Are you making these three common mistakes when filling VAT?

Corporate tax returns refer to the annual tax returns filed by companies operating in the UAE to report their income and calculate their tax liability. 

Filing corporate tax returns can be complex, and mistakes can lead to penalties and legal issues. 

This article will discuss some of the most common mistakes companies make when filing corporate tax returns in the UAE and how to avoid them.

1.    Failure to Register for Tax

2.    Incorrect Reporting of Income

3.    Failure to Maintain Accurate Records

4.    Misclassification of Expenses

5.    Failure to Submit Returns on Time

6.    Failure to Disclose Related Party Transactions

1.    Failure to Register for Tax

The first and most significant mistake companies can make failing to register for tax in the UAE. All companies meeting the tax registration threshold must register with the Federal Tax Authority (FTA) and obtain a Tax Registration Number (TRN). 

The threshold for tax registration is an annual turnover of AED 375,000. Still, companies that fail to register can face significant penalties.

2.    Incorrect Reporting of Income

Another common mistake companies make when filing corporate tax returns is incorrect income reporting. Companies must report all their income, including revenue from outside the UAE. Failure to report the exact amount could lead to penalties and fines.

3.    Failure to Maintain Accurate Records

Maintaining accurate financial records is essential for companies filing corporate tax returns in the UAE. Maintaining accurate records can lead to incorrect tax calculations, resulting in penalties and legal issues. Companies should keep all financial records, including 

•    Invoices

•    Receipts

•    Bank statements

•    Credits and Deductions, up to date and organized. 

Also, Social Security Number (SSN) should be printed correctly on the Social Security Card. 

Key takeaway: Do not forget to record tax-exempt and zero-rated entities!     

4.    Misclassification of Expenses

Misclassifying expenses is another common mistake companies make when filing corporate tax returns in the UAE. Companies must correctly classify their expenses as either deductible or non-deductible to ensure accurate tax calculations. 

Failure to do so can result in an overstatement of taxable income, leading to penalties and legal issues. Thus, miscalculation errors should be null.

5.    Failure to Submit Returns on Time

Filing corporate tax returns on time is crucial to avoid penalties and legal issues. Companies must submit their tax returns within the specified deadline, 120 days after the end of the financial year. 

Failure to do so can result in a penalty of AED 1,000 for the first month and AED 2,000 for each subsequent month. Also, filing too sooner or later should be avoided.

6.    Failure to Disclose Related Party Transactions

Companies must disclose any related party transactions in their corporate tax returns in the UAE. Related party transactions refer to commerce between two parties with a close relationship, such as a parent company and a subsidiary or two subsidiaries of the same parent company. 

Failure to disclose related party transactions can again lead to penalties and legal issues.

Takeaway

Companies filing corporate tax returns in the UAE must be aware of common mistakes to avoid penalties and legal issues. These include failure to register for tax, incorrect reporting of income, failure to maintain accurate records, misclassification of expenses, failure to submit returns on time, and failure to disclose related party transactions. 

It is recommended that companies connect with experienced tax consultants to ensure compliance with tax regulations in the UAE.

Contact Inspire Tax Consultancy for expert tax advice and assistance with corporate tax returns filing in the UAE.