Corporate Tax filing has introduced a completely new compliance culture for businesses across the UAE. For decades, SMEs operated in an environment where taxation did not directly affect their profit calculations, record-keeping methods or financial discipline. With the introduction of Corporate Tax, small and medium enterprises are now required to maintain proper books of accounts, support each financial entry with documentation, and ensure that their tax returns match their actual economic activity. However, despite clear guidelines, many SMEs continue making errors that may expose them to penalties, reassessments and full audits by the Federal Tax Authority (FTA). Understanding the common mistakes in Corporate Tax filing is essential for every business owner to avoid unnecessary risks and protect the company’s financial stability.
Lack of Proper Record-Keeping and Documentation
One of the most widespread mistakes SMEs make is the absence of accurate and complete financial records. Many businesses still rely on handwritten notes, manual spreadsheets or incomplete invoices, which severely affects the accuracy of tax calculations. Corporate Tax compliance is entirely documentation-based, meaning that every number filed in the return must be supported by valid records.
When a company fails to maintain detailed income records, expense receipts, contracts, agreements, payroll files or bank reconciliation statements, the FTA questions the reliability of the tax return. In several cases, SMEs submit expenses but cannot provide supporting evidence when asked during an audit or clarification. This leads to disallowed deductions and increased taxable income. Strong documentation is not optional under Corporate Tax; it is the foundation of the entire compliance system. Businesses must build a culture of recording every transaction clearly, accurately and systematically.
Using Non-Compliant or Outdated Accounting Systems
Another major issue is the continued use of outdated accounting systems or basic spreadsheets that do not meet the compliance requirements of the UAE tax framework. Corporate Tax requires companies to maintain audit trails, accurate classification of transactions and proper accrual-based accounting. When SMEs depend solely on manual entries or non-professional software, errors naturally occur. These mistakes often include incorrect revenue postings, misclassification of expenses, wrong depreciation calculations and missing adjustments.
FTA has strengthened the use of digital compliance tools, and SMEs must understand that Corporate Tax filing is not just about submitting a form—it is about ensuring that the numbers in the return match the company’s real financial activity. A modern accounting system provides transparency, reduces human error and ensures that every entry can be tracked, verified and justified. Upgrading to compliant software is one of the smartest steps an SME can take to avoid filing mistakes.
Incorrect Classification of Allowable and Non-Allowable Expenses
Many SMEs struggle to understand which expenses are deductible and which are non-deductible for Corporate Tax purposes. This confusion leads to mistakes in calculating taxable income. Some businesses deduct personal expenses, owner withdrawals, entertainment costs, undocumented allowances or non-business expenses simply because they were paid through the company account.
FTA does not accept expenses that do not have a clear business purpose. In cases where SMEs mix personal and business spending, the tax authorities immediately question the accuracy of the financial statements. Furthermore, SMEs often fail to adjust for non-deductible expenses such as fines, penalties, donations, depreciation on land or provisions that do not meet the eligibility criteria. Over-claiming deductions is considered a serious compliance issue and can result in reassessments, interest charges and penalties. A proper understanding of allowable business expenses is essential for accurate Corporate Tax filing.
Misunderstanding the Tax Adjustments Required Under Corporate Tax Law
Corporate Tax returns are not a direct reflection of the profit shown in financial statements. SMEs often make the mistake of using their accounting profit as taxable profit without applying the necessary tax adjustments. These adjustments include adding back non-deductible expenses, adjusting unrealized gains or losses, applying the correct depreciation method, and ensuring that exempt income is excluded properly.
The difference between accounting profit and taxable profit is one of the most misunderstood areas for SMEs. Without proper understanding, businesses submit incorrect tax returns, leading to compliance issues and potential audit flags. The FTA expects companies to document each adjustment clearly and justify its purpose. Therefore, SMEs must build strong knowledge or consult professionals who fully understand the UAE Corporate Tax framework.
Failure to Consider Related Party Transactions and Transfer Pricing Rules
Even though Transfer Pricing sounds like an advanced concept meant for large multinational companies, it applies to all businesses—including SMEs—in the UAE. Many SMEs do not recognize that transactions with owners, family members, related companies or sister concerns fall under related party rules. Such transactions must follow the arm’s length principle, meaning they must be priced as if the entities were unrelated.
Common mistakes include charging unrealistic interest rates on loans, underpricing goods or services exchanged between related entities, or recording expenses without proper justification. The FTA can investigate these arrangements if they appear artificial or designed solely for tax benefit. SMEs that ignore Transfer Pricing compliance risk facing penalties, adjustments and detailed audits. Proper documentation of related party transactions is essential to comply with Corporate Tax regulations.
Ignoring the General Anti-Abuse Rule (GAAR)
The General Anti-Abuse Rule is one of the most powerful tools in the UAE Corporate Tax Law. It allows the FTA to challenge any arrangement that does not have genuine commercial purpose or appears to be structured mainly to obtain a tax advantage. Many SMEs unknowingly violate GAAR by restructuring their ownership, inflating expenses or shifting revenues in ways that are not commercially justified.
Any attempt to artificially reduce tax liability without real economic substance is considered a violation. SMEs must ensure that every business decision—from company restructuring to expense allocation—has a strong business purpose supported by documentation. GAAR makes it essential for companies to think long-term and adopt transparent, compliant financial practices.
Submitting Returns Without Proper Review or Cross-Checking
Many SMEs rush to file Corporate Tax returns at the last minute. This leads to errors such as incorrect financial figures, mismatched totals, missing schedules or incomplete disclosures. Corporate Tax filing requires careful review of several components, including revenue, cost of sales, operating expenses, depreciation, adjustments and final taxable income.
A common mistake is failing to reconcile the Corporate Tax return with VAT returns, payroll records and bank statements. The FTA uses advanced analytical tools to detect mismatches between these records. When inconsistencies appear, the FTA may issue clarification requests or trigger an audit. Filing without review exposes SMEs to unnecessary risks that can be easily avoided with proper internal checking and professional verification.
Late Filing and Late Payment of Tax Liability
Despite having sufficient time, many SMEs delay preparing their financial statements or gathering required documentation. This results in late filing of Corporate Tax returns or late payment of Corporate Tax liability. The UAE imposes penalties for both delays, and repeated non-compliance creates a negative risk profile for the company.
Timely filing reflects discipline and compliance, while delays often signal weak internal controls or unpreparedness. SMEs must adopt a proactive approach by closing accounts early, reviewing records, preparing adjustments, and planning their tax calculations ahead of deadlines. Proper scheduling and financial planning are essential to avoid unnecessary penalties.
Relying on Unqualified or Inexperienced Accountants
One of the biggest reasons SMEs make mistakes in Corporate Tax filing is the reliance on inexperienced accountants who lack technical knowledge of the UAE Corporate Tax Law. Unlike basic bookkeeping, Corporate Tax requires understanding of international accounting standards, UAE tax rules, adjustments, allowances, related party rules and documentation requirements.
When unqualified staff make mistakes, the responsibility—and consequences—fall on the business owner. Several SMEs have already received notices and penalties because their filings were inaccurate, incomplete or misleading. Working with a knowledgeable Corporate Tax advisor is not an expense; it is an investment in compliance and risk protection.
By
Nitasha Qayoum
Senior Business Advisor
Abstract Accounting & Auditing
