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Everything You Need To Know About Uae Corporate Tax

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By Author: PRF Management Consultancy
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What is Corporate Tax? Why was it introduced in the UAE? Who will be subject to corporate taxation? What will be the rate of these taxes? What will happen to the people in the free zone—will they be subject to Corporate Tax? What about losses and exempted income?

We are here to solve all your queries and assist you with all the information you need regarding Corporate tax in the UAE. Keep reading for more, and visit us to learn about our Tax Compliance services.

In January 2022, the Ministry of Finance officially announced the implementation of Federal Corporate Tax all over the United Arab Emirates. The tax will become applicable based on the financial year followed by the business, i.e., either on 1 July 2023 or on 1 January 2024. But what was the reason for introducing Corporate Tax? Before proceeding, let’s first understand the concept of Corporate Tax.

What is Corporate Tax?
Corporate tax is a form of direct tax levied on the net income or profit of corporations and other entities from their business. Corporate tax is also referred to as "Corporate Income Tax" or "Business Profits tax" ...
... by various jurisdictions. Corporate Tax is levied on taxable income after expenses have been deducted. It is collected by the government as a source of their income.

Why is Corporate Tax being implemented in the UAE?

The UAE's commitment to and compliance with the Global Minimum Taxation Regime led to the introduction of the corporate tax in the UAE. The UAE has reiterated its commitment to maintaining international norms for tax transparency and avoiding unfair tax practices by introducing a Corporate Tax ("CT") system. The introduction of Corporate Tax in the UAE will

Avoid unfair tax practices.
Maintain international norms for tax transparency.
Cement UAE’s position as a leading global hub for business and investment
Enhance the country's growth and transformation in order to meet its strategic goals.

Who will be subject to Corporate Tax?

All businesses and individuals conducting business activities under a commercial licence in the UAE
Free zone businesses (The UAE CT regime will continue to honour the CT incentives currently being offered to free zone businesses that comply with all regulatory requirements and that do not conduct business set up on the UAE’s mainland).
Foreign entities and individuals may conduct trade or business in the UAE only if they do so in an ongoing or regular manner.
Banking operations
Businesses engaged in real estate management, construction, development, agency, and brokerage activities.

Which income will be exempt from Corporate Tax?

A Government Entity.
A Government Controlled Entity.
A Person engaged in an Extractive Business, that meets the conditions of the Decree-Law.
A Person engaged in a Non-Extractive Natural Resource Business, that meets the conditions of the Decree-Law.
A Qualifying Public Benefit Entity under the Decree-Law.
A Qualifying Investment Fund under the Decree-Law.
A public pension or social security fund, or a private pension or social. security fund that is subject to regulatory oversight of the competent authority in the State.
A juridical person incorporated in the State that is wholly owned and controlled by an Exempt Person.

What will happen to Corporate Tax

In Free zones?

Businesses in the free zone will be subject to UAE CT.
Holidays currently offered for CT incentives or taxes must continue if the free zone businesses :
meet all regulatory requirements and
do not engage in business with the mainland UAE
To register and file a CT return, free zone businesses are required.
Businesses in the Financial Free Zone are treated the same as those in other free zones.

On Foreign Person?

Foreign businesses or non-resident individuals will be subject to UAE CT only if they engage in regular trade or commerce in the UAE. In general, UAE CT will not be imposed on a foreign investor's revenue from:
capital gains,
royalties and
other investment returns

What will be the Corporate Tax rate?

Corporate Tax shall be imposed on the Taxable Income at the following rates:
0% on the portion of the Taxable Income not exceeding the amount specified in a decision issued by the Cabinet at the suggestion of the Minister.
9% on Taxable Income that exceeds the amount specified in a decision issued by the Cabinet at the suggestion of the Minister.

Corporate Tax shall be imposed on a Qualifying Free Zone Person at the following rates:
0% on Qualifying Income.
9% on Taxable Income that is not Qualifying Income under the Decree-Law and any decision issued by the Cabinet at the suggestion of the Minister in respect thereof.

What will happen to the carry forward and setoff of losses?

Businesses can carry forward losses made during a financial year to offset taxable revenue in following financial years if certain requirements are met.
From the effective date of UAE CT, the losses incurred can be used to offset future taxable income.
Subject to certain requirements, a group business's tax losses can be used to offset the taxable income of another group company.

Administration and Compliance :

The Federal Tax Authority ('FTA') will be in charge of administration, collection, and enforcement.
The Ministry of Finance is the "Competent Authority" for bilateral/multilateral agreements and the international exchange of information for tax reasons.
Registration: Businesses will need to register in order to participate in CT.
Return Filing :
CT returns are required to be filed once per fiscal period (year).
There is no need to file an advance or provisional CT.
CT returns will be filed digitally.
Advance Tax : Advance payment of tax is not applicable.
Penal Consequences : Noncompliance would lead to penalties, as it does with other taxes.

There are still several questions that need clarification. Meanwhile, companies must plan ahead and prepare for the upcoming regime, which will have a significant impact on the flow of business. For a number of organizations, our team is already working on operational implementation, such as system and process changes, transfer pricing audits, and tax impact evaluations.

Contact us now for any queries and click the link below to know more about the published UAE Corporate Tax Law.


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