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The UAE’s corporate tax landscape is undergoing significant transformation, and the regulatory authorities have, for the most part, been relatively quiet in terms of new announcements. However, they have been sending out consistent reminders about the importance of filing corporate tax returns—regardless of the deadline’s proximity.
In a recent conversation with a veteran expat who has lived in the UAE for over a decade, a common sentiment resurfaced: “It used to be a lot simpler.” And, for many, it certainly was.
This statement led me to ask the individual what their preferred alternative would be. Their response: “Replace VAT with a sales tax.”
For those unfamiliar with the difference, let’s break it down. Sales tax—common in the US—is applied only at the point of sale to the final consumer. If a business purchases office supplies from a retailer, no tax is levied if the purchase is verified for business use. The tax is only applied when the final consumer buys the product.
On the other hand, Value Added Tax (VAT) is applied at each stage of the supply chain, with businesses reclaiming the tax they’ve paid on inputs if they are VAT-registered.
The challenge with sales tax lies in proof. A retailer may mistakenly accept a buyer’s claim about the business nature of the purchase, risking tax revenue loss for the government. This can be avoided with a system of verification, such as issuing swipeable cards to businesses, but this quickly becomes impractical as the system scales.
That’s why nations prefer VAT—it involves every participant in the supply chain, reducing the potential for lost revenue. It’s a more complex system, but it works more effectively in safeguarding government tax income.
The issue of VAT compliance also comes with trade-offs. For businesses, managing VAT requires understanding complex rules, maintaining internal procedures, and accepting penalties for errors. For governments, VAT necessitates a significant workforce to monitor and audit compliance, which comes with administrative burdens.
On the other hand, sales tax operates with far fewer rules and less complexity. There’s no need for audits at multiple points in the supply chain, making it cheaper for both businesses and governments to manage.
However, neither sales tax nor VAT directly adds to a nation’s Gross Domestic Product (GDP)—they are merely mechanisms for collecting revenue. Despite this, the debate about which system is more effective and efficient is ongoing, and the implications for businesses are significant.
UAE Pass and Tax Filing Portal Updates
Moving on to the Federal Tax Authority (FTA) portal, the push to migrate users to the UAE Pass system is now in full swing. While the previous access options are still available in smaller text, the UAE Pass is becoming the primary method for accessing tax services.
That said, not everyone in the UAE is a resident or has the UAE Pass on their mobile phones. I’ve encountered instances where the submission process on the portal fails, due to issues such as an incomplete box, which needs to be ticked before submission. This has resulted in frustration for users who find themselves unable to complete the process despite following the steps.
The issue could be a minor glitch, or it could relate to the tax filing deadlines, which for certain businesses, extend into the latter part of 2025. It’s also possible that the trade license needs to be updated on the portal before submission can proceed, as indicated by a reminder on the screen. It’s essential to ensure your trade license details are current to avoid penalties.
Company secretarial matters, which are separate from accounting, have also come under scrutiny. Companies are required to update their trade licenses by the end of March each year. Failure to do so can result in penalties, and the process of updating licenses can take up to a month in some cases.
Given that businesses are still navigating the complexities of the first corporate tax filings under the UAE’s new tax regime, I would urge the authorities to show some leniency during this period of transition. Many businesses are still adjusting to these changes, and the added pressure of cascading penalties and interest on late payments could create unnecessary stress. A more understanding approach would certainly alleviate some of the burdens on businesses trying to comply with these new regulations.
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