Ministry of Finance announced the introduction of Federal Corporate Tax (CT) on the net profits of businesses. The UAE CT regime will become effective for financial years starting on or after 1 June 2023.
Corporate Tax is a form of direct tax levied on the net income or profit of corporations and other entities from their business. UAE Corporate Tax will apply to all UAE businesses, except for the extraction of natural resources, which will remain subject to Emirate-level corporate taxation. Foreign entities and individuals will be subject to Corporate Tax only if they conduct a trade or business in the UAE in an ongoing or regular manner. UAE Corporate Tax will apply equally to all categories of profits and other (net) income reported in the financial statements prepared in accordance with internationally accepted accounting standards.
Benefits of Corporate Tax
- Updates over changing tax regulations
- Advisory on restructuring to optimize tax
- Planning efficient tax strategies
- Assisting in transfer pricing risk and compliance
- On-time and accurate tax filings
- Availing proper tax deductions/exemptions
- Maintaining accurate business records
- Mitigating the risk of double taxation
Impact Analysis is a critical first step for all businesses to determine how they will be impacted by the introduction of Corporate Tax and what this means for them going forward. It is a structured procedure for analyzing the effects of the proposed Corporate Tax on businesses. The outcome of the Impact Assessment is setting a foundation for effective Tax Planning, Business restructuring, and Implementing adequate compliance checks from an overall tax optimization perspective.
Implementation Planning involves taking actions on the points based on the Impact Analysis (eg. amending agreements, change in corporate structure, system changes) and planning further for tax compliances (eg. applying for exemptions, performing risk analysis). This includes the development of efficient tax strategies and policies.
Corporate Restructuring is the process of rearranging a company’s ownership, legal, operational, or other structures in order to better cater to its stakeholders. The corporate restructuring service enables businesses to reorganize by analyzing their tax challenges and guiding them in the selection of tax-effective restructuring solutions.
Transfer Pricing is now a big focus in the region, especially with the introduction of transfer pricing regulations in UAE law with the application of the internationally recognized “arm’s length” principle to transactions and arrangements between related parties and with connected persons.
The Corporate Tax regime requires businesses to register and file returns every year. Also, various compliances like applications for tax exemptions and tax groups and other around transfer pricing reporting are to be done properly to avoid any delays and penalties. Advisory and assistance are required for proper compliance and reporting.
Tax Residency Certificate
UAE has signed the Double Taxation Avoidance Agreement (DTAA) with 117 Countries and the business houses and residents are eligible to avail of the benefits of DTAA. To avail of the benefit of DTAA, Tax Residency Certificate is required to be obtained from the Tax Authorities.
What will the UAE CT rates be?
The CT rates are:
- 0% for taxable income up to AED 375,000;
- 9% for taxable income above AED 375,000; and
- a different tax rate for large multinationals that meet specific criteria set with reference to ‘Pillar Two’ of the OECD Base Erosion and Profit Shifting project
Who will be subject to UAE CT?
UAE CT will apply to all UAE businesses and commercial activities alike, except for the extraction of natural resources, which will remain subject to Emirate level corporate taxation
Will a free zone business be subject to UAE CT?
Free zone businesses will be subject to UAE CT, but the UAE CT regime will continue to honour the CT incentives currently being offered to free zone businesses (Taxed at 0%) that comply with all requirements
They will still need to be registered and get their accounts audited.
Will a group of UAE companies be able to form a “fiscal unity” for UAE CT purposes?
A UAE group of companies can elect to form a tax group and be treated as a single taxable person, provided certain conditions are met
A UAE tax group will only be required to file a single tax return for the entire group
Will transfer pricing rules be applicable to UAE businesses?
UAE businesses will need to comply with transfer pricing rules and documentation requirements set with reference to the OECD Transfer Pricing guidelines