What you need to know about the New Corporate Tax Law in the UAE
Introduction to Corporate Tax Law
Regarding business, one of the most important factors to consider is taxes. How much do you have to pay? What are the rules and regulations? What are the compliance requirements? These are some of the questions that business owners need to ask when they are looking at a new market.
The UAE is rapidly changing its legal and compliance approach to keep up with the international environment. With powerful global trends emerging, the UAE has to gear up and prepare its corporate structure for the future.
By supporting the Organization for Economic Co-operation and Development (OECD) efforts to create a worldwide minimum Corporate Income Tax (CT) rate, the UAE is complying with the global tax standard which will avoid the double taxation threat and make it easier to conduct business in the UAE.
Also, the UAE government needs to decrease its dependency and create an alternate source of revenue, aside from fossil fuels, to improve the country’s financial health and increase investor confidence. With the economy being in line with international laws, more entrepreneurs will be encouraged not only to start but expand their business in the country.
Here are some significant details about the new Corporate Tax (CT) Regime in the UAE and how businesses can prepare for this big change.
What is Corporate Tax?
Corporate Tax (CT), also referred to as the Corporate Tax or Business Profit Tax, is applied to businesses operating in the UAE and within the taxable income structure. They will be subject to the new federal CIT structure at 9% unless they are exempted due to their activity.
What is the aim of Corporate Tax?
According to the Federal Tax Authority of the UAE, the new CT regime aims to meet the “international standards for transparency” and prevent “harmful tax practices”. This will “accelerate the UAE’s development and transformation to achieve its strategic objectives.”
The CT regime’s introduction elevates the UAE’s competitive edge in the global market. It creates a level playing field for all the businesses, within the CT threshold, to transact with each other in the industry. By creating a tax system based on international best practices, the UAE can secure its position as one of the most reliable transnational business and investment hubs in the world.
When will Corporate Tax be applicable?
The Corporate Tax will be applied across all seven Emirates in the UAE on or after June 1, 2023, for a full financial year depending on the start of the tax year of businesses in the UAE. If the tax year of a company begins on January 1, 2023, then a new system will be functional for the income received in the calendar year 2024.
What authority implements Corporate Tax?
The Federal Tax Authority (FTA) will be responsible for managing, assembling, and implementing CT all over the UAE. Businesses that are part of the CT regime, will have to register with the FTA to obtain a Tax Registration Number (TRN) within a prescribed period. FTA can also automatically register a business for CT purposes if the company does not voluntarily do so.
The Ministry of Finance (MOF), on the other hand, will act as the “competent authority” for the execution of all types of bilateral and multilateral agreements related to Corporate Tax. The ministry will monitor the international exchange of information to avoid any miscommunication regarding the filing of Corporate Tax.
What activities are part of Corporate Tax?
With the establishment of Corporate Tax, every single layer from business operation, organizational structure, and financial procedure to documentation process is affected. To determine if an entity or individual is within the scope of UAE Corporate Tax, the individual or legal entity must have a business license or permit to carry out the relevant industrial, commercial, or professional activities in the UAE.
What companies are part of Corporate Tax?
Individuals who have acquired an official trade license or permit to conduct their business activity in the UAE are subject to the new tax. Foreign companies that conduct their trade or business regularly at a fixed location through an agent in the UAE are also subject to paying CT.
Free Zone companies that acquire their income from mainland transactions are also subject to CT. They need to register and file a CT return which is applicable for all Free Zones across UAE. To comply with all regulatory requirements, Free Zone companies that do not conduct business on the mainland are given certain incentives that support their establishment in the jurisdiction.
What is the scope of Corporate Tax?
According to the International Financial Reporting Standards (IFRS), taxable income is based on the calculated net profit and loss. An Individual’s salary and other employment income are not subject to Corporate Tax. Income generated from businesses under a specific trade license and within the threshold will be under the Corporate Tax requirement. Investors who have bought real estate in the country for personal use are not part of the CT scope. Freelance professionals under the freelance license or permit will only pay CT when their annual net income exceeds the threshold amount.
What companies are exempted from Corporate Tax?
Companies that are exempted from Corporate Tax are wholly owned entities that carry out non-commercial, sovereign, or mandated activities by the UAE government.
- Businesses that are engaged in the extraction and exploitation of natural resources, such as oil and gas, are under a long-term concession agreement with the government of an individual Emirate are only subject to the Emirate-level Corporate Taxation system, and are out of the Corporate Tax scope.
- Regulated investment funds and real-estate investment trusts are exempted from Corporate Tax subject to meeting certain requirements.
- Charities, public benefits, and non-government organizations that don’t undertake any Ministry of Finance (MOF).
- Freezone companies are also not fully exempted from Corporate Tax, but a 0% tax rate is applied to their income if their transactions are done outside the UAE or inside an Emirate Free Zone including their own.
To understand the entities that are included and exempted from the Corporate Tax regime, a table is presented below.
What is the Taxable Income Calculation?
Corporate Tax is applied to entities that fall within the scope of business activities and taxable income. In accordance with the OECD minimum rate proposal under the BEPS (Base Erosion and Profit Sharing) scheme, a three-rate structure will be applied for taxable income which is the accounting net profit for conducting a business. The amount reported on financial statements should be in line with internationally acceptable standards.
The threshold for the application of Corporate Tax (CT) annually is seen below:
- 0% on taxable income below or up to AED 375,000
- 9% on taxable income above AED 375,000
- A different CT rate (not yet specified) is applied to large multinationals that meet the BEPS criteria of consolidated global revenues exceeding AED 3.15 billion
What is CT Return filing, payment & refund?
To simplify and reduce the administrative burden on taxpayers, the FTA will only require businesses to file one tax return and other related schedules for a specific tax period, instead of a combined personal and business income tax return. In addition, businesses are not required to file for a CT provisional return or make CT advance payments.
Since CT return covers a specific tax period, every tax return and its related supporting schedules need to be submitted to the FTA within the end of the nine (9) month tax period. Also, supporting documents need to be provided to the FTA for filing.
In addition, payments to settle a taxpayer’s CT liability for the relevant tax period are required within the end of the (9) months tax period. If the taxpayer’s CT refund is due, then they can request it from the FTA.
To understand the CT filing and payment deadlines for businesses with financial dates of March 31, June 30, and December 31, a table is presented below:
Reference Guide
How can we guide you?
Since most of the companies in the UAE have little to no experience regarding the adherence and payment of Corporate Tax, guidance is needed to prepare their business for the introduction and application of Corporate Tax structure in their organization in such a short amount of time.
What should they expect? How should they go about their operations? What should they include? These are just some of the questions they need to think about when starting and running their business. Not to mention the compliance requirements and rules that can make or break their financial standing in the market.
This is where we come in. Being one of the best business setup companies in Dubai with years of professional experience, our team of experts at EZONE knows the ins and outs of making your business work. We create strategies, approaches, and plans that are in line with your corporate objectives.
From the transition of the old to new tax law and the introduction of additional rules and regulations, we provide you with substantial knowledge that will help you understand the entire start-to-end process.
Cut your time when it comes to planning and preparation for Corporate Tax. Don’t fall behind and gear up for the future. We can help you navigate through all the requirements so that you can smoothly establish your presence in the country without any problems or delays.
To know more about how we can help your company with your filing, payment, and return of Corporate Tax, call us at 800-EZONEUAE or reach us at hello@e.zone.
