VAT & Corporate Tax in the UAE: Common Pitfalls


#Tax Compliance Services

 The UAE’s introduction of Value Added Tax (VAT) and Corporate Tax marked a major shift in the region’s business landscape. While the framework is designed to be straightforward, many companies still face compliance challenges that can lead to penalties, reputational risks, and financial strain.

Below are some of the most common pitfalls businesses should avoid when managing their VAT and corporate tax obligations in the UAE.

1. Incorrect VAT Registration

Many businesses delay VAT registration or miscalculate their eligibility threshold. Failing to register on time or registering under the wrong entity can result in heavy fines and complications during audits.

Tip: Track your turnover regularly and register as soon as you cross the AED 375,000 mandatory threshold.

2. Poor Record-Keeping and Documentation

The FTA requires businesses to maintain invoices, ledgers, and records for at least five years. Incomplete or poorly maintained documentation often leads to non-compliance findings during inspections.

Tip: Implement a proper bookkeeping system or use professional accounting software to ensure all records are accurate and accessible.

3. Misinterpretation of Zero-Rated and Exempt Supplies

Many companies mistakenly apply zero-rating or exemptions, especially in sectors like exports, healthcare, or education. Each category has strict conditions that must be met.

Tip: Always confirm whether your transactions truly qualify before applying a zero-rate or exemption.


4. Incorrect Input VAT Recovery

Businesses sometimes claim input VAT on expenses that are not eligible — such as entertainment or personal costs — leading to disallowances and penalties.

Tip: Review your input VAT claims monthly to ensure compliance with FTA guidelines.

5. Overlooking Corporate Tax Readiness

With the UAE’s new Corporate Tax regime, businesses must reassess their structures, related-party transactions, and accounting standards. A lack of preparation can lead to higher tax exposure or missed deductions.

Tip: Conduct a corporate tax impact assessment early, especially if you operate across multiple emirates or jurisdictions.

6. Ignoring Transfer Pricing and Substance Requirements

Group entities often overlook transfer-pricing documentation or fail to demonstrate sufficient “economic substance” in the UAE. This can trigger regulatory reviews and tax adjustments.

Tip: Maintain proper documentation for intra-group transactions and ensure your UAE operations reflect genuine business activity.

7. Late Filing and Payment

Missing filing deadlines — even by a day — attracts automatic penalties. Late VAT returns or corporate-tax submissions can also suspend tax-clearance certificates and bank dealings.

Tip: Set up compliance calendars and reminders to ensure filings are done well before the deadline.

Conclusion

VAT and Corporate Tax compliance in the UAE is not just about meeting deadlines it’s about maintaining transparency, accuracy, and accountability. A proactive approach, supported by sound bookkeeping and regular professional advice, helps businesses avoid penalties and build long-term credibility with the authorities

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