First UAE Corporate Tax Return Filing Brings Challenges, Lessons

Until recently, corporate tax wasn’t part of the United Arab Emirates’ business environment, allowing companies to operate without the need to consider tax planning or compliance.

That changed with the introduction of the corporate tax regime for financial years beginning on or after June 1, 2023, marking a significant change in the country’s tax landscape.

For most businesses, whose financial year aligns with the calendar year, Jan. 1 through Dec. 31, FY 2024 marks the first taxable period. And while the regime has been in effect for over a year, many companies are only now beginning to feel its full impact as they prepare to file their first corporate tax return and settle tax liabilities by Sept. 30, 2025, nine months after the end of the relevant tax period.

As the deadline for the first corporate tax return approaches, businesses are navigating uncharted territory. With no case law or audit history to draw on, it remains unclear how actively the Federal Tax Authority will review and challenge filings. In this environment, taxpayers should prioritize accuracy and transparency, prepare their returns with care, and maintain thorough documentation to support their tax position.

Because the Federal Tax Authority relies on self-reported information to assess and collect taxes, accuracy and diligence are essential. Importantly, the process of preparing a tax return doesn’t start with the return itself—it begins with the financial statements, which form the foundation for all subsequent tax calculations and disclosures.

Although the UAE’s corporate tax system is still in its early stages, it already presents a level of complexity that requires careful attention and consideration from businesses.

The Federal Tax Authority has made commendable efforts to raise awareness and guide taxpayers, through webinars, articles, detailed guides, and an online channel that allows direct interaction with tax officers. Despite these initiatives, the corporate tax return involves several technical concepts, such as the election to be taxed on a realization basis, application of transitional rules, and the option to treat an unincorporated partnership as tax opaque, that can be challenging to navigate.

This first filing is particularly critical because certain elections made in the initial tax return, including those mentioned above, are irrevocable and will shape a company’s tax position for years to come. They can be changed only in special circumstances (not yet defined) and with tax authority approval.

Accounting and Recordkeeping

The starting point for calculating taxable income is the accounting profit or loss reported in the financial statements. This means that accounting and record-keeping must be sufficiently granular to enable accurate reporting for tax purposes.

Bookkeepers and accountants need to understand which expenses are disallowed or only partially deductible under the corporate tax law. Ideally, they should identify items such as entertainment expenses, penalties, foreign taxes, and gifts to non-qualifying public entities, and record them separately from deductible expenses.

Proper classification at the stage of bookkeeping saves time and reduces errors when preparing the tax return. For example, both the annual trade license fee and a penalty for late corporate tax registration represent payments to government authorities, yet their treatment under the corporate tax law differs—the former is deductible, while the latter is non-deductible. To ensure accurate reporting, these items should ideally be recorded separately in the accounting records.

Collaboration

Beyond preparing financial statements in accordance with International Financial Reporting Standards, ongoing communication between the taxpayer and the person preparing the tax return and taxpayer is essential.

The preparer may request supporting documents such as the trial balance or general ledger and will likely raise questions that can’t be resolved by reviewing financial information alone. For example, taxpayers may need to clarify whether certain expenses were incurred for business purposes or personal use, or whether any expenses relate to exempt income, which would make them non-deductible.

This dialogue is especially important for businesses operating in free zones, where qualifying income may be taxed at a 0% rate, provided the relevant conditions are met. To benefit from the free zone tax regime, companies must, among other requirements, demonstrate that they maintained adequate substance within a free zone and that the income meets the qualifying criteria.

Such tax returns that don’t result in any tax payable may attract closer scrutiny by the tax authority. It’s essential to maintain comprehensive supporting documentation and ensure that all relevant conditions are met.

International Dimensions

The corporate tax return not only covers domestic tax matters but also addresses international tax considerations.

UAE tax residents are subject to tax on worldwide income, which could give rise to double taxation on foreign income. To mitigate this, the law provides relief mechanisms such as the participation exemption for qualifying foreign dividends and capital gains, the foreign permanent establishment exemption, and the foreign tax credit.

Applying these mechanisms requires a clear understanding of the conditions and maintaining proper documentation, which the tax authority may request during an audit.

Transfer pricing and related-party transactions. Another layer of complexity comes from the transfer pricing disclosure form, required for businesses that engage in related-party transactions above certain thresholds. This form includes the related party transaction schedule and the connected persons schedule, both of which are integral components of the corporate tax return.

Due to limited guidance and lack of established practice there is still uncertainty, particularly around reporting items such as balance sheet entries, for example loan receivables, that don’t affect taxable income.

In addition, payments to connected persons raise practical concerns for business owners seeking to ensure that salaries and benefits comply with the arm’s-length principle. With limited benchmarking data publicly available, determining what constitutes arm’s-length remuneration can be challenging.

The introduction of corporate tax in the UAE has therefore brought compliance responsibilities. With the first filing deadline approaching, careful preparation, documentation, and collaboration between accounting and tax teams is essential to ensure accurate reporting and compliance.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Ton van Doremalen is partner and head of tax at DLA Piper Middle East, based in the Dubai office.

Nils Vanhassel is legal director with DLA Piper, based in the Dubai office.

Urban Marolt is tax manager with DLA Piper, based in the Dubai office.

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