By Affinitas DMCC — Corporate Tax, Accounting & Compliance Specialists

The UAE’s corporate tax system is now fully operational — and the first wave of deadlines (including 30 September ) has already passed. Since then, thousands of UAE businesses have faced:

  • Late registration penalties
  • Notices from the Federal Tax Authority (FTA)
  • Audit requests
  • Rejections of Tax Registration Numbers (TRNs)
  • Misinterpretation of Qualifying Free Zone rules
  • Incorrect accounting classification
  • Penalties for failure to maintain records

As we approach the filing season, the pressure to comply is at an all-time high. Businesses that made mistakes early on are now trying to correct their structure, align their accounting, and avoid penalties before filing their first return.

UAE Corporate Tax
UAE Corporate Tax

1. Mistake #1 — Not Registering for Corporate Tax on Time

The biggest issue after the deadline cutoff is that thousands of companies still assumed:

“We don’t need to register — we have no income.”

This is wrong.

Every UAE entity must register for Corporate Tax, including:

  • Mainland companies
  • Free Zone companies
  • Offshore companies
  • SPVs / holding companies
  • Civil companies
  • Branches
  • Dormant companies
  • Zero-revenue companies
  • Companies with cancelled trade licenses during the taxable period

Late registration penalties apply regardless of revenue.


FTA Corporate Tax Portal
UAE Ministry of Finance

2. Mistake #2 — Confusing VAT TRN With Corporate Tax TRN

Thousands of companies still believe:

“We already have a TRN, so we’re registered.”

But the VAT TRN is not a Corporate Tax TRN.

The FTA has already issued rejections for companies who assumed they were compliant.

3. Mistake #3 — Assuming All Free Zone Companies Automatically Get 0%

This is the most widespread misunderstanding in the UAE.

To receive the 0% Qualifying Free Zone Rate, companies must pass all of the following:

✔ earn “Qualifying Income”
✔ maintain audited financial statements
✔ meet substance requirements
✔ derive no income from excluded activities
✔ comply with transfer pricing rules
✔ maintain core income-generating activities
✔ maintain adequate employees and expenditure in the UAE

If even one condition fails, the company pays 9%.

Authority:
FTA Decision No. 139 of 2023 — Qualifying Income

Most SMEs and e-commerce companies do not meet these requirements without restructuring.

4. Mistake #4 — Poor Accounting and No IFRS Compliance

Many companies relied on:

  • Excel sheets
  • Bank statements only
  • Unstructured bookkeeping
  • Cash box records

This is no longer acceptable.

The UAE Corporate Tax Law requires:

  • IFRS-compliant accounting
  • Complete record keeping
  • Fixed asset registers
  • Expense classification
  • Revenue segregation
  • Related-party transaction documentation

Missing accounting = automatic penalties + audit risk.

Free Zones now require mandatory audited financials for most companies — a major shock for small businesses.

5. Mistake #5 — No Transfer Pricing Documentation

Related-party transactions are extremely common in the UAE:

  • Paying the owner
  • Paying the shareholder’s foreign company
  • Intra-group management fees
  • Service charges between branches
  • Director compensation
  • Intercompany loans

The FTA requires:

  • Transfer Pricing Disclosure Form
  • Master File
  • Local File

Most companies didn’t prepare these — and will face penalties during filing season.

Source:
OECD Transfer Pricing Guidelines

6. Mistake #6 — Misclassification of Revenue

Companies failed to separate:

  • UAE-sourced income
  • Foreign-sourced income
  • Passive vs active income
  • Qualifying vs non-qualifying income
  • Excluded activities
  • Related-party income

This directly affects:

  • Tax liability
  • Qualifying Free Zone status
  • Transfer pricing
  • Cross-border taxation
  • Permanent establishment rules

Incorrect classification risks:

  • FTA reassessment
  • Loss of 0% rate
  • Back taxes
  • Penalties

7. Mistake #7 — Not Understanding Permanent Establishment (PE)

Foreign businesses operating in the UAE often avoid registration, thinking:

“We don’t have a company here — we’re safe.”

But the FTA considers:

  • Fixed place PE
  • Dependent agent PE
  • Warehouse PE
  • Service PE
  • Digital PE

This catches thousands of foreign e-commerce and service companies who effectively operate online from the UAE.

8. Mistake #8 — Filing Corporate Tax Without Proper Restructuring

Many companies rushed into registration without:

  • Reviewing business structure
  • Reorganizing shareholding
  • Separating activities
  • Establishing holding structures
  • Setting up SPVs
  • Fixing FZ compliance gaps

This risks:

  • Losing 0%
  • Overpaying tax
  • Being flagged for audits
  • Banking complications

Proper restructuring BEFORE filing can reduce tax significantly.

9. Mistake #9 — Ignoring Cross-Border Tax Effects

Issues commonly overlooked:

  • UK/UAE double tax treaty
  • India/UAE treaty benefits
  • Controlled foreign company rules
  • Overseas income attribution
  • Withholding tax abroad
  • Tax residency certificates

Many international founders unknowingly create double taxation.

10. Mistake #10 — Waiting Until Filing Deadline to Fix Compliance

Businesses that delay face:

  • Higher penalties
  • Complex backdated accounting
  • Failed audits
  • Loss of Qualifying Income
  • Frozen bank accounts
  • License suspensions

December 2025 is the moment to correct mistakes before the 2025 filing season begins.

How Affinitas DMCC Helps Companies Avoid These Mistakes

Affinitas provides:

The First Filing Season Will Determine the Future of UAE Businesses

Corporate tax is not difficult — but it is highly technical.

Companies that prepare now will:

  • Minimize tax
  • Protect 0% Free Zone status
  • Avoid penalties
  • Pass audits
  • Build clean, compliant financial systems

Those who delay will face:

  • FTA warnings
  • Penalties
  • Failed filings
  • License issues
  • Banking complications

The UAE has entered a transparent, globally aligned tax era — and successful businesses are the ones adapting earliest.

Get Expert Guidance Before Filing Your 2025 Corporate Tax Return

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