Can Corporation Tax Be Paid in Installments in UAE?

The introduction of corporate tax in the United Arab Emirates (UAE) has brought significant changes to the business landscape, raising important questions about tax compliance, payment methods, and financial planning. One of the most common queries among UAE businesses is whether corporate tax can be paid in installments. This comprehensive guide explores the regulations, options, and best practices for paying corporate tax in installments in the UAE.

Understanding the UAE's corporate tax payment options is crucial for businesses to maintain compliance while managing cash flow effectively. The Federal Tax Authority (FTA) has established specific rules regarding installment payments, which we'll examine in detail.

At One Desk Solution, we specialize in helping businesses navigate the UAE's tax landscape. Our tax services ensure your company remains compliant while optimizing your financial strategy.

Overview of Corporate Tax in the UAE

Recent Developments and Tax Rates

The UAE implemented its corporate tax regime starting June 1, 2023, marking a shift from its previous tax-free environment for most businesses. The new system features a dual-tier structure:

• 0% tax on taxable income up to AED 375,000 (supporting small and medium-sized businesses)
• 9% tax on taxable income exceeding AED 375,000 per tax period
• 15% Domestic Minimum Top-up Tax (DMTT) for multinational enterprises (MNEs) with global revenues above €750 million, effective from January 1, 2025, aligning with the OECD's Pillar Two framework.

Exemptions and Special Categories

Certain entities enjoy exemptions from corporate tax:

• Government-controlled organizations
• Qualifying public benefit entities
• Businesses engaged in oil, gas, or other natural resource activities taxed at the Emirate level
• Free zone businesses may benefit from 0% tax on qualifying income, provided they meet specific requirements

Corporate Tax Payment Obligations

Registration and Filing

All businesses subject to corporate tax must:

1. Register with the Federal Tax Authority (FTA)
2. File an annual corporate tax return
3. Pay the assessed tax liability by the due date

Failure to comply with registration, filing, or payment obligations can result in substantial penalties and interest charges.

Can Corporate Tax Be Paid in Installments?

General Rule

The UAE's Federal Tax Authority (FTA) has established a tax payment system that allows for various payment methods, including the possibility of paying corporate tax in installments. However, the availability and terms of installment payments depend on specific conditions and approval from the FTA.

Installment Payment Options

Payment Method	Description	Automatic or By Request	Applicable To	Notes
Lump Sum Payment	Full tax liability paid by statutory deadline	Automatic	All businesses	Standard requirement
Penalty Installment Plan	Payment of penalties/overdue tax in installments	By Request	Businesses with penalties	Subject to FTA approval; strict conditions
Standard Installment Plan	Payment of current tax liability in installments	By Request	All businesses	Not automatic; requires FTA approval
Multiple Partial Payments	Splitting payment into smaller amounts before deadline	Automatic	All businesses	No official installment plan; must pay in full by due date
Payment via FTA e-Services	Online payments (bank transfer, credit card, etc.)	Automatic	All businesses	Convenient, but does not extend payment deadline

How to Apply for an Installment Plan

Follow this step-by-step process to request an installment plan:

1. Assess Eligibility: Determine whether your business is facing genuine financial difficulty or has incurred penalties that make lump sum payment challenging.
2. Prepare Documentation: Gather financial statements, cash flow forecasts, and any evidence supporting your request for payment flexibility.
3. Submit Application: Log in to the FTA's e-Services portal and submit a formal request for an installment plan, specifying the amount, proposed schedule, and reasons.
4. FTA Review: The FTA will review your application, possibly requesting additional information or clarification.
5. Approval and Terms: If approved, the FTA will issue a payment schedule outlining the number of installments, due dates, and any applicable interest or fees.
6. Compliance: Adhere strictly to the agreed schedule to avoid additional penalties or cancellation of the plan.

Conditions for Qualifying for Installment Plans

The UAE Federal Tax Authority (FTA) provides specific provisions for businesses seeking to pay administrative penalties related to tax obligations in installments. Below are the key conditions:

Condition	Requirement
Minimum Penalty Amount	≥ AED 50,000 (single tax type)
Outstanding Tax Dues	None for the relevant tax period
Dispute Status	No ongoing objections, appeals, or court cases
Association with Tax Evasion	Not linked to tax evasion cases
Application Method	FTA EmaraTax portal, with required documentation
Undertaking	Must agree to pay as per approved schedule
FTA Review Period	Up to 110 business days for approval/rejection

Important Notes:

• Corporate tax itself cannot be paid in installments. Only administrative penalties are eligible for installment plans.
• Failure to adhere to the approved installment schedule can result in cancellation of the plan and enforcement action by the FTA.
• Only one request can be filed for the same penalty; multiple requests for the same penalty are not permitted.

Benefits and Risks of Paying Corporate Tax in Installments

Benefits

• Eases cash flow pressure, especially for businesses with large tax liabilities
• Allows better financial planning and resource allocation
• Can help avoid severe penalties for late payment if approved by the FTA

Risks and Considerations

• Installment plans are not guaranteed and require FTA approval
• Failure to comply with the payment schedule can result in additional penalties, interest, and possible legal action
• Businesses must demonstrate genuine need and maintain a good compliance record to be considered for installment arrangements

Penalties for Late Payment or Non-Compliance

Timely payment of corporate tax is crucial. The UAE imposes strict penalties for late payment, including:

• Fixed penalties for the first month of delay (as a percentage of the outstanding amount)
• Additional fixed penalties for each subsequent month of delay
• Accrued interest on overdue tax from the due date until full payment
• Potential reputational damage and legal consequences

Example of Penalty Calculation: If a business owes AED 100,000 in corporate tax and misses the payment deadline, it may face an initial fixed penalty (e.g., 2% of the unpaid amount), followed by further monthly penalties and interest until the debt is cleared.

Best Practices for Corporate Tax Payment in UAE

• Plan Ahead: Estimate your tax liability well before the deadline and set aside funds to cover the payment.
• Monitor Cash Flow: Regularly review cash flow to identify potential shortfalls that may affect your ability to pay on time.
• Engage Professionals: Consult with tax advisors or accountants to ensure compliance and explore payment options if needed.
• Communicate with FTA: If you anticipate difficulty in paying on time, contact the FTA early to discuss possible solutions.
• Maintain Records: Keep comprehensive records of all communications, applications, and payment receipts for future reference.

Frequently Asked Questions

Q: Can all businesses automatically pay corporate tax in installments?

A: No. Installment payments for corporate tax are not automatic. They require a formal request and approval from the FTA, typically reserved for businesses facing genuine financial hardship or penalties.

Q: What happens if I miss a payment under an approved installment plan?

A: Missing an installment may result in additional penalties, interest, and possible cancellation of the plan. It is essential to adhere strictly to the agreed schedule.

Q: Are there any interest or fees for installment payments?

A: The FTA may impose interest or administrative fees on approved installment plans, depending on the circumstances and the nature of the tax liability.

Q: Can I pay in multiple partial payments before the deadline?

A: Yes, businesses can make multiple payments before the deadline, but the total liability must be settled in full by the due date unless an official installment plan is approved.

Conclusion

While the UAE's corporate tax regime generally requires payment in full by the statutory deadline, the Federal Tax Authority offers some flexibility for businesses facing financial hardship or penalties through approved installment plans. These arrangements are not automatic and require a formal application, supporting documentation, and strict adherence to the agreed schedule. Businesses are encouraged to plan ahead, maintain compliance, and seek professional advice to manage their tax obligations effectively.

By understanding the available options and following best practices, UAE businesses can navigate the new corporate tax landscape with confidence and avoid unnecessary penalties or financial strain.

Key Takeaway: Corporate tax in the UAE can be paid in installments, but only with FTA approval and under specific circumstances. Proactive financial management and timely communication with the FTA are essential for businesses seeking payment flexibility.