How to avoid hefty fines for tax non-payment in the UAE

If you plan to open and run your business in the United Arab Emirates, you should be aware of the nuances of tax legislation, the rules for maintaining accounting and financial reporting. Compliance with regulations will help avoid penalties for non-payment of taxes in the UAE and conduct legal, transparent business.

Advantages of doing business in the UAE:

The United Arab Emirates is one of the leading countries in terms of economic growth and development. The UAE's economic growth rate in the first quarter of 2023 was 3.8%. The country's GDP increased to $113.9 billion. The transport sector saw the highest percentage increase, contributing 21.8 billion dirhams to the economy, which is 11% more than the previous year.
The construction sector took second place, growing by 36.3 billion dirhams. The tourism sector increased by 7.8%. Dubai, one of the brightest and most popular emirates, traditionally showed the best indicators. Experts believe that steady growth will continue in 2024, with GDP expected to increase by 5%. Demand and prices for real estate will remain stable, which is important for foreign citizens planning to invest in the UAE or relocate for permanent residence.

Why you should open a business in the Emirates:

A favorable investment climate. According to the UNCTAD report for January 2024, the volume of direct foreign investments in the UAE increased by 28%. In 2022, FDI reached a record level of $22.73 billion.
Political and economic stability. According to US News & World Report, the UAE ranks among the top countries for stability and security, surpassed only by Switzerland.
A simple taxation system. The country offers various tax incentives and preferences for foreign companies, especially within special economic zones. The government actively invests in supporting entrepreneurship, business development, and offers favorable conditions for foreign businessmen.
Infrastructure and communications. The UAE has a developed road transport system, airports, ports, and modern communication facilities, facilitating business operations and interaction with overseas partners.
Convenient geographical location and access to a large market. The Emirates are one of the largest markets in the Middle East with a large population and high income level.
International recognition. Registering a company in the Emirates allows you to take your business to an international level and operate in the markets of the Persian Gulf countries.
Government support. The state invests in the development of various economic sectors, offering programs and initiatives to stimulate foreign investment.

Opening a business in the UAE is an excellent investment if you aim for high and stable income abroad.

The Level Consulting agency can help officially register your company, obtain visas, open accounts in UAE banks, rent an office, register with the tax authority, and maintain accounting. We offer comprehensive legal support, the opportunity to hire a lawyer in the UAE, and make your business fully transparent. For detailed information, submit a request on our website.

Most in-demand niches:

Tourism. The UAE attracts tourists with luxurious resorts, historical attractions, and unique culture.
Real Estate. The real estate market in the UAE remains one of the fastest-growing in the world. The industry is expected to grow by 12% by 2026.
Financial Sector. The Emirates is a major financial center, attracting foreign investments and providing services for international corporations.
Trade and Logistics. The UAE's advantageous geographical position makes it the largest international transit hub connecting Europe, Africa, and Asia, making it especially promising for international business and local branches.
Healthcare. With the development of tourism and population growth, healthcare is becoming an increasingly important economic sector. Tourist medicine is in demand.
Education. With population growth and the need for qualified specialists, education is becoming increasingly in demand.
Information Technology (IT). The government encourages the development of IT projects and innovative initiatives. Dubai ranks first in the world for scientific and technological exchange in high-tech sectors, including the development of artificial intelligence (AI) and robotics.
Energy. The UAE has significant oil and gas reserves, making energy one of the main sectors of the economy. The demand for electricity is constantly growing and is directly related to the increase in population.

Free Economic Zones:

Special territories with conditions for doing business with minimal bureaucratic procedures and taxes. They attract foreign investors with tax benefits, simplified visa regimes, and access to developed infrastructure. Businesses registered in SEZs can fully control their operations and repatriate funds without restrictions.

Tax System in the UAE:

5% VAT on turnover, introduced in 2018;
9% corporate tax on net profits, effective from June 2023;
Excise tax from 50% (sugary drinks) to 100% (tobacco products, e-cigarettes, energy drinks).

Companies not earning profit within the UAE can expect an exemption from VAT (clearance certificate). Official registration for corporate tax is mandatory for all organizations, including those based in free economic zones. The exemption from paying corporate tax also applies to companies whose annual profit does not exceed 3 million dirhams for the first three years of operation and companies with qualified income.

Citizens and local residents are exempt from standard taxes. Individuals do not pay income tax, property rental tax, excise, or income tax. Various types of licensing are provided depending on the business type: for industrial production, investment and financial activities, consulting, trade, logistics, real estate, etc.

How to report taxes and maintain accounting in the UAE:

Tax reporting is important for compliance with legislation and financial activity transparency. Maintaining accounting fosters trust from authorities and business partners and prevents potential legal and financial consequences. All reports are sent and reviewed by the Federal Tax Authority (FTA).

Financial Audit:

A systematic and independent examination of a company's financial information to assess its accuracy, reliability, and compliance with accounting standards and regulations. The main goal is to provide stakeholders—shareholders, investors, creditors, and regulatory bodies—with accurate and objective information about the company's financial position and performance. The audit report may be required for renewing the trade license. The procedure is conducted annually.

Stages of conducting a financial audit:

1. Planning. Determine the audit's objectives and scope. Assess risks and establish an audit strategy. Create an audit plan, including resource allocation and identifying responsible individuals.

2. Study and evaluation of the company's internal control systems aimed at ensuring the reliability of financial reporting. Identify the main areas where risks and errors may be detected.

3. Collection of audit evidence. Verify accounting records that support the correctness and compliance of accounting data with standards.

4. Analysis and evaluation of audit evidence to identify potential errors, fraud, or non-compliance with standards. Evaluate financial statements and their fairness.

5. Forming an audit conclusion. Prepare a report that includes the auditor's opinion on the fairness and accuracy of the financial statements. Identify areas for improvement.

6. Communication with the company's management. Present audit results to the company's management. Discuss identified problems and recommendations for their elimination.

7. Preparation of the audit report and presentation to interested parties. potential partners, investors, shareholders, banks, etc.

The requirement for a mandatory audit applies to limited liability companies and joint-stock companies. Audit results are necessary during the company's liquidation process when forming the final report. Government agencies can request financial reports for past years at any time.

Any tax inspections by government agencies

VAT Declarations:

At the end of each tax period, companies are required to pay the value-added tax (VAT) at the standard rate of 5%. This declaration aggregates the total value of supplies and purchases made by the company and specifies the company's VAT liability.

The quarterly VAT declaration includes the following items:

Taxpayer information: The company name, its VAT registration number, and taxpayer identification number.
Complete details about the value of goods and services provided by the company, as well as taxable purchases.
The final calculation that the company must pay to the tax authority based on the rates established by law.
The amount of input VAT that the company is entitled to deduct from the total tax payable.
Signature and date: Confirmation of the accuracy of the provided information by the signature of the responsible person and the date of declaration submission.
The time period for which the declaration is provided.

The declaration can be submitted in electronic format on the official FTA website. If errors were made in the declaration, the authority returns the document. You have the opportunity to correct inaccuracies and resubmit the declaration.

Excise Tax Declarations:

The excise tax is a form of taxation levied on specific types of goods: tobacco products, electronic cigarettes, carbonated and alcoholic beverages, fuel, etc., mainly applied to goods considered harmful to health or the environment and often used by the state to regulate their consumption. It is charged based on the quantity or volume of goods sold, which distinguishes it from ordinary taxes, which consider the value.

The excise tax declaration is general information about all payments that the company made for the tax period on excise goods. The deadline for submitting the application after the end of the tax period is 15 days. Note: in this case, the declaration is submitted only in electronic format. Large fines of up to 5-10 thousand dirhams are imposed for late or non-submission of the declaration.

Beneficiary Reporting:

In general, a beneficiary is any person benefiting from a transaction or contract. In a narrower context, a beneficiary is an individual who actually owns a certain company, has significant influence over its strategic decisions, and has the ability to manage the resulting income. Registration of beneficiaries is mandatory.

Beneficiaries can be individuals:

Holding shares in the enterprise of at least 25%;
Having the right to vote amounting to 25% or more or the right to influence the number of directors;
Holding a senior official position.

The deadline for submission is no more than six months after the end of the tax period. In June 2021, in Dubai, more than 140 companies were fined 15,000 dirhams for failing to provide information about beneficiaries. The provision of documents is controlled by the jurisdiction of a particular free economic zone.

The report should include the following information:

About individuals: full name, date of birth, citizenship, place of birth, residential address;
About ownership/control. The percentage of ownership by the beneficiary of the company, indicating shares;
About the right to vote and manage;
About senior officials;
Additional information that can be used to identify the beneficiary.

Summary: What rules need to be followed:

Taxes are the main source of state budget, so it's important to pay them on time and avoid penalties. However, the Emirates' government remains lenient. Taxpayers are given time to pay tax arrears before penalties for late payment occur. The state has introduced reduced fines for correcting mistakes through voluntary disclosure.

For which tax violations in the UAE can you receive large fines:

Late submission of declarations. The UAE often sets strict deadlines for the presentation of declarations. A long delay can lead to significant fines;
Failure to fulfill tax obligations;
Providing false or incomplete information;
Violation of VAT rules: incorrect invoicing, non-compliance with registration rules;
Lack of accounting books;
Refusal to provide documents during a tax inspection if you were warned about its conduct.

Fines for each violation start from 5,000 dirhams and can reach 15–20,000 dirhams for repeated non-compliance. Persistent avoidance of compliance and constant fines can lead to legal proceedings. The extreme measure by the state is the revocation of licenses or permission to conduct business activities. Public fines also affect the reputation, causing doubts among clients, partners, and investors about the financial discipline and reliability of the company.

Maintain established deadlines, keep meticulous accounting records, and regularly monitor changes in tax legislation. Timely information on important issues can be obtained on the website of the Federal Tax Authority. The platform also hosts forms and reporting rules, templates for filling out documents, and the latest Cabinet Resolutions. You can familiarize yourself with each resolution in more detail by downloading the document to your device. If necessary, you can send a request to the department and receive an answer by email. Or you can contact The Level Consulting agency: we offer a full range of services for both opening a company in the UAE and its development.