UAE Corporate Tax audits: what the FTA is likely to examine

What a Corporate Tax audit tests

UAE Corporate Tax is charged under Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (the Corporate Tax Law), at 0% on taxable income up to AED 375,000 and 9% above it, with separate rules for free zone businesses. A return is built on the business’s accounts, adjusted under the law, with any reliefs and elections claimed on top.

The Federal Tax Authority (FTA) publishes no list of what prompts an audit. An audit can test any position the return takes, but the most exposed are those where the law sets a condition: a deadline, a threshold, an ownership test or a pricing standard.

How an audit is opened and what the FTA can ask for are covered on our page on the FTA tax audit procedure. This page is about what the FTA is likely to examine in the return itself.

The risk areas at a glance

Articles are of the Corporate Tax Law unless stated otherwise.

Registration and its deadlines

Every taxable person must apply to register for Corporate Tax within the timeline the FTA sets (Article 51). The timelines are in FTA Decision No. 3 of 2024.

• UAE companies set up before 1 March 2024 registered by a deadline fixed by the month in which their licence was issued, whatever the year: a January or February licence meant 31 May 2024, and a December licence 31 December 2024.
• UAE companies set up on or after 1 March 2024 must apply within three months of incorporation. A foreign company effectively managed and controlled in the UAE has three months from the end of its financial year.
• Individuals come within Corporate Tax once turnover from their business activity exceeds AED 1 million in a calendar year. A resident individual must then apply by 31 March of the following year.

Missing the deadline carries an administrative penalty of AED 10,000 under Cabinet Decision No. 75 of 2023, as amended by Cabinet Decision No. 10 of 2024. Under a waiver in force since April 2025, explained in the FTA’s Public Clarification CTP006, the penalty is waived automatically if the first return, or annual declaration, is filed within seven months of the end of the first tax period rather than nine. A penalty already paid is credited to the business’s EmaraTax account.

Once registered, the business files a return for each tax period within nine months of the end of that period (Article 53), and pays the tax by the same date (Article 48). Late filing and late payment each carry their own penalty, set out on our FTA penalties page.

In an audit, registration is usually a question of dates: when the licence was issued, when the entity was incorporated or became resident, and when the first return was filed. Group companies, dormant entities and individuals whose turnover crossed AED 1 million are where those dates most need checking.

Small Business Relief

A resident person whose revenue does not exceed AED 3,000,000 may elect in its return for Small Business Relief, and is then treated as having no taxable income for that period (Article 21 and Ministerial Decision No. 73 of 2023 on Small Business Relief). The relief originally ran to tax periods ending on or before 31 December 2026. Ministerial Decision No. 131 of 2026, announced by the Ministry of Finance on 7 August 2026, extends it to tax periods ending on or before 31 December 2029, with the threshold unchanged.

• Every earlier period counts. Revenue must not have exceeded AED 3 million in the current tax period or in any previous one. One period above the threshold rules the relief out for every period after it.
• Revenue means all gross income. It includes income that is otherwise exempt, such as dividends, and the proceeds of selling business assets. VAT charged is left out.
• Some businesses cannot claim it at all. Qualifying Free Zone Persons are excluded, and so are members of multinational groups with consolidated revenue above AED 3.15 billion. A tax group is tested on its combined revenue.
• Artificial separation. Where a business has been split so that each part stays under the threshold, the FTA can counteract the advantage under the general anti-abuse rule, looking at the financial, economic and organisational links between the parts.

The relief removes the tax, not the compliance. A business claiming it must still register, file a return and keep records, and a tax loss made in a relief period cannot be carried forward. An audit of a relief claim tests the revenue figure against the accounts and the VAT returns, and looks at related businesses under common ownership.

Qualifying Free Zone Person status

A free zone business that is a Qualifying Free Zone Person pays 0% on its qualifying income and 9% on its other taxable income, without the AED 375,000 band (Article 3.2). The status is the default, but it depends on conditions that must be met throughout the tax period. Under Article 18 and Ministerial Decision No. 229 of 2025 on Qualifying Activities and Excluded Activities, the business must:

• maintain adequate substance in the UAE
• derive qualifying income
• not have elected to be taxed at the standard rate
• comply with the arm’s length rules and transfer pricing documentation requirements
• keep its non-qualifying revenue within the de minimis limit
• prepare audited financial statements

Ministerial Decision No. 229 of 2025, issued on 28 August 2025 with effect from 1 June 2023, replaced Ministerial Decision No. 265 of 2023, which older material still cites.

Qualifying income

Under Cabinet Decision No. 100 of 2023 on qualifying income, income is qualifying where it comes from another free zone person that is the beneficial recipient of the goods or services, or from a qualifying activity carried on with anyone else, provided the activity is not excluded. Qualifying activities include manufacturing and processing, trading in qualifying commodities, holding shares for investment, headquarter and treasury services to related parties, logistics, and distribution in or from a Designated Zone. Excluded activities include most transactions with individuals, regulated banking, insurance and finance, and most income from immovable property.

Distribution has conditions of its own: goods entering the UAE must come in through the Designated Zone, and be supplied to a customer who resells or processes them for sale, or to a public benefit entity. For tax periods starting on or after 1 January 2026, FTA Decision No. 6 of 2026 adds procedures for distributors, including a report from an independent auditor on those conditions.

The de minimis test

Non-qualifying revenue must not exceed 5% of total revenue or AED 5,000,000, whichever is lower. Revenue attributable to a branch or other permanent establishment outside the free zone, whether in the UAE or abroad, and certain property and intellectual property income that is taxed at 9% in any case, is taken out of both sides of the calculation. The test is binary: a business that is just over the limit fails.

What losing the status means

A business that fails any condition at any time in a tax period ceases to be a Qualifying Free Zone Person from the beginning of that period and for the following four tax periods. For those five periods its income is taxed under the ordinary rules. An audit of a free zone claim therefore goes to the customer list, the classification of each revenue stream, the de minimis calculation, the evidence of people, premises and spending in the free zone, and the audited accounts.

Transfer pricing and connected persons

Transactions between related parties must meet the arm’s length standard: the result must be consistent with what independent parties would have agreed in similar circumstances (Article 34). The rule applies to dealings inside the UAE as well as across borders, including between a mainland company and a free zone company under common ownership.

• Related parties (Article 35) include individuals related to the fourth degree, and an individual or entity holding or controlling at least 50% of another entity, alone or with their own related parties.
• Connected persons (Article 36) include an individual who owns or controls the business, its directors and officers, and their related parties. A payment or benefit to a connected person is deductible only to the extent it corresponds to the market value of what was provided and is incurred wholly and exclusively for the business. Listed companies and businesses under regulatory oversight are outside this rule.

Where a result falls outside the arm’s length range, the FTA can adjust taxable income to the result that best reflects the facts. In owner-managed businesses the dealings most worth checking are salaries and fees paid to owners and directors, rent paid to an owner for premises, management charges between group companies and loans between them.

Disclosure and documentation

The FTA can require a transfer pricing disclosure form to be filed with the return, covering transactions with related parties and connected persons (Article 55). Its guidance on Corporate Tax returns limits the schedules to businesses above set thresholds: broadly, related-party transactions of more than AED 40 million in total, or payments or benefits of more than AED 500,000 to a connected person.

Under Ministerial Decision No. 97 of 2023, a business must keep a master file and a local file if its revenue in the tax period is at least AED 200 million, or it belongs to a multinational group with consolidated revenue of at least AED 3.15 billion. The local file covers dealings with non-residents, exempt persons, persons claiming Small Business Relief and persons taxed at a different rate, such as a Qualifying Free Zone Person.

Either file must be produced within 30 days of the FTA’s request, or a later date it allows. A business below the thresholds must still keep records that support the arm’s length nature of its related-party and connected-person dealings, and the same 30 days applies if they are requested.

Deductions and the interest cap

Expenditure is deductible only if it is incurred wholly and exclusively for the business and is not capital in nature (Article 28). Costs of earning exempt income, and losses not connected with the business, are not deductible.

Article 33 disallows specific items whatever the accounts show, including fines and penalties, bribes, dividends, an owner’s drawings, donations to bodies that are not qualifying public benefit entities, recoverable input VAT and Corporate Tax itself.

Entertainment of customers, shareholders, suppliers and other business partners, such as meals, accommodation and admission fees, is only 50% deductible (Article 32). Staff entertainment is not restricted, so the split between the two needs support.

The general interest limitation

Net interest expenditure is deductible up to the greater of AED 12 million and 30% of adjusted EBITDA, which is calculated from taxable income rather than from the accounts (Article 30 and Ministerial Decision No. 126 of 2023 on the General Interest Deduction Limitation Rule). Net interest of AED 12 million or less is deductible without the 30% test, with the AED 12 million pro-rated for a tax period that is not 12 months long. Disallowed interest can be carried forward for up to ten tax periods.

“Interest” includes economic equivalents such as arrangement and guarantee fees and the finance element of leases. Banks, insurers and individuals are outside the cap, and so is interest on debt whose terms were agreed before 9 December 2022.

Separately, Article 31 denies a deduction for interest on a loan from a related party used for purposes such as paying a dividend to a related party, returning capital to one, or acquiring a company that becomes a related party, unless the business shows the arrangement was not entered into for a Corporate Tax advantage.

Tax losses

A tax loss can be carried forward without time limit, but in any later period it can relieve no more than 75% of that period’s taxable income (Article 37). It must be used at the earliest opportunity: the business cannot hold it back for a more profitable year. No relief is available for losses incurred before Corporate Tax applied to the business, or from activities whose income is exempt.

Under Article 39, a loss survives only if the same shareholders own at least 50% from the start of the period in which it arose to the end of the period in which it is used. If ownership changes beyond that, the loss can still be used if the business carries on the same or a similar business, judged by factors such as whether it uses the same assets and whether its core identity or operations have changed significantly. Listed companies are outside the rule.

An audit of a loss claim follows the shareholder register through every change, and compares what the business did when the loss arose with what it does now.

Tax groups and qualifying group relief

A UAE resident parent holding at least 95% of the share capital, voting rights and profits of its UAE resident subsidiaries can apply to form a tax group with them, which files one return through the parent (Article 40 and Ministerial Decision No. 301 of 2024 on Tax Groups). Qualifying Free Zone Persons and exempt persons cannot be members. The conditions must be met throughout the period, members are jointly and severally liable unless the FTA agrees otherwise, and a member that stops qualifying must tell the FTA within 20 business days.

Qualifying group relief (Article 26) is different: it lets assets move at book value between companies with at least 75% common ownership, without a tax charge. If the asset, or either company, leaves the group within two years, the transfer is treated as having taken place at market value. An audit checks the ownership on the transfer date and for the two years after it.

The general anti-abuse rule

Article 50 lets the FTA counteract a Corporate Tax advantage where, considering all the relevant circumstances, it can reasonably be concluded that both of these are true:

• the transaction, or part of it, was not entered into for a valid commercial or other non-fiscal reason that reflects economic reality; and
• its main purpose, or one of its main purposes, was to obtain a Corporate Tax advantage inconsistent with the intention or purpose of the law

The FTA can then disallow or reallocate a deduction or relief, recharacterise a payment, and make compensating adjustments for other persons affected. Ministerial Decision No. 73 of 2023 applies the rule expressly to a business artificially separated to stay within Small Business Relief.

How VAT and Corporate Tax figures are compared

The FTA holds both sets of returns. It does not publish the comparisons it runs, but the most obvious is revenue: the turnover in the Corporate Tax return against the supplies declared on the VAT returns for the same months.

The two rarely match exactly, and a difference is not itself an error. VAT returns cover quarters or months, not the financial year; the VAT date of supply and the accounting recognition of revenue can fall in different periods; and some income, such as dividends, is outside VAT altogether. What matters is that the difference can be explained line by line, ideally in a reconciliation prepared before anyone asks.

Costs are compared too: recoverable input VAT is not deductible for Corporate Tax, while VAT that cannot be recovered is part of the cost it relates to. A sale left out of one return is usually missing from the other, and since 14 April 2026 VAT penalties for errors have followed the same structure as Corporate Tax (Cabinet Decision No. 129 of 2025). As e-invoicing is phased in from 2027, the FTA will also hold invoice-level data.

The records an audit relies on

A business must keep the records that support its return, and allow its taxable income to be readily worked out, for at least seven years after the end of the tax period (Article 56). For a Corporate Tax audit, the records that carry most weight are usually:

• the financial statements, audited where required: for tax periods from 1 January 2025, Ministerial Decision No. 84 of 2025 requires audited statements where revenue exceeds AED 50 million, and from every Qualifying Free Zone Person (tax groups have a requirement of their own)
• the ledgers and the working from accounting profit to taxable income
• the revenue analysis behind any Small Business Relief or free zone claim
• contracts, invoices and transfer pricing support for related-party and connected-person dealings
• shareholder registers, for losses and group reliefs
• the VAT returns and a reconciliation to the Corporate Tax revenue

What the FTA can require during an audit, and how, is on our page on the FTA tax audit procedure.

Correcting an error before the FTA finds it

A review before, or early in, an audit may find an error. An error that understates the tax is generally corrected by a voluntary disclosure under Article 10 of Federal Decree-Law No. 28 of 2022 on Tax Procedures, though a small error can sometimes be corrected in the next return instead. The deadline runs from the date the business becomes aware of the error, so a review that finds one starts a clock.

The timing also sets the penalty. Under Cabinet Decision No. 75 of 2023, a disclosure made before the FTA notifies an audit carries a penalty of 1% of the tax difference for each month or part month. If the business has not disclosed before the audit notice, a fixed 15% is added to the monthly 1%. Our pages on voluntary disclosure and FTA penalties set out how each works.

If the FTA has already issued an assessment, see reconsideration and the TDRC. If it alleges deliberate evasion, see tax evasion investigations.

How we help

• Read the FTA’s notice or request and establish which periods and positions it covers
• Rebuild the Corporate Tax computation from the accounts, adjustment by adjustment
• Test each relief and status claimed against the conditions in the law
• Review related-party and connected-person dealings, and the transfer pricing support behind them
• Reconcile Corporate Tax revenue to the VAT returns
• Quantify any error found and draft the voluntary disclosure
• Draft the response to the FTA’s questions or proposed adjustments

Where a business uses a tax agent for a Corporate Tax matter, it is worth checking that the agent’s registration with the FTA covers Corporate Tax, not only VAT.

Further reading

• UAE tax disputes: an overview
• FTA tax audits: the procedure
• Voluntary disclosure to the FTA
• FTA administrative penalties
• Reconsideration requests and the TDRC
• UAE tax evasion investigations