UAE recently passed a federal decree-law setting the corporation tax rate at 9 percent for businesses with taxable income over AED 370,000. The new law will take effect for the financial years beginning on June 1, 2023, as proposed in December 2022. Early in 2022, the Ministry of Finance (MoF) announced the important components of the corporate tax law, such as the 9% tax rate that will be based on taxable profits rather than gross income for businesses. The first Dh375,000 of the yearly taxable revenue will not be taxed, hence the tax will be applied in slabs.
WHO IS SUBJECT TO CORPORATE TAX?
Broadly speaking, the following “Taxable Persons” are subject to the corporate tax:
- UAE companies and other juridical persons that are incorporated or effectively managed and controlled in the UAE
- Individuals who carry out a business or business Activity in the UAE as specified in a Cabinet Decision to be issued in due course
- Non-resident legal entities with a permanent presence in the UAE (see Section 8 for more information).
Legal entities established in a UAE Free Zone are also considered “Taxable Persons” for purposes of corporate tax and are therefore subject to the regulations outlined in the corporate tax law. But if a Free Zone Person satisfies the requirements to be regarded as a Qualifying Free Zone Person (the requirements are listed in Section 14), they can take advantage of a corporate tax rate of 0% on their qualifying income.
A 0% withholding tax may be applied to non-residents without a Permanent Establishment in the UAE or who receive income from the UAE that is unrelated to their permanent establishment. The payment of dividends, interest, royalties, and other types of income across international borders that are subject to different tax systems is often subject to withholding tax, a sort of corporate tax that is collected by the payer on behalf of the recipient of the revenue. Certain forms of UAE-sourced income received by non-residents may be subject to the UAE’s 0% withholding tax rate.
CORPORATE TAX EXEMPTIONS
The Federal UAE CT Law will be applicable in all Emirates and to all business and commercial activities starting with the financial years commencing on or after 1 June 2023, with the following exceptions (subject to conditions):
- Person conducting an extractive business in the UAE
- Person conducting a non-extractive natural resource business in the UAE
- Qualifying Public Benefit Entity
- UAE Government Entity
- UAE Government Controlled Entity
- Qualifying investment fund
- a public pension or social security fund; or a private pension or social security fund that is regulated by the State’s responsible authority and satisfies any additional requirements that the minister may impose;
- Legal entity incorporated in the State that is fully owned and under the direction of specified Exempt Persons
- Any additional Individual that the Cabinet may decide, on the Minister’s recommendation.
FINANCIAL RECORDS AND UNAUDITED FINANCIAL STATEMENTS
According to the UAE corporate tax, each taxpayer must create and keep financial statements in order to determine the applicable taxable income. He must also keep the records necessary for filing the corporate tax return and any other associated paperwork that the Authority may need. Even if your company belongs to the exempt group or individuals, you are still required to keep all the records necessary to demonstrate your tax-exempt status and the specific grounds for it. All relevant records and documentation must be kept for at least seven years beginning at the conclusion of the tax period, according to the Authority.
Every firm liable to corporation tax is not required to have an audit of its financial records. Only those who are included in the Minister’s decision will be required to create financial statements that are audited for corporation tax and keep these records in accordance with the requirements of the corporate tax law. For the remaining enterprises, unaudited financial statements are sufficient and should be kept on file for as long as necessary.
WHAT EXPENSES ARE DEDUCTIBLE?
Essentially, any allowable business expenses incurred within a given tax period are deductible, albeit the timing of the deduction would fluctuate depending on the kind of expense and the accounting system utilised. For example, the expense would typically be recognised for capital assets using the method of amortisation or depreciation deductions throughout the course of the asset’s economic life. Dual-purpose expenses, such as those incurred for both personal and commercial needs, must be computed depending on the proportion that was spent for the business. For corporate tax purposes, some costs that are deductible under normal accounting standards might not be entirely deductible.
CORPORATE TAX IMPLEMENTATION IN UAE
This new UAE Corporate Tax (Dubai/UAE CT) and its administrative aspects of corporate tax compliance structure will be widely discussed in the UAE’s quickly changing legal and compliance environment. The larger regional and global economies will closely monitor the implementation and take the UAE’s corporate tax rate into account when making their calculations. Even while it is worth noting that the corporate tax rate in the UAE is still among the lowest in the world, the current tax system represents a significant improvement. Its implementation has an impact on every aspect of business operations, including pricing, marketing, accounting practices, documentation, and IT infrastructure. Businesses having operations in the UAE (both offshore and onshore) must take into account how company tax will affect their cross-border transactions and entity structures, as well as ensure that they are in conformity with the new corporate tax regulations. All businesses operating in the UAE will need to implement effective corporate tax planning early in the process. Find the best financial consultant for corporate tax services in UAE.
It is crucial to comprehend the corporate tax law as well as any extra information given by the Federal Tax Authority and Ministry Of Finance. You can get in touch with them directly, check their websites for this information, or contact tax consultants in UAE. Knowing the requirements can help you comprehend what you must do to abide by the law and prevent penalties.
The following things need to be kept in mind by the taxpayer:
- Consider whether their operations are prepared to handle the compliance and reporting requirements associated with the new CT law
- Review their activities and assess the impact of the new CT Law on their business
- Keep thorough records from a CT perspective.