Practices
Tax Advisory – Draft
We offer comprehensive advice on the UAE Tax Laws, assisting our clients in achieving their goals, and successfully implementing the tax requirements while ensuring tax efficiency and compliance.
TAXATION AND FISCAL LAWS
Overview of the UAE Corporate Tax
Effective from financial years commencing on or after 1 June 2023, the UAE introduced Corporate Tax, marking a significant shift in its fiscal policy landscape.
The Federal Corporate tax was introduced with The Federal Decree-Law No. (47) of 2022 on the Taxation of Corporations and Businesses (the “CT Law”) issued on 09 December 2022 and later amended with Federal Decree Law No. (60) of 2023, which introduces the concept of the 15% global minimum tax rate for multinational enterprises (MNEs).
Value Added Tax is a tax on consumption levied at each stage of the supply chain and ultimately borne by the end consumer.
Historical Context
Historically celebrated for its zero-tax environment, the UAE has been a magnet for global businesses and investors. The UAE’s remarkable economic growth and international prominence are significantly attributed to the strategic establishment of Offshore Jurisdictions, Free Zones (FZs), Special Economic Zones, positioning the country as a global hub for trade, finance, and innovation and offering unparalleled incentives such as 100% foreign ownership, full repatriation of profits, and, until recently, a zero-tax framework, these zones have successfully attracted a myriad of businesses and investors from across the globe.
The introduction of consumption taxes, such as VAT and Excise tax, in 2018 marked a strategic shift towards revenue diversification, heralding a new era in tax policy that aligns with the global tax regimes.
The Corporate Tax introduced in 2023 is a form of direct tax imposed on the net income or profit of a business. In some other countries, corporate tax is referred to as “corporate income tax” or “business profits tax.”
Reasons for Introduction of Corporate Tax in the UAE
According the statement made by the UAE Ministry of Finance, the introduction of Corporate Tax is intended to help the UAE achieve its strategic objectives and accelerate its development and transformation. The certainty of a competitive Corporate Tax regime that adheres to international standards, together with the UAE’s extensive network of double tax treaties, will cement the UAE’s position as a leading jurisdiction for business and investment.
Given the position of the UAE as an international business hub and global financial centre, the UAE Corporate Tax regime builds from best practices globally and incorporates principles that are internationally known and accepted. This ensures that the UAE Corporate Tax regime will be readily understood and is clear in its implications.
Introducing a Corporate Tax regime also reaffirms the UAE’s commitment to meeting international standards for tax transparency and preventing harmful tax practices.
Effective Date
The CT Law is effective for financial years commencing on or after 1 June 2023. It applies to all businesses and corporations operating in the UAE, including in UAE free zones, with specific provisions for entities engaged in natural resource extraction which are generally subject to Emirate-level taxation.
The below scenarios exemplify the practical application of the CT Law, based on varying financial year schedules, underscoring the need for businesses to prepare for compliance within the stipulated timelines:
- A business operating with a FY that commences on 1 July 2023 and concludes on 30 June 2024 will fall under the UAE Corporate Tax regime starting from 1 July 2023. This date marks the beginning of their FY immediately following the 1 June 2023 introduction date for Corporate Tax.
- Conversely, a business with its FY spanning from 1 January 2023 to 31 December 2023 will be subject to the UAE Corporate Tax starting 1 January 2024. This is because 1 January 2024 represents the onset of the business’s first financial year which begins after 1 June 2023, i.e., the Corporate Tax introduction date.
APPLICABILITY
Persons subject to Corporate Tax
The CT Law applies to:
- Juridical persons incorporated in the UAE and juridical persons effectively managed and controlled in the UAE. The CT Law covers both onshore and Free Zone businesses, albeit with specific provisions for businesses operating within the UAE’s free zones.
- Foreign entities that operate in the UAE through a permanent establishment or that are considered resident in the UAE for Corporate Tax purposes are also subject to UAE Corporate Tax.
- Individuals are subject to Corporate Tax only if they are engaged in a business or business activity in the UAE, either directly or through an unincorporated partnership or sole proprietorship and generating income of more than AED 1,000,000.
The UAE’s Corporate Tax regime applies to a broad spectrum of economic activities and entities, ensuring a comprehensive and equitable tax landscape. The entities subject to Corporate Tax include:
- Licensed Business Activities: Entities and individuals engaging in business under a commercial license, encompassing a range of sectors such as commercial, industrial, and professional activities within the UAE.
- Free Zone Businesses: While maintaining its commitment to the economic incentives offered to free zone entities, Corporate Tax generally applies to businesses within these zones unless they meet the Qualifying Free Zone Person requirements (see below).
- International Entities: Foreign companies and individuals conducting ongoing or regular business activities in the UAE are subject to Corporate Tax, emphasizing the law’s inclusive scope. However, merely earning UAE-sourced income would not trigger Corporate Tax payable or require the foreign entity to register and file for UAE Corporate Tax.
- Banking Sector: Financial institutions involved in banking operations fall under the purview of Corporate Tax, reflecting the sector’s significant role in the national economy.
- Real Estate and Construction: The Corporate Tax extends to companies involved in real estate management, development, agencies, construction work, and brokerage activities, underlining the sector’s impact on economic development.
For Entities in Free Zones (Qualified Free Zone Persons):
- Qualifying income earned by entities based in free zones is taxed at 0%, maintaining the UAE’s commitment to free zone incentives.
- A 9% tax rate is applied to taxable income that does not meet the criteria for qualifying income, as detailed in Cabinet Resolution No. (55) of 2023.
Corporate Tax Calculation and Rates
Following the UAE CT Law, the calculation of Corporate Tax is based on the net accounting profit (loss) of the business, as per in their financial statements and as adjusted for tax purposes:
- A 0% tax rate applies to taxable income up to AED 375,000, providing relief for small businesses and start-ups.
- Taxable income exceeding AED 375,000 is subject to a 9% Corporate Tax rate, ensuring a competitive and equitable tax environment.
- Various exemptions and reliefs are available subject to meeting the specified requirements.
SCOPE OF TAX
Applies to the net income from commercial, industrial, professional activities, real estate transactions, and other assets within the UAE.
- Broad Definition of Taxable Income: Includes all forms of revenue, gains, and profits, adjusting for permissible deductions and exemptions.
- Inclusive Tax Framework: Captures income from both domestic and international sources, under specified conditions.
- Comprehensive Revenue Sources: Encompasses dividends, capital gains, and income from intellectual property, except where special exemptions apply.
- Alignment with International Standards: Demonstrates the UAE’s commitment to a transparent, equitable tax system and global tax compliance.
- Objective: Aims to prevent tax evasion and ensure fair tax distribution among businesses in the UAE.
EXEMPTIONS AND EXCLUSIONS
Understanding Tax Exemptions
Tax exemption refers to the reduction or removal of a liability to make a compulsory payment that would otherwise be imposed by a ruling power upon persons, property, income, or transactions.
Tax exemption may provide complete relief from taxes, reduced effective tax rates, or tax on only a portion of items. It generally refers to a statutory exception to a general rule rather than the mere absence of taxation in particular circumstances, otherwise known as an exclusion. Tax exemption also involves the removal from taxation of a particular item rather than a deduction.
Why Tax Frameworks Provide Exemptions
Tax frameworks are designed to ensure fair and efficient tax collection while fostering economic growth and development.
Exemptions are integral to this system for several key reasons:
- Encourage Investment: Tax exemptions lower the cost of capital, making investments more attractive. This encourages both local and foreign businesses to invest, leading to job creation, technological advancements, and overall economic growth.
- Support Small Businesses: Small and new businesses face higher relative costs and risks. Tax relief helps these enterprises grow by freeing up resources that can be reinvested into operations, stimulating entrepreneurship and innovation, and fostering a dynamic economy.
- Promote Public Welfare: Tax exemptions for charitable organizations and public benefit entities enable them to allocate more resources toward their core missions, such as providing aid, education, or healthcare. This enhances societal well-being and reduces the government’s burden in these areas.
- Boost Economic Sectors: Targeted exemptions can stimulate growth in key economic sectors, such as free zones and government-related entities. These incentives attract multinational corporations, foster export-oriented industries, and create hubs of economic activity, contributing to balanced and sustainable economic development.
By incorporating these exemptions, tax frameworks can optimize economic behaviour, ensure equitable tax burdens, and ultimately lead to higher overall tax revenues through increased economic activity. Understanding these principles helps businesses and individuals navigate the newly introduced tax landscape and identify opportunities for potential savings and opens the door to strategic planning.
The UAE Corporate Tax regime specifies exemptions for certain entities and income types, ensuring a tailored approach to taxation that aligns with economic and strategic objectives.
The key exempted Parties and Income Categories include:
- Government-Owned Entities: Public entities and organizations wholly owned by the UAE government may be exempt if they are not engaged in commercial activities.
- Extractive Industries: Companies involved in the extraction of natural resources are typically subject to taxation at the emirate level and may be exempt from federal Corporate Tax.
- Non-Profit Organizations: Charities, social institutions, and other non-profit organizations that do not engage in commercial activities are exempt.
- Investment Funds: Certain investment funds may qualify for exemption, provided they meet specific criteria set forth by the law.
- Pension Funds and Social Security Funds: Pension funds and social security funds that are not engaged in commercial activities may be exempt from Corporate Tax.
- Qualifying Public Benefit Entities: Entities recognized as serving the public interest and not engaged in commercial activities might be exempt, subject to specific conditions.
Corporate Tax is not applicable to:
- Salaries and other compensations derived from employment, whether in the public or private sectors, remain outside the scope of Corporate Tax.
- Individuals’ Bank Earnings: Interest and other income from bank deposits or savings programs accrued by individuals are exempt from Corporate Tax.
- Personal Real Estate Investments: Real estate investments made by individuals in their personal capacity are not subject to Corporate Tax.
- Personal Securities Income: Dividends, capital gains, and any other income generated by individuals from the ownership of shares or securities in a personal capacity are also exempt from Corporate Tax.
TAX GROUPING
Under the CT Law, the provision for tax grouping permits entities within a Corporate Group to be recognized as a singular taxable entity, subject to specific eligibility criteria. This framework simplifies tax compliance by consolidating filings and enables the offsetting of profits and losses across the group. This strategic measure is designed to streamline administrative processes for businesses and support efficient fiscal management, reflecting the UAE’s forward-thinking approach to corporate taxation.
TRANSFER PRICING
The UAE CT Law adopts stringent transfer pricing regulations in line with OECD standards, ensuring arm’s length transactions between associated entities. Firms are required to maintain rigorous documentation and employ recognized transfer pricing methodologies, reinforcing transparency and market conformity.
COMPLIANCE REQUIREMENTS
- Tax Registration Obligation: Entities are mandated to register for Corporate Tax within the deadlines prescribed by the UAE Federal Tax Authority.
- Accounting and Record-keeping: Maintaining accurate accounting records consistent with international standards is essential for financial transparency.
- Mandatory Annual Returns: Filing of Annual Tax Returns is required by law.
- Documentation Standards: Adherence to specified documentation and disclosure protocols ensures filing integrity.
ANTI-AVOIDANCE MEASURES
The CT Law includes provisions to ensure:
- Anti-Avoidance Measures: The law incorporates provisions aimed at preventing tax avoidance and evasion, focusing on transactions lacking economic substance.
- Scrutiny of Transactions: Arrangements primarily intended to minimize tax liabilities are subject to detailed examination.
- Adjustments for Compliance: Transactions identified as tax avoidance schemes may be adjusted to reflect accurate tax obligations.
REGISTRATION AND FILING DEADLINES
Entities are obligated to register for Corporate Tax with the Federal Tax Authority (FTA), providing comprehensive business information and financial statements.
The FTA has released specific deadlines for Corporate Tax registration based on the trade license issuance.
Annual tax return filings are a requisite, with the initial filing deadline contingent upon the entity’s financial year-end, applicable to financial years commencing on or after 1 June 2023.
ADMINISTRATION AND ENFORCEMENT
The administration, collection, and enforcement of Corporate Tax fall under the purview of the FTA.
PENALTIES
Failure to comply with the CT Law, including late registration, filing, or payment of due taxes, may result in penalties. The law outlines a framework for penalties related to non-compliance, emphasizing the importance of adherence to tax obligations.
- Compliance Requirements: Adherence to the CT Law, including timely registration, filing, and tax payment, is mandatory.
- Penalty Framework: The law specifies a penalty structure for non-compliance, underlining the critical nature of fulfilling tax duties.
- Importance of Compliance: Emphasizes the necessity of meeting all tax obligations to avoid penalties.
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Who we can help
Our services are designed to support a diverse range of clients, ensuring their success in the UAE and Global Markets.
For foreign investors looking to enter or expand in the UAE market, we offer expert guidance on navigating the UAE’s tax landscape, helping you make informed investment decisions.
Whether you are a legal entity or an individual conducting business within the UAE or internationally, we provide tailored tax and financial advisory services to meet your needs.
We assist foreign entities and individuals operating in the UAE, ensuring compliance with local tax laws and optimizing your tax strategy.
How we can help
We can assist business in navigating their tax obligations in various areas under the UAE CT Law, including:
- Understand the scope of UAE CT and CT rates
- Exemptions and reliefs (e.g. Small Business Relief)
- Tax group and Qualifying group benefits
- Special regime for Qualifying Free Zone Persons
- Calculating the CT base for taxable persons, including identifying exempt income and deductible expenses
- Tax loss utilization and optimization
- Foreign income tax credits
- Transactions with related parties and connected persons and Transfer pricing documentation requirements
Our service packages
Due Date Identification: We determine the precise due date for your UAE Corporate Tax (CT) registration to ensure timely compliance.
Document Preparation: Our team assists in identifying and preparing all necessary documents required for a smooth UAE CT registration process.
FTA Portal Registration: We handle the entire registration process on the Federal Tax Authority (FTA) Portal, ensuring accuracy and efficiency.
Corporate Tax Certificate: Upon completion, we obtain the official Corporate Tax Certificate on your behalf, confirming your compliance with UAE tax regulations.
This comprehensive package ensures your UAE Corporate Tax registration is handled professionally and seamlessly from start to finish.
UAE Corporate Tax Framework Overview: We provide a comprehensive overview of the UAE Corporate Tax (CT) framework, including specific deadlines to ensure your business remains compliant.
Business Impact Analysis: Our experts discuss how the UAE CT affects your business, focusing on the tax treatment of your revenues and expenses, to optimize your financial planning.
Exemptions and Reliefs: We offer an in-depth discussion on the eligibility criteria for specific exemptions, such as Qualifying Free Zone Person, Small Business Relief, and Tax Groups, to help you make informed decisions about your corporate structure.
This package is designed to offer strategic guidance tailored to your corporate needs, ensuring you understand and comply with the UAE tax regulations while optimizing your tax position.
Impact Assessment: We help you navigate potential impact areas arising from your foreign operations, ensuring you are aware of the tax implications and opportunities.
Foreign Tax Credits: Our experts assist in identifying and utilizing available foreign tax credits to optimize your international tax position.
Double Taxation Agreements: We provide guidance on leveraging Double Taxation Agreements (DTAs) to minimize tax liabilities and avoid double taxation across different jurisdictions.
This package is designed to ensure that your international tax strategy is both compliant and optimized for global operations.
Need more assistance?
Comprehensive Tax Advice
Tailored guidance for complex corporate structures, including:
- Business Analysis: Understanding your business operations, financial position and ownership structure.
- Impact and risk assessment: corporate tax, VAT. Transfer Pricing.
- International Tax Planning: Expert advice on cross-border tax complexities.
- Activity Analysis: Identifying tax implications for your specific business activities.
- Stakeholder Analysis: Assessing relationships with suppliers and clients for tax optimization.
- Customized Tax Planning: Tailored strategies to minimize tax liabilities and ensure compliance.
ANNUAL TAX RETAINER
Ad-hoc advisory services of up to 5h per month, including:
- Provide expert advice on ongoing tax and financial matters, ensuring compliance and optimization of your fiscal strategy.
- Assistance with day-to-day queries, such as deductibility of expense before it is incurred, the tax treatment of specific transactions before they are executed.
- Review of documents to assess the tax position about such matters.
- Provide the outcome of the analysis via e-mail or video call.
Insights
Key Rules for Determining Taxable Income in the UAE
Starting Point: Net Accounting Profit or Loss The process for determining taxable income begins with the net accounting profit or loss reported by the taxable
Mastering Withholding Tax and UAE Corporate Tax: A Guide to Managing Foreign Tax Credits
Withholding Tax Credit as an Instrument to Avoid Double Taxation In an increasingly globalized economy, businesses and individuals often receive income from various foreign sources,
Hidden Savings: Discover If Your Business Qualifies for UAE Corporate Tax Exemptions
There is also a possibility to seek various exemptions and reliefs. However, certain conditions must be met for businesses to qualify for exemptions or reliefs
FTA Issues Guidance on the First Tax Period for Juridical Persons
The first financial year under the Commercial Companies Law may not necessarily be a 12- month period, but instead can be a period between 6
Corporate Tax Registration: New Timeframes and Penalties
This legislative move is a strategic endeavor to align the nation’s tax system with global compliance efforts, notably the Organization for Economic Co-operation and Development’s
UAE – Competitive Corporate Tax Regime as of 1 June 2023
UAE’s Vision This strategic decision is motivated by the UAE’s vision to reduce reliance on oil-related revenues and create a more sustainable and diversified economy.
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