Can Corporation Tax Be Paid in Installments?

Can corporate tax be paid in installments? With the complexities of tax laws, this is a crucial question many businesses face today. This is particularly relevant in jurisdictions with new tax systems or changing tax structures, such as the United Arab Emirates (UAE). With UAE corporate tax being implemented in 2023 there is a demand from the business community to understand the ways in which they can manage their tax affairs and whether their corporate tax bill can potentially be paid in instalments.

Here, we will be discussing whether you can pay corporation tax in installments, the different payment methods available for businesses in UAE, and how the flexibility in tax payments in UAE can be beneficial for businesses.

The Introduction of Corporate Tax in the UAE

The UAE has historically been known for having favorable tax policies, especially it has been providing a corporate tax free environment to the majority of the businesses.  Nonetheless, under the new tax regime following its implementation in 2023, businesses will now be required to pay a corporate tax rate of 9% on profits above AED 375,000 (with profits below this threshold remaining tax exempt). The step was an initiative of the UAE to comply with global tax standards, diversifying its economy.

With dozens of companies already operating in a tax-free environment in the UAE, the introduction of corporate tax is a massive change. As businesses transition to the new system, questions about the payment process, which may include whether they can pay their taxes in instalments, have taken on greater significance.

Can Corporation Tax Be Paid in Installments?

The answer is of course yes corporation tax can be paid in installments, but this very much depends on the tax laws and an available payment plan with your accountant. To this end, the UAE’s Federal Tax Authority (FTA) has developed a tax payment system that enables businesses to handle their tax liabilities through different methods, even in instalments. Nonetheless, caveat that the actual process behind the system of amortization for the tax from the business will vary depending on the size of the business, tax obligations of the corporation in addition to whether it is enrolled for any particular enticements of payment flexibility.

In general, paying corporate tax in installments can be a useful option for businesses that may face cash flow issues or have a large tax liability. This approach gives businesses more control over their finances and helps them to stay compliant with tax laws.

UAE Business Tax Payment Options

For corporate tax, the UAE provides various payment facilities for companies to settle their tax responsibilities. These options are meant to offer flexibility, especially to businesses that may struggle to pay their taxes in one shot. Here are the primary options for paying taxes for businesses in the UAE:

• Single Lump-Sum Payment

Perhaps the simplest way to pay the UAE corporate tax is to make a single final payment. The total tax payable can be paid by the business on or before the deadline specified by the FTA. This is the most straightforward approach for companies that are not limited by a cash flow situation that would force them to prefer settling their obligations in one go.

• Corporation Tax Installments

In its rules, the UAE tax regime provides for corporate tax payment in installments in special cases. Although this may sound similar to the corporate tax installment plan, the latter is a program specifically designed to help businesses pay taxes in stages. This system helps business owners who might find it challenging to pay their debt in one go but want to ensure that they are compliant with tax laws.

Corporation tax installment plan in UAE specifics can be influenced by the quantum of tax payable, cash flow scenario of the business, and any exceptional provisions which have been provided by FTA. Businesses are advised to check with a tax advisor or the FTA regarding the terms and conditions for tax payment in installments.

• Prepaid Tax Installments

Another alternative for UAE businesses is making prepaid tax installment payments. Under this system, applicable businesses remit estimated payments periodically throughout the year based on expected profits that they anticipate incurring for the year. Businesses can ease the burden of cash flow by using prepaid tax installments, which enable them to pay their taxes throughout the year.

The system includes estimating how much money the company made during the year that is taxable and paying installments throughout the year. Toward the end of the year, businesses will balance out what their actual tax liability was and make any necessary adjustments. If the business ends up being overpaid, it will get a refund; if the business was underpaid, it will have to pay the remaining balance.

It is an especially helpful option for businesses with seasonal income or irregular revenue patterns since it helps them to pay according to their cash flow.

How Does the Corporate Tax Instalment Plan Work?

A corporate tax installment plan is an agreement between the business and the tax authority, where the tax due is paid in installments over a specified period of time instead of being paid in full lump sum. There is no clear requirement that all UAE businesses must use this option, however those that do require flexibility can avail of this option. The main components of the  instalment plan include:

Payment Schedule: The FTA will specify when installments will be paid, including due dates and the amount of each installment. The timing of the payments (monthly, quarterly, whichever) will vary depending on the nature of the business and its arrangement with the FTA.

Interest and Penalties: There could be additional charges placed by business owners for not making their installment payment or not paying the agreed number of installments as agreed. This way, they can also avoid incurring any extra costs.

Year-End Reconciliation: The fiscal year end will force businesses to reconcile their actual tax liability with their final profit value. If the business has already paid too much in installments it may get a rebate or credit for future payments. If overpaid, they will have to return the difference.

UAE Tax Payment Flexibility

There is flexibility in tax obligations for a business, one of the main benefits of setting up in the UAE. This flexibility will be vitally important to startups, small businesses and companies that encounter temporary cash flow challenges.

The option for corporation tax payments in installments is one of the many tax payment flexibility options offered by the UAE. Furthermore if a business faces financial hardship or requests an extension, the FTA will typically be able to negotiate the terms of its payments. The registrants of the UAE’s tax authorities are known for being cooperative with businesses to make tax assessment, payment, filings, and compliance.

In addition, companies can avail themselves of tax breaks and exemptions, such as for free zone businesses. These exemptions may help lessen a company’s tax burden, thus the installment payment option is even more advantageous.

Conclusion

Corporate tax installments in the UAE represent an opportunity for businesses to streamline their tax payments, given that they will be subject to the new corporate tax legislation. Corporate tax enters the picture, and companies need to come to terms with their payment options, which would include whether corporate tax can be paid in contributions.

In addition, whether a business chooses to settle with a one-off, lump-sum payment, or payment plan, the UAE’s payment flexibility makes sure businesses keeping the resources they need to meet their tax obligations without impacting their cash flow. With the tax nightmare awaiting in the future, consulting with a tax professional and knowing about the business tax payment options available can help navigate the changing tax landscape and improve its tax strategy for maximum benefit.