BLOGS

October 27, 2025

5 Common Corporate Tax Pitfalls in the UAE and How to Avoid Them

Since Corporate Tax came into force in the UAE, we’ve spoken to dozens of business owners and finance leaders who all share the same thought:

“It’s just another compliance form — how hard can it be?”

The truth?
 It’s not hard, but it’s different — and that’s where most businesses slip up.

Below are the five most common pitfalls we see across UAE businesses — and how you can avoid them.

1. Treating Corporate Tax as a once-a-year task

Corporate Tax isn’t something you can fix at filing time.
 It affects your structure, contracts, and daily accounting decisions throughout the year.

We’ve seen companies wait until audit season to “get their numbers ready,” only to discover:

  • Related-party transactions weren’t documented properly 
  • Adjustments weren’t tracked 
  • Taxable income wasn’t calculated the way the FTA requires 

By then, it’s too late to optimise — or worse, you’re left explaining inconsistencies.

The fix:
 Make Corporate Tax part of your monthly and quarterly reviews, not just year-end.
 That means aligning your chart of accounts, documentation, and decision-making now — not later.

2. Assuming Free Zone = Zero Tax

This is one of the biggest misconceptions in the UAE.
 Being based in a Free Zone doesn’t automatically mean you’re exempt.

To qualify for the 0% Free Zone rate, you need to meet strict conditions:

  • Generate qualifying income
  • Maintain adequate substance (people, assets, activity in the UAE)
  • Keep proper accounting segregation between qualifying and non-qualifying income
  • Stay compliant with transfer pricing rules

We’ve seen businesses lose their 0% status simply for mixing qualifying and non-qualifying revenue in one ledger.

The fix:
 Don’t rely on your trade licence alone — rely on eligibility checks and documentation.
 If your income structure is unclear, Nishe can help you review and protect your Free Zone position.

3. Missing the details that matter

Corporate Tax isn’t about ticking boxes — it’s about understanding what the FTA expects from your data.

Simple oversights can trigger penalties:

  • Incorrect or incomplete related-party disclosures
  • Using group assumptions instead of UAE-specific rules
  • Not reconciling book profits to taxable income correctly 

Most of these errors aren’t deliberate — they happen when finance teams reuse “global templates” without tailoring them for UAE-specific laws.

The fix:
 Localise everything.
 Your group reporting pack might look fine globally, but it won’t pass an FTA review unless it follows local guidance and Ministerial Decisions.

4. Ignoring Transfer Pricing (until it’s too late)

Transfer pricing isn’t just for large multinationals anymore.
 Even small-to-mid-sized groups with intercompany transactions fall under these rules.

That includes:

  • Management fees
  • Shared services
  • Loans or guarantees
  • Cross-border supplies within the same group 

We’ve seen businesses fail to prepare proper Transfer Pricing documentation and Local Files, thinking “we’re too small.”
 But the FTA expects transparency — and can request these documents at any time.

The fix:
 Review your intercompany arrangements now.
 Even a simple management charge between two entities should have a pricing policy, a supporting rationale, and a paper trail.

Nishe’s tax team helps businesses build compliant, practical transfer pricing documentation — without unnecessary complexity.

5. Waiting until the deadline to act

Many businesses are taking a “wait and see” approach.
 But here’s the reality: the FTA has been clear about enforcement, and penalties are real.

Late filings, inaccurate declarations, or missing data can lead to:

  • Monetary fines
  • Increased audit scrutiny
  • Suspension of Free Zone benefits

We’ve helped clients who nearly missed deadlines — and it’s a stressful scramble that’s completely avoidable.

The fix:
 Start preparing early.
 Corporate Tax touches your accounting, systems, and people — it’s not just a form to be filed.
 Early planning means fewer surprises and more time to optimise.

The takeaway: Treat Corporate Tax as a business strategy, not a compliance chore

The UAE’s Corporate Tax regime is still new, but it’s here to stay — and those who plan early will gain a real edge.

At Nishe, we work with CFOs, founders, and finance leaders to make Corporate Tax compliance simple, structured, and strategic — so you can stay focused on running your business.

Get in touch with our team for a readiness review or corporate tax consultation.

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