Dubai: Just set up a company in the UAE?
Then, better start on the process of registering for corporate tax even as the company promoters go about the task of building a business, hiring, setting up an office, etc.
Because each new company incorporated in the UAE have a 3-month window to register for corporate tax. Failure will invite penalties, and that’s something no fledging business will want to get hit with.
But even with all the alerts being issued, many of these new business owners are failing to register on time, or doing such a rush job that their applications are getting rejected, according to tax consultants.
What these new businesses should do is follow these steps:
- Register for corporate tax within 3 months.
- Assess aspects such as whether they are eligible for ‘qualifying free zone person’ status; the 3-year SME Relief program; and even factors such as transfer pricing applicability.
- Maintain a proper book of accounts but startup founders should ‘not mix non-business expenses’.
- Keep VAT and other law applicability in mind.
“One thing is clear – any company formed on or after June 1, 2023 in the UAE will be under the corporate tax regime from Day 1,” said Jeet Gianchandani, founder Partner at Dubai-based JCA Consulting.
Each month, the Federal Tax Authority has been issuing alerts on deadlines for tax registrations based on the date of incorporation of each company.
If the Memorandum and Articles of Association of a newly formed company is silent on the 'financial year', then as per the corporate tax rules, it will be taken from January to December
Tax consultants say that where founders of new businesses are in delaying the work on the paperwork needed for the registration and getting themselves the TRN (Tax Registration Number).
“Early registration ensures that the (newly formed) company is prepared to meet its tax obligations from the start,” said Ali Nawaz, Senior Manager – Client Accounting at Sovereign PRO Partner Group.
“This can help in avoiding any last-minute rush and errors that could occur if registration is left too late. Delaying the registration could result in penalties - and complications later on.”
No business, existing or brand new, would want to get caught up in such a situation.
It is important to ensure that (new) businesses are tax-ready as soon as possible, and not wait until the end of the year
Choosing the ‘financial year’
Along with the company formation and tax registration, the other detail that will need some close scrutiny is choosing the ‘financial year’ that the business will operate under.
Should it be a straight January to December timeline, which is what most UAE businesses currently are having? Or should it be from April 1 to end March? Or a different 12-month parameter?
“The financial year and the accompanying tax period will depend on what’s given in the Memorandum of Association or Articles of Association,” said Girish Chand, Senior Partner at MCA Management Consultants. “The financial year (for new businesses) will start from the date of incorporation for companies incorporated on/after June 1 2023, which is when corporate tax took effect in the UAE.”
The first tax period will commence from the date of incorporation or registration. The tax period will be a period not less than 6 months and not exceeding 18 months.
“If the company chooses January to December as its financial year, the first tax period would be from June 1 2023 to December 31, 2023, which is 7 months,” said Chand.
“If the FY specified is April to the March thereafter, the first tax period would be June 1, 2023 to March 31, 2024, which is a 10 month period.”
But to get to this point, businesses must meet the tax registration deadlines. And that’s what they should be setting as the highest priority.
If your business is getting licensed today, register for corporate tax within the next 90 days.
