With the introduction of UAE VAT in 2018 and Corporate Tax on 01 June 2023, UAE businesses are required to stay compliant with evolving tax regulations. Except for sole proprietorships, companies holding a trade license in the UAE are required to obtain Corporate Tax (CT) registration. VAT registration, however, is determined by the nature of the business activity and sales turnover. While registration seems straightforward on the FTA Emaratax portal, many businesses face practical challenges during the process. In this blog, we’ll explore the most common hurdles companies encounter in VAT and CT registration and how to overcome them.

1. Challenges in VAT Registration

a) Understanding Registration Thresholds – Federal Decree-Law (Article 13 & 17)

Many small businesses are uncertain whether they meet the mandatory registration threshold (AED 375,000) or qualify for voluntary registration (AED 187,500). Miscalculations in taxable supplies often lead to delayed registration and penalties.

b) Duplicate Accounts & TRN Linking Issues

Some companies mistakenly create multiple FTA accounts, causing problems in linking their TRN (Tax Registration Number) with customs or CT profile.

c) Documentation Errors

Incomplete or incorrect supporting documents, such as trade licenses, MOA, and turnover declaration letter, etc., in several application submissions frequently result in rejection or resubmission requests from the FTA.

d) VAT Grouping Complexities – Federal Decree-Law (Article 14)

For businesses with multiple trade licenses or group structures, consolidating VAT under a single TRN can be challenging due to ownership structure mismatches or unclear eligibility criteria.

e) Technical Glitches on FTA Portal

The FTA e-portal occasionally faces downtime or errors during submission, causing delayed registration.

F) Common Difficulties in VAT Registration for Specific Transactions in the UAE

• ▶  Tax obligations are subject to an ongoing dispute.
• When applying for VAT registration using purchase orders, the FTA typically takes more time to review the application.
• Key Requirements:

• A payment commitment letter must be provided, confirming that payment will be made within 30 days.
• The purchase order must be signed and stamped by both parties.

Since purchase orders alone do not indicate actual taxable supplies, the FTA scrutinizes such applications more closely.

• ▶  VAT Registration for E-commerce Businesses – E-Commerce VATGEC1.

E-commerce businesses face additional hurdles during VAT registration. The FTA often requires more clarification regarding the nature of online services.

Challenges Faced:

• The FTA examines whether human intervention is involved in the business model.
• They assess whether the services or products offered benefit UAE customers.
• Additional documentation or explanations may be requested, which extends the
  approval timeline.

Due to these checks, VAT registration for e-commerce businesses typically takes longer
compared to traditional businesses.

• ▶  VAT Registration Based on Taxable Expenses- VAT Public Clarification VATP040.
• Previously, the FTA allowed VAT registration if a business’s taxable expenses exceeded AED 187,500, even if the company did not have taxable sales.
• Recent Update:
  The FTA has recently issued a private clarification stating that:
  If a company’s taxable expenses exceed AED 187,500, it must demonstrate to the FTA that it is engaged in making taxable supplies. This change means that companies relying solely on taxable expenses to register for VAT now face stricter requirements. They must provide evidence of intended taxable supplies to justify their registration.
•  

2. Challenges in Corporate Tax (CT) Registration

a) Confusion Between Existing and New Accounts

Many VAT-registered businesses mistakenly apply CT registration in a new FTA account instead of using their existing account.

b) Missing or Expired Documents

CT registration requires valid documents like trade licenses, MOA, Emirates IDs, and more. Expired or incomplete submissions often result in rejection.

c) Legal Entity Misunderstanding

Sole establishments, branches, non-resident companies, offshore and free zone companies often struggle to identify whether separate CT registrations are required or if they fall under a parent entity.

d) Free Zone & Qualifying Income

Businesses in free zones are often confused about whether to obtain Corporate Tax (CT) registration, particularly concerning qualifying versus non-qualifying income for those seeking the 0% CT incentive.

e) Trade License vs. Actual Business Activities

If your trade license activities do not match your actual operations, the FTA may raise queries during CT registration.

f) Delayed Registrations & Penalties – Cabinet Decision No. (40) of 2017 on Administrative Penalties for Violations of Tax Laws

Many businesses delay registration due to uncertainty over tax applicability. However, missing the FTA’s CT registration deadline attracts a penalty of AED 10,000.

g) Difficulties in Corporate Tax Registration for Non-Resident Taxable Persons in the UAE-Corporate Tax Public Clarification CTP001

The UAE Corporate Tax regime has introduced specific rules for non-resident taxable persons. These are businesses or individuals who earn revenue from the UAE but do not hold a UAE trade license. Registering such entities for Corporate Tax can be complex due to the need to determine their tax status and applicable registration requirements.

• ▶  Identifying Non-Resident Taxable Persons.
• The first challenge is determining whether a non-resident person is required to register for Corporate Tax. Non-residents are generally subject to Corporate Tax in the UAE if they have:

• A Permanent Establishment (PE) in the UAE,
• A Nexus in the UAE, or
• A Place of Effective Management (POEM) in the UAE.

• ▶  Key Categories for Non-Resident Classification

• Permanent Establishment (PE)
  If a foreign company has a UAE trade license but operates as a branch of a foreign entity, it is treated as a Permanent Establishment and must register for Corporate Tax.
• Nexus
  If a company has no trade license in the UAE but earns revenue from UAE sources, it may be treated as having a Nexus in the UAE.
• Place of Effective Management (POEM)
  A company may also be considered a UAE tax resident if its management and control are effectively exercised from the UAE, regardless of where it is incorporated.

• ▶  Practical Challenges Faced

• Determining Eligibility: Identifying whether a non-resident qualifies as a taxable person under UAE CT law.
• Choosing the Financial Period: Deciding the correct financial year for registration when the company does not follow UAE accounting timelines.
• Complex Analysis of PE, Nexus, and POEM: Understanding the company’s operations and management structure to correctly classify its tax residency status.
• Documentation Issues: Non-resident entities often lack UAE-based documentation, which complicates registration.

3. Common Challenges Across VAT & CT 

• Lack of awareness about deadlines and requirements.
• Errors in Arabic translations of trade names or documents.
• Difficulty in navigating the FTA portal for first-time users.
• Unclear guidelines for foreign-owned businesses and multiple branches.
• Legal Type Issues in the FTA Portal
  One of the common challenges faced by businesses is dealing with legal type changes in the FTA portal.
  • Many businesses lack clarity on the steps required when there is a change in the legal type (e.g., converting from an LLC to a Sole Establishment or vice versa and changes in ownership of a sole establishment) in their trade license.
  • After such changes, companies are often unsure whether they should continue using the same Tax Registration Number (TRN) for both VAT and Corporate Tax (CT) or if a new registration is required.

This lack of understanding can lead to compliance issues, delays in filing returns, or
errors in VAT and CT registration records.

How to Overcome These Challenges?

• Stay Updated: Regularly check FTA circulars and guidelines.
• Engage Professionals: Work with certified tax consultants to avoid errors.
• Plan Ahead: Ensure all documents (trade license, MOA, IDs) are updated before applying.
• Leverage Technology: Use accounting software to accurately track turnover and thresholds.
• Update the KYC documents in the portal within 20 business days from the date of change.
• When there is a change in the legal type of a company, it is important to comply with the FTA’s requirements within the stipulated timelines:
  1. De-registration of old VAT and CT: Apply for de-registration of the existing VAT and CT registrations within the timeframe specified by the FTA.
  2. Re-registration for Corporate Tax (CT): Register the new legal entity for CT within 3 months of the legal type change.
  3. VAT Registration: For VAT, re-register the new entity once it crosses the voluntary registration threshold as per FTA guidelines.

Conclusion

VAT and Corporate Tax registration are critical compliance requirements in the UAE. While the process may seem straightforward, practical challenges like documentation errors, portal glitches, and legal misunderstandings can lead to delays and penalties. With proactive planning and professional support, businesses can ensure smooth registration and avoid unnecessary penalties.