As the UAE continues to develop and implement the most important national plan in 50 years, it is upgrading and coming up with new ideas for both federal and municipal initiatives to assure the growth and development of the nation. Beginning in 2022, the Corporate Tax regime was implemented as one of the government measures to hasten and transform into a competitive CT system that complies with international standards and enhances the UAE's standing as a leading jurisdiction.
The United Arab Emirates (UAE) will present a federal Corporate Tax (CT) on corporate income appropriate for financial years beginning on or after 1 June 2023, according to a statement from the Ministry of Finance.
Since the announcement, work has persisted on completing the UAE CT regime in order to guarantee that it integrates international best practices and reduces the cost of compliance for businesses.
A draught public consultation paper on corporate tax that is based on the self-assessment concept was recently produced by the Ministry of Finance. This document must be submitted to the FTA with all the necessary information and supporting documentation.
Key Takeaways from the UAE Corporate Tax
- A corporation that is liable to corporate tax is required to register with the FTA and get a tax registration number within the allotted time.
- According to the UAE Corporate Tax Regime, tax return filing requirements apply to all businesses, including Freezone Companies.
- Free Zone Companies must have their financials examined by an audit company and must adhere to certain requirements in order to take advantage of the benefit of 0% corporation tax.
- A free zone firm that receives money from the mainland will not be qualified for the CT 0% regime with regard to all of its income.
- The 0% CT rate on income from the sale of goods to UAE mainland enterprises that are the importer of record of those products is available to businesses in Designated Zones for Value Added Tax (VAT) purposes.
- The accounting net profit or loss as reported in the business's financial statements will be used to determine the corporate tax, subject to certain exempt income and non-deductible costs, such as:
Received dividend
Capital gain
Profit from an overseas branch
Penalties for administrative fines
Donations to non-approved groups
50% of entertainment costs
- Companies can establish a tax group for corporate tax purposes and submit a single return as a single taxable person with the following restrictions:
- Both the main firm and its subsidiaries are ineligible for the exemption.
- The 0% CT rate favors Free Zone Person.
- There must be a common financial year among all group members.
- The FTA shall receive each tax return and accompanying supporting schedules within nine (9) months of the end of the applicable Tax Period, and the payment shall be made within such a nine (9) month period.
Conclusion
Corporate taxation in the UAE will likely have an effect on business operations, organizational structures, and potential merger and acquisition activity there. Even if their current organizational setups and business processes are enough to meet the demands of the corporate tax regime once it is published and in force, it is crucial that firms in the UAE must begin to prepare ahead and evaluate the effects of corporate tax.