The shape of a Year-2 review
The first UAE Corporate Tax cycle was a registration-and-mechanics exercise for most groups. The second cycle is where positions actually get tested. The FTA has now published its first round of compliance guidance, and the pattern of queries it issues is clear enough to plan against.
We run the same diagnostic on every Year-2 engagement. It takes a partner-led week, and it surfaces the issues that genuinely move the position before the filing is locked. Below is the diagnostic itself.
01 — Qualifying-income re-test
Groups operating in free zones often took an optimistic read of qualifying-income rules in Year-1. The Year-2 re-test should answer three things on each entity:
- Is the entity still meeting the substance test, in fact and on paper?
- Has any income line drifted into non-qualifying territory through a customer-mix change?
- Are intra-group flows priced consistently with the qualifying-income assumption?
The third question is where most groups lose ground. A pricing approach that was defensible at standalone level may not be when looked at across the group.
02 — Cross-border attribution
For groups with KSA, Bahrain or Qatar operations, the attribution of central-function income is now the highest-value question in the file. The FTA has shown a particular interest in:
- Management-fee structures lacking documented service-receipt evidence
- IP licensing arrangements priced without external benchmarking
- Cost-sharing arrangements with no contemporaneous allocation methodology
If any of these are in your file, the contemporaneous documentation requirement should be treated as a hard gate, not a comfort.
03 — Documentation that pre-empts the queries we are actually seeing
The FTA's queries in 2025–26 have clustered around a small number of patterns. Pre-filing documentation that addresses these directly cuts the back-and-forth materially:
- Functional analysis at sub-entity level — not just the group, the function
- Benchmarking refresh within the last 18 months — older studies are increasingly being rejected
- Year-on-year reconciliation against the prior period's positions, with explanations for any movement
What this looks like in practice
For a mid-market group of 8–15 entities, the full diagnostic runs about five working days. Three days of partner-led document review, one day with finance leadership, one day to write up the position memo. The deliverable is a single memo with the issues ranked, the recommended treatment for each, and the supporting documentation pack ready to attach to the filing.
If your filing is due before September and you have not done the Year-2 re-test, this is the window to start. Reach out and we can scope it on the call.