10 Oct 2025
The FTA has significantly strengthened its monitoring of corporate tax compliance under Federal Decree-Law No. 47 of 2022. Businesses in the UAE are required to maintain proper accounting standards, submit accurate tax returns, and retain records in line with the Tax Procedures Law. However, many entities unknowingly make errors that can lead to an FTA audit.
This blog highlights the top corporate tax mistakes that lead to FTA audits and guides on maintaining strong tax compliance in the UAE.
Avoid These Significant Corporate Tax Pitfalls
1. Inaccurate or Incomplete Financial Records
Under Cabinet Decision No. 74 of 2023, businesses are required to maintain accounting records, contracts, invoices, payroll records, and inventory details for a minimum of five years.
Audit Red Flag: Failure to maintain or present these records correctly.
2. Late Filing or Non-Filing of Tax Returns
The Corporate Tax Returns Guide (2024) places strong emphasis on timeliness and accuracy of filing.
Audit Red Flag: Failure to file or late filing of required returns.
Penalty: Fines under Cabinet Decision No. 75 of 2023, from AED 500–1,000 per month for late filing.
3. Misreporting Related-Party Transactions
The Accounting Standards Guide and CT Returns Guide emphasize that related-party and connected-person transactions must comply with the arm’s length principle.
Audit Red Flag: Unexplained differences in transfer pricing or missing supporting documentation.
4. Wrong Application of Small Business Relief
Article 21 of Federal Decree-Law No. 47 of 2022 allows small businesses to elect for relief.
Audit Red Flag: Incorrectly claiming relief when not eligible. Misrepresentation of turnover or income thresholds.
5. Misclassification of Free Zone Income
Free Zone Persons must carefully distinguish between qualifying and non-qualifying income.
Audit Red Flag: Incorrect declarations in Free Zone schedules in the tax return.
6. Ignoring Transitional Rules and Adjustments
Transitional provisions require businesses to adjust opening balances, gains, and losses in line with corporate tax UAE.
Audit Red Flag: Failure to apply transitional adjustments when moving from pre-CT periods. Gaps in tax return schedules that don’t reconcile with financial statements.
7. Non-Compliance with Language and Submission Requirements
As per Cabinet Decision No. 75 of 2023, failure to provide tax records in Arabic upon request from the FTA results in a penalty of AED 5,000.
Audit Red Flag: Lack of Arabic-translated financial statements or contracts.
Get Audit Ready with AMCA Auditing
The corporate tax UAE is structured to encourage compliance through transparency and strong documentation. Businesses that fail to adhere to filing deadlines, maintain accurate financial records, or apply rules correctly expose themselves to heavy penalties and FTA audits.
At AMCA Auditing, we help businesses avoid FTA audits by ensuring flawless compliance with the corporate tax law in the UAE. From accurate tax return preparation to maintaining proper accounting standards, our experts safeguard your business against costly penalties.
Contact AMCA today to ensure your compliance and peace of mind.
FAQs
Q1. What is the most common reason businesses face an FTA audit in the UAE?
Late filing of tax returns and poor record-keeping are among the top reasons, as stated in Cabinet Decisions 74 and 75 of 2023.
Q2. How long must I keep corporate tax records in the UAE?
Minimum of five years from the end of the tax period, and a maximum of seven years for records pertaining to real estate.
Q3. Can errors in related-party transactions attract penalties?
Yes. Misreporting or failing to maintain transfer pricing documentation can raise FTA audit red flags.
Q4. Are Free Zone companies fully exempt from corporate tax?
No. Only qualifying income is exempt. Misclassifying income may lead to audits.
