UAE Eases Corporate Tax Transition with Late Registration Penalty Waiver

UAE Corporate Tax Penalty Waiver : A Strategic Relief for Businesses

On April 29, 2025, the UAE Cabinet, Ministry of Finance and Federal Tax Authority (FTA) launched a one-time initiative to waive AED 10,000 late-registration fines for businesses and certain exempt entities that missed their original corporate tax registration deadlines so long as they file their first corporate tax return within seven months of their first fiscal period’s end. This move aims to support businesses transitioning to the new tax regime while reinforcing the UAE’s reputation as a business-friendly hub. Here’s what your company needs to know to leverage this relief and ensure seamless compliance.

What is New in the UAE Corporate Tax Update?

On April 29, 2025, the FTA released a statement confirming that companies who submit their corporate tax return or annual declaration within seven months of their first tax period end will be exempt from late registration penalties. This strategic initiative, unveiled by the Ministry of Finance (MoF) and the Federal Tax Authority (FTA), directly supports the UAE’s broader economic vision of fostering a globally competitive, transparent, and business-friendly tax ecosystem. This applies even if they registered late, as long as they’re timely with their filing.

For example: If your financial year ends on December 31, 2024, you have until July 31, 2025 to file without being penalized for late registration.

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What is the UAE Corporate Tax, and How Does It Impact Businesses?

The UAE introduced a corporate tax regime in 2024, applying a 9% tax rate on business profits exceeding AED 375,000 annually. This strategic move aims to diversify revenue streams, reduce dependency on oil exports, and align the UAE with international tax practices. The transition requires businesses especially SMEs to promptly register, accurately file tax returns, and fulfill reporting obligations to ensure compliance and avoid penalties.

Late Registration Penalties for UAE Corporate Tax: Quick Overview

• First-time violations: Up to AED 10,000
• Subsequent violations: Up to AED 20,000

These fines created significant pressure, particularly for SMEs and startups unfamiliar with the new compliance requirements.

UAE’s Penalty Waiver Initiative: What Businesses Need to Know

Recognizing these challenges, the UAE Ministry of Finance and the Federal Tax Authority (FTA) have introduced a targeted penalty waiver initiative. Designed specifically for businesses in their first year of corporate tax compliance, this initiative allows companies to:

• Avoid penalties if they register and file their corporate tax returns or annual statements within seven months after the end of their first tax period.
• Claim refunds for any previously paid fines if they meet these timely filing criteria.

This move significantly eases the financial and administrative burden on businesses, encouraging smooth transition and timely compliance.

Who Is Eligible for the UAE Corporate Tax Penalty Waiver?

To benefit from the UAE’s one-time penalty waiver, businesses and entities must meet specific criteria outlined by the Federal Tax Authority. Here’s a breakdown of the requirements:

1. Timely Filing of Tax Returns or Annual Statements
   Businesses must file their corporate tax returns or annual declarations within seven months from the end of their first tax period.
   Even if they missed the original registration deadline, they can still avoid penalties by meeting this extended deadline.
2. Eligibility of Exempt Entities
   Certain exempt entities, although not subject to corporate tax, are still required to register and file appropriate documentation. These entities are also eligible for the waiver if they comply with the seven-month filing rule.

By meeting these conditions, businesses can avoid fines of up to AED 20,000 and, in some cases, claim refunds on penalties already paid.

Steps Guide to Corporate Tax Registration

• Assess Tax Liability
  Calculate if annual profits exceed AED 375,000 (tax rate: 9% above threshold).
  Free zones: Verify “qualifying income” status under ESR.
• Gather Documents
  Audited financial statements.
  Trade license, MOA, and ownership details.
  Banking records for the past fiscal year.
• Register via EmaraTax
  Use your existing TRN or create an FTA account.
  Submit application with entity details.
• File Returns Accurately
  Report taxable income, deductions (e.g., R&D costs), and exemptions.
• Consult Experts
  RNG Auditors ensures error-free submissions and identifies tax-saving opportunities.