The United Arab Emirates (UAE) introduced the Corporate Tax Law on June 1, 2023. Because it aimed to diversify its revenue sources and ensure sustainable economic growth. While complying with tax regulations is crucial for businesses operating in the UAE, some organizations may inadvertently commit violations. It further leads to penalties and legal consequences. In this blog, we will explore the common violations and penalties under the UAE Corporate Tax Law and discuss how TallyPrime, a leading accounting software, can assist businesses in adhering to tax regulations and avoiding penalties.
Overview of UAE Corporate Tax Law
As was originally reported at the beginning of this year, the new regulation would mandate enterprises and organizations to pay a uniform 9% tax rate on or after June 1, 2023, if their taxable profits exceed AED 375,000 ($102,000). The law applies to all businesses, with certain exceptions for specific industries and free zones. Companies need to register for tax purposes and maintain accurate records, including financial statements, invoices, and transaction details.
Article 60 of the UAE corporation tax code mandates the assessment of company tax and penalties. As the Federal Tax Authority published new decree laws, it is imperative to stay up to date with the revisions and alterations.
Assessment of company taxes under UAE corporate tax law:
The analysis and examination of the taxpayer’s tax return information that was submitted during the tax period, including those in the free zone, is required for the assessment of corporation tax. All the information provided while completing the company tax return should be filled out completely and precisely to obtain proper tax computations, such as liabilities.
The assessment will follow the necessary legal provisions established by the Authority as well as the state’s tax procedure legislation.
A taxable person’s request for an assessment under the UAE corporation tax legislation:
All in all, FTA outlines the particular criteria under which a taxable person may request that a tax assessment be conducted. These will certainly adhere to UAE company tax regulations. The FTA will not consider the assessment request if the prerequisites are not met. Thus, FTA will only permit the evaluation to place if they are.
The Authority has not yet established the criteria for when a taxable person may request an assessment. The Authority may also ask for an evaluation.
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Common Violations and Penalties
Penalties imposed on a taxable person for breaking UAE corporation tax law requirements:
Tax Procedures Law will determine the different fines and penalties that the Authority will impose on the taxpayer. If any legal violations take place, such as a failure to follow the norms and regulations of the UAE corporation tax law, these penalties and fines will be applied.
Jail terms and/or fines up to a specific multiple of the unpaid tax amount are possible penalties. Depending on the violation, it could be either in some cases or both.
a. Late Filing:
Failure to submit tax returns within the specified timeframe can result in penalties ranging from AED 1,000 to AED 50,000. It also depends on the number of days of delay.
b. Incomplete or Incorrect Filing:
Providing inaccurate or incomplete information in tax returns can lead to penalties of AED 1,000 per incorrect or missing data element.
c. Failure to Maintain Adequate Records:
Businesses must retain relevant records for at least five years. Failure to do so can result in penalties of up to AED 10,000.
Companies that fail to register for tax purposes or deliberately evade tax can face severe penalties. It includes fines up to AED 50,000, suspension of tax registration, or even imprisonment.
e. Non-Payment of Tax:
Failure to pay the due tax within the prescribed timeframe may result in penalties equal to 2% of the unpaid tax amount, with an additional 1% per month of delay.
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TallyPrime: Your Companion for UAE Corporate Tax Compliance
TallyPrime, a comprehensive accounting software, can play a crucial role in assisting businesses to comply with the UAE Corporate Tax Law. Here’s how TallyPrime can help:
a. Automated Tax Calculation:
TallyPrime enables automated tax calculations based on predefined rules, ensuring accuracy and minimizing the risk of errors in tax calculations.
b. Timely Reminders and Deadlines:
TallyPrime can send timely reminders for tax filing and payment deadlines. Thus it will be ensuring that businesses never miss important dates and avoid penalties.
c. Accurate Financial Reporting:
TallyPrime simplifies financial reporting by generating accurate and detailed financial statements, including profit and loss statements, balance sheets, and cash flow statements. These reports can be generated in compliance with the requirements of the UAE Corporate Tax Law.
d. Record Management:
Overall, TallyPrime provides a robust system for maintaining records. As a result, it makes it easier for businesses to comply with the requirement of retaining records for five years. The software allows businesses to store and organize their financial data securely, making it readily accessible during tax audits.
e. Audit Trail:
TallyPrime maintains a comprehensive audit trail that tracks every change made to financial data. This feature particularly helps in maintaining transparency and ensures accountability in financial reporting. Hence, it helps mitigate the risk of non-compliance and potential penalties.
The Bottom Line
Adhering to the UAE Corporate Tax Law is crucial for businesses to avoid penalties and maintain good standing with the authorities. By implementing TallyPrime, businesses can streamline their tax compliance processes, and automate tax calculations. They can also generate accurate financial reports, and maintain records securely. With TallyPrime as their reliable companion, businesses can navigate the complexities of UAE’s corporate tax regulations and ensure compliance. Consequently, it mitigates the risk of penalties and legal complications.