UAE corporate tax: Authorities must be lenient in times of change

The UAE’s regulatory authorities have had a quiet month and not released much information regarding corporate tax, instead expending a large effort in regular numbered reminders about filing your return, regardless of how imminent it is or not due.

A recent discussion culminated with a line I often hear from those who have spent a decade or more in the UAE. “It used to be a lot simpler.” True.

Since I write about tax and this was the nature of discourse, I asked what the individual’s better idea might be? Replace value-added tax with sales tax, came the reply.

For those unsure of what the difference is, let’s define the two, starting with the latter. Sales tax is the US version of VAT. It’s only levied on the final consumer in the purchase of a good or service.

If a business owner walks into a stationary shop and purchases pens for their office, having proved to the retailer that is indeed the case, no sales tax would be charged. For domestic users, it would.

In VAT, all purchasers would be charged and those businesses registered for VAT would reclaim the tax levied on them.

The obvious issue here is proof. The retailer could argue that they honestly believed a purchaser’s contention that their customer was telling the truth. If they were not, then the tax authorities lose revenue.

You could potentially have a swipeable card issued by a relevant authority, but this becomes impractical for large organisations. Additionally, once that many cards are issued, the risk and temptation for malus would rocket.

Nations prefer VAT because the loss to the exchequer is reduced by virtue of each element in the supply chain being involved.

It’s here we discuss trade-offs. Unfortunately, I’m unsure if anyone has ever academically modelled these, but they would make for interesting reading.

Sales tax has less rules. Final consumers pay. That’s it. No tomes of legislation, clarifications and case law to review. All that time saved.

Conducting VAT audits requires the employment and training of many civil servants and the disturbance and stress to normal business operations of all registered entities.

As businesses are required to comply with the rules of VAT, it’s up to them to review, interpret and implement an internal regime to comply. It must put its hand up when it discovers an issue and accept the mandated penalty for their error.

Sales tax operates with a fraction of the costs to businesses and can be managed by governments with a fraction of the personnel VAT requires.

Neither VAT nor sales tax add any direct gross domestic product value to an economy.

Finally, I would like to turn to the Federal Tax Authority portal, which is currently making its second serious push to migrate users on to accessing through the UAE Pass. The old options are there in smaller font if you look carefully.

We are one of the great contemporary international nations. This means that not everyone is resident and has the UAE Pass on their mobile phone.

I have come across a case where the option box on the final submission page, where you agree that the information supplied is accurate and authority has been properly invested in the individual pressing the button, is greyed out. Amusingly, you can still attempt to submit and then be promptly told that you need to check the little greyed out box.

I’m highlighting this for the three potential reasons for why it might be happening. Firstly, it may just be a glitch, one to be reported to the FTA for resolution. Secondly, the final submission date of this return is in the last quarter of 2025. The portal may not be allowing returns due so far in the future to be submitted.

Finally, and this is the one that worries me. The trade licence of the entity needs to be updated on the portal. There is a ticker tape reminder scrolling across the screen when logged on.

Company secretarial is a topic I’ve covered a couple of times. To avoid penalties, you must be up to date by the end of March and stay up to date going forward. This is not accounting. This is administration.

One final element to this tale is that the trade licence was in the process of being updated. I’ve seen this take a month.

We’ve seen the portal deny progress on one matter until another is resolved. While I understand the carrot and stick approach, in these days of the first corporate tax returns being filed, I would plead for leniency in these times of great change.

Users are trying to get to grips with a lot of change. Cascading penalties, late filing fees and then interest on late settlement of taxes due are likely to cause some consternation among business owners.