date of this Decision, are required to submit their Tax Registration application based on specific timelines.

For those with a Permanent Establishment in the State, the deadline is set at nine months from the date of the Permanent Establishment's existence. Additionally, entities with a nexus in the State must submit their Tax Registration application within three months from the effective date of this Decision. This framework ensures that non-resident entities comply with tax regulations, providing a structured and transparent process for their tax registration in alignment with the legal requirements.

2. Non-Resident Juridical Persons initiating business activities in the UAE after the effective date of this Decision are required to submit a Tax Registration application as outlined in the following schedule. Entities with a Permanent Establishment in the State should submit within six months from the establishment date, while those with a nexus in the State must submit within three months from the date of nexus establishment.

Tax Registration Timelines for Natural Persons in the UAE

Natural Persons engaged in Business or Business Activity within the UAE must adhere to the specified timeline for Tax Registration, outlined as follows:

• Resident Individuals: Those conducting Business or Business Activity during the 2024 Gregorian calendar year or subsequent years, with a total Turnover surpassing the specified threshold, are required to submit their Tax Registration application by March 31 of the subsequent Gregorian calendar year.
• Non-Resident Individuals: Individuals engaging in Business or Business Activity during the 2024 Gregorian calendar year or subsequent years, with a total Turnover exceeding the threshold specified in the relevant tax legislation, should submit their Tax Registration application within three months from meeting the requirements of being subject to tax.

If individuals mentioned in the preceding sections of this Decision neglect to file a Tax Registration application within the specified timelines, they will incur Administrative Penalties as outlined in Cabinet Decision No. 75 of 2023. This Decision will be published in the Official Gazette and takes effect from March 1, 2024.

BMS Auditing Offers Expert Guidance on Compliance Changes

This Decision, effective from March 1, 2024, establishes a structured framework for tax registration, emphasizing compliance with tax regulations. BMS Auditing stands ready to assist businesses in navigating these changes, providing expert insights and support to ensure seamless compliance with the evolving tax landscape in the UAE.