The UAE's Corporate Tax regime has entered a new phase. After a period focused on registration and initial compliance, the Federal Tax Authority is now turning its attention to substantive enforcement. For businesses, this shift demands a fundamental change in approach.

The Implementation Phase is Over

The first year of Corporate Tax saw the FTA primarily focused on building awareness and ensuring registration. Penalties for procedural errors were often waived or reduced. That grace period is ending.

We're now seeing the emergence of more systematic review processes, including cross-referencing of VAT data with Corporate Tax filings, scrutiny of related party transactions, and detailed examination of expense deductions.

What Auditors Will Look For

Based on early enforcement patterns and international best practice, audit focus areas are likely to include:

  • Transfer Pricing: Documentation requirements are now in full effect. Intercompany arrangements lacking arm's length evidence are high-risk
  • Expense Attribution: Particularly for businesses with both taxable and exempt activities, allocation methodologies will be scrutinized
  • Qualifying Free Zone Status: The conditions for maintaining the 0% rate are specific. Businesses must demonstrate ongoing compliance
  • Small Business Relief Claims: The AED 375,000 threshold requires accurate revenue calculation and may attract verification

Preparing Your Books

The time to prepare for audit is not when the notice arrives. Proactive steps include:

  1. Reconcile Now: Ensure your Corporate Tax calculations align with your VAT records and financial statements
  2. Document Everything: Build transfer pricing files, board resolutions, and policy documentation before you need them
  3. Review Elections: Confirm that any elections made (grouping, small business relief) remain valid and properly recorded
  4. Test Your Positions: For any aggressive interpretation, consider whether you could defend it in an audit setting

The Stakes Are Higher

Penalty provisions under the Corporate Tax Law are meaningful. Beyond financial penalties, there's reputational risk and the administrative burden of extended audits. Getting it right the first time is far more efficient than correction after examination.

Our Recommendation

If you haven't conducted a post-filing health check of your Corporate Tax position, now is the time. The gap between registration and first audit is the window for remediation. Once that window closes, options become more limited and more expensive.

Need a Corporate Tax health check? Contact us to schedule a review.