Tax

The UAE Corporate Tax regime, which came into effect for financial years beginning on or after 1 June 2023, applies to businesses operating across the UAE, including those registered in the DIFC. Now that the regime has been in place for over two years, DIFC-registered companies should approach year-end compliance with a clear understanding of their obligations, having moved past the initial uncertainty of the first tax period.

This checklist sets out the key compliance steps that DIFC companies should address before their financial year closes, covering corporate tax registration, financial statement preparation, return filing, transfer pricing and related obligations.

Understanding Your Tax Status

Before addressing year-end obligations, it is essential to confirm your company's tax status under the UAE Corporate Tax Law. DIFC entities may qualify as a Qualifying Free Zone Person (QFZP), which provides a zero per cent corporate tax rate on qualifying income. This is one of the most significant benefits available to DIFC-registered companies, but it is conditional on meeting a number of specific requirements.

To qualify as a QFZP, a DIFC company must:

• Maintain adequate substance in the DIFC, meaning that the company must have genuine economic activity, appropriately qualified personnel and management present in the DIFC
• Derive income primarily from qualifying activities, as defined in Ministerial Decision No. 139 of 2023, which covers activities such as fund management, wealth management, financial services and holding of qualifying assets
• Not have elected to be subject to the standard 9 per cent corporate tax rate
• Comply with transfer pricing rules in respect of transactions with related parties
• Meet the de minimis threshold, which requires that non-qualifying income does not exceed 5 per cent of total revenue or AED 5 million, whichever is lower

Companies that fail to meet any of these conditions in a given tax period will be subject to the standard 9 per cent corporate tax rate on their taxable income for that period. It is therefore critical to review QFZP eligibility before year-end and to address any potential issues proactively.

Year-End Compliance Checklist

1. Confirm Corporate Tax Registration

Ensure that your company is registered with the Federal Tax Authority (FTA) for corporate tax purposes and that the registration details are accurate and up to date. Companies that have not yet completed their corporate tax registration should do so without delay, as late registration may attract administrative penalties.

2. Review QFZP Eligibility

Carry out a detailed review of your company's activities, income sources and substance arrangements to confirm continued eligibility for QFZP status. Consider whether any changes in business activities, staffing or income mix during the year may affect your eligibility. Where eligibility is uncertain, seek specialist advice before finalising your tax position.

3. Prepare Financial Statements

Ensure your financial statements for the relevant tax period are prepared in accordance with International Financial Reporting Standards (IFRS) or another acceptable accounting standard approved by the FTA. Financial statements must accurately reflect the company's income, expenses, assets and liabilities, and must be prepared before the corporate tax return can be filed. DIFC companies are generally required to have their financial statements audited by a DFSA-approved auditor or a UAE-registered audit firm.

4. Calculate Taxable Income and Applicable Deductions

Work through the computation of taxable income, applying any applicable exemptions, deductions and reliefs. Key items to consider include:

• Dividend income received from UAE resident companies, which is generally exempt from corporate tax
• Capital gains on the disposal of qualifying shareholdings, which may benefit from the participation exemption
• Interest deductions, which are subject to the general interest deduction limitation rules
• Related-party payments, which must be at arm's length and properly documented

5. Transfer Pricing Documentation

If your DIFC company transacts with related parties, whether within the UAE or across borders, ensure that transfer pricing documentation is in place for the year-end period. The UAE's transfer pricing rules require that all related-party transactions are conducted on an arm's length basis, consistent with the OECD Transfer Pricing Guidelines. Depending on the size and structure of your group, master file and local file requirements may apply, along with country-by-country reporting obligations.

6. File the Corporate Tax Return

UAE Corporate Tax returns must be filed with the FTA within nine months of the end of the relevant tax period. For companies with a 31 December year-end, the filing deadline falls on 30 September of the following year. Confirm your filing deadline and allocate sufficient time for return preparation, internal review and submission through the FTA's EmaraTax portal.

7. Settle Any Outstanding Tax Liability

If your company has a corporate tax liability for the period, ensure that payment is made to the FTA by the due date to avoid late payment penalties. Companies that have made advance tax payments should reconcile these against the final tax liability and arrange any top-up payment required.

8. VAT Compliance

Confirm that all VAT returns for the financial year have been filed on time and that any outstanding VAT liabilities have been settled in full. Review your input tax recovery position, particularly if your company has activities that give rise to partial exemption or mixed-use calculations. VAT grouping arrangements, if applicable, should be reviewed to confirm they remain appropriate and that the representative member's obligations are being met.

9. Review Economic Substance Positions

While the UAE's Economic Substance Regulations (ESR) have been largely superseded by the Corporate Tax regime for most companies, certain ESR filing obligations may remain relevant for financial periods that pre-date the corporate tax regime or for specific categories of licensee. Confirm whether any outstanding ESR notifications or reports are required and address these before year-end.

10. Document Governance and Decision-Making

Ensure that board meeting minutes, resolutions and governance records are up to date and accurately reflect the company's management and control during the year. Adequate documentary evidence of management decisions made within the DIFC is an important component of demonstrating substance for QFZP purposes.

Common Pitfalls to Avoid

Several common mistakes can jeopardise QFZP status or give rise to penalties:

• Failing to maintain adequate physical presence and substance in the DIFC
• Allowing non-qualifying income to exceed the de minimis threshold without identifying and addressing this in advance
• Missing corporate tax registration or return filing deadlines
• Inadequate transfer pricing documentation for related-party transactions
• Inconsistency between financial statements and tax return disclosures

How Atlas Can Help

Atlas Corporate Services provides accounting, tax and compliance support to DIFC-registered companies navigating the UAE Corporate Tax regime. Our team assists with QFZP eligibility assessments, financial statement preparation, UAE Corporate Tax return filing, transfer pricing documentation and FTA correspondence. We work alongside your auditors and legal advisers to ensure that your year-end compliance obligations are met efficiently and accurately. Contact the Atlas team to discuss your year-end compliance requirements.

Frequently Asked Questions

Q: Do all DIFC companies automatically qualify as Qualifying Free Zone Persons?

No. QFZP status is not automatic. To qualify, a DIFC company must meet a series of conditions, including maintaining adequate substance in the DIFC, deriving income primarily from qualifying activities and meeting the de minimis threshold for non-qualifying income. Companies should carry out a detailed QFZP eligibility assessment each tax period.

Q: What is the deadline for filing a UAE Corporate Tax return?

Corporate tax returns must be filed with the Federal Tax Authority within nine months of the end of the relevant tax period. For companies with a 31 December financial year-end, this means the return must be filed by 30 September of the following year. Different deadlines apply for companies with non-calendar financial year-ends.

Q: Are DIFC companies required to prepare audited financial statements for corporate tax purposes?

The UAE Corporate Tax Law requires that taxable persons maintain audited financial statements if they are required to do so under applicable legislation or their constituent documents. DIFC companies subject to DIFC Authority filing requirements are generally required to prepare audited financial statements. Atlas can advise on the specific requirements applicable to your entity.

Q: What transfer pricing documentation is required for DIFC companies?

DIFC companies transacting with related parties must ensure that those transactions are conducted on an arm's length basis and are documented in accordance with the OECD Transfer Pricing Guidelines. Depending on the size of your group, master file and local file documentation, as well as country-by-country reporting, may be required. The specific thresholds and requirements should be confirmed with a qualified tax adviser.

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