In the days leading up to the 30 September corporate tax deadline, UAE businesses have raced to finalise their first returns. The landmark law aligns the country with global tax practices and marks a historic shift for businesses towards greater financial discipline.
While the introduction of the 9% corporate tax rate on profits above AED375,000 (US$76,000) was announced well in advance, many businesses faced a scramble to reconcile records, prepare audited accounts and meet disclosure rules. Failure to comply risks financial penalties from the Federal Tax Authority (FTA).
‘The years of light bookkeeping practices are over’
New rules
The law has brought new compliance obligations for businesses of all sizes. Almost all entities – whether mainland LLCs, freezone, branches or foreign companies with UAE operations, and even SMEs with profits under the threshold – must register and submit a tax return.
Elie Karaky, managing partner at EK Finance, says businesses faced two parallel challenges in preparing for the first return: getting the books ‘tax-ready’ after years of light bookkeeping practices, and interpreting brand-new rules for real-world transactions. ‘The first return has shown that compliance is not just about numbers; it’s about governance and evidence,’ he says. ‘Companies that proactively link their tax positions to contracts, policies, and approvals will be in a far strong position with the FTA than those relying only on accounting entries.’
Companies that fail to file on time face escalating penalties, rising from AED500 a month for the first 12 months to AED1,000 a month subsequently. Penalties may still be imposed if inaccurate information is provided or administrative requirements are not met.
The immediate issues are often the most fundamental. Businesses must reconcile basic financial records – payables, receivables and intercompany balances – with a level of accuracy that many have not had to achieve before.
Mindset shift
These balances were often ‘known’ internally but not always well documented or regularly reconciled, explains Elleonor Apostol, a UAE-based accounting professional. ‘Now that related-party transactions have tax and disclosure consequences, companies are under pressure to prove and justify what used to be informal or adjusted later during audit,’ she says. ‘That’s a big mindset shift.’
‘Proper documentation is not just best practice but a compliance imperative’
It is now essential for taxpayers to maintain proper records and supporting documentation to substantiate their tax positions. And while financial statements form the basis of the corporate tax calculation, they are often insufficient on their own to meet the detailed requirements of UAE corporate tax compliance, according to Urban Marolt, a tax manager at DLA Piper in Dubai.
‘Taxpayers must be able to track certain expenses and maintain proper documentation, especially in cases where the law disallows specific deductions, provides exemptions or allows tax credits,’ Marolt says. For instance, where company assets such as vehicles are used for both business and personal purposes, taxpayers must track usage accurately to avoid overstating deductions. ‘Maintaining proper documentation is not just a best practice, but an imperative compliance requirement,’ he adds.
Group transactions
Transfer pricing rules add another layer of complexity. The UAE regime requires related-party transactions to be documented and disclosed in line with OECD standards.
For family-owned groups or companies with extensive intragroup dealings, this is a cultural shift as well as a technical one. Transactions must not only be commercially justified but also supported by robust contemporaneous evidence.
‘Transfer pricing is catching many off guard’
The biggest risk is lack of formal documentation. For example, owners may make capital injections, assign assets across entities, or adjust terms between companies, but without agreements or pricing logic. ‘Now, those same transactions need to be explained to auditors and potentially the FTA,’ Apostol says. ‘The risk isn’t just penalties; it’s the perception of opacity or inconsistency.’
The challenge, she explains, is that many of these transactions were priced informally, or based on group dynamics and management decisions rather than benchmarks. ‘Transfer pricing is where many businesses, especially family-run or closely held ones, are being caught off guard,’ she says. ‘Some clients are now rushing to prepare documentation retroactively, which is not ideal.’
Flow mapping
Practical steps for businesses include first mapping out all related-party flows, even those that may have been handled informally in the past, to ensure nothing is overlooked.
The challenge is that many businesses don’t have the resources or expertise to conduct detailed benchmarking studies or implement a structured transfer pricing methodology, says Nils Vanhassel, a lawyer within DLA Piper’s Middle East tax team.
‘A lot of companies are struggling with where to start’
Having a clear rationale for pricing and maintaining supporting documentation is key. ‘We’re seeing a lot of companies struggle with where to start, especially when it comes to preparing the required disclosures and documentation,’ Vanhassel says. ‘For groups that meet the threshold, preparing the local file and master file in line with OECD standards should be a priority, especially ahead of the disclosure requirements in the corporate tax return.’
Meticulous records
For finance teams, the priority is not just meeting the inaugural filing deadline but embedding the systems, governance and culture that will sustain compliance into the future. ‘Financial discipline starts with having structured, reliable accounting systems that support both financial reporting and tax compliance,’ Vanhassel says.
Under the UAE’s corporate tax regime, the financial statements are the starting point for calculating taxable income, so businesses need to ensure their records are accurate, consistent and aligned with IFRS Accounting Standards.
One of the key challenges Vanhassel has seen is data fragmentation, as many businesses still rely on manual processes or disconnected systems. This, he says, makes it difficult to extract tax-relevant data, ‘especially when it comes to classifying expenses, tracking income streams or reconciling intercompany transactions’.
‘Having accounting software is not the same as having tax-ready financials’
Outdated or fragmented accounting systems are being tested to their limits. Spreadsheets and legacy software are not well suited to producing reliable, audit-ready data.
Apostol says one of the biggest challenges has been the rush to ‘retrofit’ tax compliance into existing workflows that were not designed with tax in mind. ‘Businesses are realising that simply having accounting software is not the same as having tax-ready financials,’ she says. ‘Many didn’t plan far enough ahead. For lean finance teams, this has become a real stress test.’
This first compliance cycle has been a learning experience for many businesses. ‘We’ve seen companies and their accountants become more proactive in tracking the right data,’ Vanhassel says. ‘These improvements will go a long way in making future filings more efficient.’
