UAE Corporate Tax - What Mid-Market Businesses Are Still Getting Wrong
TAX & COMPLIANCE
7/13/20261 min read
UAE Corporate Tax has been in effect long enough that most businesses have registered and filed at least once. It has not been in effect long enough for most businesses to have gotten it right. These are the mistakes we see most consistently in mid-market UAE businesses - and the ones that carry the highest cost when the Federal Tax Authority looks closer.
Misclassifying income as exempt.
Not all income generated by a free zone entity qualifies for the 0% rate. The Qualifying Free Zone Person framework requires specific conditions - a defined substance test, qualifying income thresholds, and no mainland business activity that contaminates the free zone structure. Businesses assuming free zone registration equals zero tax exposure are carrying risk they have not quantified.
Related party transactions without documentation.
If your business transacts with a related entity - a parent company, a subsidiary, a business owned by the same family - those transactions must be conducted at arm's length and documented accordingly. Transfer pricing is not a large-enterprise issue. Any UAE business with intercompany arrangements is within scope. The absence of documentation is not a technicality. It is an exposure.
Incorrect treatment of entertainment and personal expenses.
Corporate Tax rules restrict the deductibility of certain expenses. Entertainment costs, personal expenses routed through the business, and costs without a clear business purpose are nondeductible. Many businesses have not adjusted their bookkeeping practices to reflect this - and their tax computations are wrong as a result.
Filing without a tax computation review.
Submitting a corporate tax return is not the same as submitting a correct one. Many businesses are filing returns based on accounting profit without adjusting for non-deductible items, exempt income, or carry-forward losses. The return looks complete. The numbers are wrong.
What to do now?
Commission a corporate tax health check before your next filing. Review your entity structure, intercompany arrangements, income classification, and expense treatment with a qualified tax advisor. The cost of getting this right is a fraction of the cost of getting it wrong.
KAMMS provides UAE corporate tax advisory built on current FTA guidance. Speak to a partner before your next filing deadline.