UAE CORPORATE TAX (UAE CT)
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Introduction
The tax levy will be on taxable profits exceeding AED 3,75,000 and any profits below this limit will be subject to 0% thus providing small businesses & startups relief.
Scope & Rate
| Taxable Income Slab | Corporate Tax Rate |
|---|---|
| Taxable income upto AED 375,000 | 0% |
| Taxable income above AED 375,000 | 9% |
| Large Multinationals (with consolidated global revenue > AED 3.15Bn(Euro 750mn) | Effective tax rate 15% |
Taxable Persons:
- Natural persons carrying on business/commercial activities (includes sole establishments, Civil company & individual partners in an unincorporated partnership).
- Legal Persons (LLC.,PSC,PJSC, other entities legally incorporated in UAE as well as foreign entities having permanent establishment in UAE.
Note: The UAE CT will apply to foreign entities that are managed and controlled from within the UAE, or that generate income from UAE sources, even if they are legally incorporated outside of the UAE.
Exempted Persons:
No, the ICV certificate is not based on the size of the company. As such, any companies can go for the certification.
Free Zone Persons:
ICV certification is required for all companies that wish to apply to governmental and semi-governmental procurements. The ICV factor accounts for a certain weightage in tender evaluation. However, this is not a mandatory requirement.
Basis of taxation
Branches can be combined if they exist in one emirate and their activities are similar. For the branches in different emirates, a certificate for each license must be obtained.
Taxable Income
The fee for an ICV certificate varies depending on the size of the company and the procedures required to be performed.
| Deductible expenditure |
|---|
| Expenditure incurred wholly and exclusively for the purposes of the Taxable Person’s Business that is not capital in nature. |
| Non-Deductible Expenses | Limitation |
|---|---|
| Bribes, Fines & Penalties, Donations, Dividends & profits distribution, Corporate Tax & VAT, Exp. Not incurred for business purposes, Expenditure incurred for deriving exempt income, Amounts withdrawn from the Business by a natural person | No deduction at all |
| Entertainment expenditure (Meals, accommodation, transportation, admission fees, etc… for customers, Shareholders, suppliers, business partners, etc…) | 50% allowable |
| Net Interest expenditure | 30% of EBITDA |
Exempt Income
The Following income and related expenditure shall not be taken into account in determining taxable income:-
- Dividends and other profit distributions received from a resident juridical person
- Dividends and other profit distributions received from a participating interest (at least 5% holding for an uninterrupted period of 12 months, and applicable tax rate is at least 9%)
- Any other income from a participating interest.
- Income derived by a non-resident person from operating aircraft or ships in international transportation (if same exemption is available to UAE operators of aircrafts and ships in that country)
- Income of a foreign permanent establishment (if the person opted and the foreign tax rate is at least 9%).
Small Business Relief
- If the Revenue of a Resident Person does not exceed a threshold of AED 3 million in relevant tax period and previous tax period each, then such business may elect to be treated as not having derived any taxable income for the relevent tax period.
- If the above applies then Exempt income, reliefs, deductions, tax loss and transfer pricing provisions shall not apply.
Tax Groups
- Two or more Taxable Persons can be treated as a single Taxable Person.
- All taxable persons in the group should be resident & juridical.
- Parent Company owns at least 95% of the shares or voting rights or Profit/Net Assets either directly or indirectly.
- None of them is exempt and qualifying free zone person.
- Following same financial year.
- Using same accounting standards to prepare the financial statements.
Transactions with related parties & connected persons – Transfer Pricing
Transfer Pricing: –
Transfer Pricing refers to the pricing of transactions between Related Parties or Connected Persons. The UAE CT regime will have Transfer Pricing rules to ensure that the price of transaction is not influenced by relationship between parties involved.
The Arm’s Length Principle: – Corporate Tax Law mandates fair pricing for transactions between Related Parties or Connected Persons, treating them as if conducted between independent parties in similar circumstances.
The OECD Transfer Pricing guidelines recommend five widely used methods of establishing transfer pricing. They are: –
- Comparable Uncontrolled Price method
- Resale Price Method
- Cost Plus Method
- Transactional Net Margin Method
- Profit Split Method
Transfer Pricing Documentation requirements: –
Taxable persons must maintain a Local File and a Master File if they meet either of the following conditions during the tax period:
The taxable person is a Constituent Entity (i.e., mainland or free zone subsidiary, branch, or permanent establishment) of a Multinational Enterprise Group, with annual consolidated group revenues exceeding AED 3.15 billion, as defined under Cabinet Decision No. 44 of 2020.
The taxable person’s revenues exceed AED 200 million.
Tax Period
- Businesses will use their financial accounting period as their annual tax period. Where a business does not have a financial accounting period, their default tax period will be the Gregorian calendar year.
Registration and Deregistration
Every business to which corporate tax is applicable should register with FTA and obtain a Tax Registration number within the prescribed period.Where a business ceases to operate or ceases to be subject to CT due to any reason, it should apply to the FTA to be deregistered within 3 months from the date of cessation.
Filing, Payment and Refund
- One tax return for each tax period.
- Return filing and tax payment due date: Within 9 months from the end of the relevant tax period.
Transitional Provisions
The CT Law states that the opening balance sheet for tax purposes will be the prior period closing accounting balance sheet.
Record Retention
The retention periods are specified as follows:
a. For taxable individuals or businesses- keep records for five years after the relevant tax period.
b. For all other individuals or businesses- keep records for five years from the end of the calendar year in which the document was created.
c. For real estate records- keep records for seven years from the end of the calendar year in which the document was created.
The impact of corporate tax on UAE business
Moving from a tax free economy to an economy with corporate tax compliance, the ministry has taken an important milestone in building an integrated tax regime that supports the strategic objectives of the UAE as well as providing the economy with sufficient flexibility to step up with international financial systems. The Ministry of Finance will remain the competent authority and Federal Tax Authority will be responsible for the administration, collection and enforcement of the corporate tax law.
With the assistance of Corporate Tax Consultants in Dubai having exceptional experience in local and international taxation, the transition to corporate tax compliance will be hassle free. Our expert tax consultants can help you maintain your accounting & financial records in a way that would optimize your liability of taxes on corporate income.
How can we help you?
Our team of experts can help you assess the challenges and opportunities UAE CT brings in.
- Corporate Tax Consultancy Services.
- Corporate Tax Training and Awareness.
- Corporate Tax Registration Services
- Preparation and filing of Tax Returns.
- Representation Services before tax authorities.
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Email Us: info@elevateauditing.com