One Year of Corporate Tax: What the First Filings Taught Us

The earliest UAE financial years subject to corporate tax are now closing, and the first computations are being prepared in earnest. It is a useful moment to look at where the difficulty actually landed, as opposed to where it was expected.

Very little of it has been about interpreting the law. Almost all of it has been about the state of the underlying records.

The accounts were never built for this

Financial statements prepared for management or for a bank have a different purpose than a tax computation. Approximations that were entirely acceptable become problems when they feed a taxable figure.

Fixed asset registers that had drifted from reality, cost allocations with no documented basis, and provisions carried forward without review are the three we have seen most often. Each requires unpicking before the computation can be trusted.

Related party transactions were harder to find than to price

Groups expected the difficulty to be in determining arm’s length pricing. In practice the harder task was simply identifying every transaction between related parties, because the accounting systems were never configured to flag them.

Organisations that tagged related party flows at source have had a straightforward year. Those reconstructing them from ledgers have not.

Free zone conditions caught people out

Several groups assumed free zone entities were outside the regime by virtue of their location. The conditions attaching to qualifying status are specific, ongoing, and in some cases were not met by activities that had grown organically.

This is worth testing annually rather than assuming, particularly where an entity has taken on new activities or new counterparties since the assessment was last done.

Deadlines are less generous than they look

The filing window appears comfortable until you work backwards through the audit, the computation, the review of related party positions and the internal approvals. Groups that started late have generally found the timetable tighter than expected.

The organisations that found year one manageable were the ones treating it as a twelve-month operating routine rather than a task that begins after year end.

What to fix before year two

Three things repay the effort. Configure your systems to identify related party transactions when they are recorded rather than afterwards. Rebuild the fixed asset register properly once, rather than adjusting it every year. Document the basis for your cost allocations while the people who designed them are still available.

None of these are tax work. All of them determine how difficult your tax work is, which is the lesson most groups have taken from the first year.