Corporate
Tax In UAE

CORPORATE TAX IN UAE

Corporate Tax in UAE is a direct tax on the profits or net income generated by corporations and businesses operating within the nation's borders. Governed by Federal Decree-Law No. 47 of 2022, the Corporate Tax Law mandates that companies pay taxes based on their taxable income. This law, effective from June 1, 2023, aims to accelerate the UAE's development and aligns with international standards for tax transparency and prevention of harmful tax practices.

Under the Corporate Tax Law, the Federal Tax Authority administers, collects, and enforces corporate and other federal taxes in the UAE. This includes providing guides, responding to clarifications, and conducting awareness sessions to ensure compliance. Corporate Tax in UAE applies to juridical persons incorporated in the UAE, those effectively managed and controlled within the UAE, and foreign juridical persons with a permanent establishment there. Businesses rely on Corporate Tax specialists to navigate the complexities of Corporate Tax. They offer expertise and guidance on compliance with UAE tax regulations, ensuring adherence to legal requirements while optimizing tax obligations.

By understanding the intricacies of Corporate Tax in Dubai and the UAE, businesses can effectively file corporate tax returns, fulfill their tax obligations, and contribute to the country's economic growth and development. With the support of Corporate tax advisors and corporate tax firms, companies can navigate the regulatory landscape, maintain transparency, and mitigate tax risks, fostering a conducive environment for sustainable business operations in the UAE.

INTRODUCTION FEDERAL CORPORATE TAX IN UAE FROM JUNE 2023

Corporate Tax Rates:

Corporate entities will be subject to specific tax rates based on their taxable income. Corporate tax accountant and advisors are crucial in helping businesses understand their tax obligations to ensure compliance with regulatory requirements.

• Taxable incomes exceeding AED 375,000 will incur a corporate tax rate of 9%.
• Taxable incomes up to AED 375,000 will benefit from a 0% tax rate, specifically aimed at supporting small and medium-sized enterprises (SMEs).

APPLICABILITY OF CORPORATE TAX IN UAE TO FREE ZONES

The applicability of Corporate Tax in UAE extends to Free Zones, as mandated by the applicable legislation of the State. This means businesses operating within Free Zones, including financial free zones, will be subject to Corporate Tax regulations.

• Businesses established in Free Zones must register and file Corporate Tax Returns
• corporate tax incentives available to qualifying Free Zone businesses.
• Incentives are maintained for entities adhering to regulatory requirements and not conducting business in mainland UAE.
• These incentives offer businesses a continued pathway for growth and development within Free Zones.

As businesses in Dubai and across the UAE prepare to navigate the corporate tax landscape, seeking guidance from experienced corporate tax accountants and professionals is essential to managing tax liabilities effectively and upholding financial integrity in a rapidly evolving regulatory environment.

APPLICABILITY TO FOREIGN COMPANIES

Under the corporate tax regime, foreign companies having a permanent establishment in the UAE will be subject to the corporate tax rate of 9% on annual taxable income exceeding AED 375,000 attributable to UAE business operations and activities such as service provision, goods production or sale, property rentals, etc.

APPLICABILITY TO NON-RESIDENT INDIVIDUALS

The applicability of Corporate Tax in UAE to foreign persons hinges on their engagement in trade or business within the UAE on a regular or ongoing basis.

• Non-resident individuals engaging in trade or business activities within the UAE are subject to Corporate Tax regulations.
• Corporate Tax usually does not apply to income earned by foreign investors from dividends, capital gains, interest, royalties, and other investment returns.

The above exemptions create a favorable environment for foreign investors seeking to explore different investment opportunities within the UAE.

EXEMPT INCOME

The following categories of income will not be subject to Company Income Tax (CIT):

• Capital gains.
• Dividends received by UAE businesses from qualifying shareholding. A qualifying shareholding refers to an ownership interest in a UAE or foreign company that meets certain conditions specified in the UAE CIT law.
• Qualifying intragroup transactions and restructurings

TRANSFER PRICING AND APPLICABILITY

Transfer Pricing refers to the pricing of transactions between Related Parties or Connected Persons, and has become increasingly important due to globalisation and cross-border trade activities by enterprises. The OECD Transfer Pricing Rules shall now be applicable in the UAE. All companies have to comply with the Transfer Pricing rules and documentation requirements.

Transfer pricing is essential for corporate financial management, ensuring that transactions within corporations are conducted fairly and transparently. Transfer pricing rules prevent profit shifting to low-tax jurisdictions and promote equitable taxation across borders, fostering transparency and integrity in corporate financial practices. Following transfer pricing policies underscores the importance of meticulous record-keeping and adherence to regulatory standards for Corporate Tax in the UAE.

Transfer pricing involves setting prices for transactions between different divisions or entities within the same organization to mirror how similar transactions would be priced if they were between unrelated parties.

Companies employ various methods to determine transfer prices, including comparing prices with similar transactions among unrelated parties, considering resale prices, adding costs and markups, calculating net margins, and splitting profits between entities. The choice of method must meet the arm's length standard of the Authority and consider factors such as contract terms, transaction characteristics, economic conditions, functions performed, assets used, and business strategies.

Tax authorities closely scrutinize transfer pricing methods to ensure compliance and fairness. They may adjust the taxable income to reflect a fair price based on available information and relevant factors if a transaction's outcome falls outside the acceptable range. These adjustments should be mirrored in the related party's taxable income.

Furthermore, if a foreign tax authority adjusts a transaction for transfer pricing, the company can request a corresponding adjustment with its local tax authority. The adjustments should mirror the related party's taxable income. This process necessitates careful documentation and adherence to regulatory standards, emphasizing the vital role of Corporate Tax Advisors in navigating international tax regulations in your business.

TRANSFER PRICING DOCUMENTATION

Article 55 of the Corporate Tax Law specifies the Transfer Pricing documentation obligations on a Taxable Person that enters into transactions with its Related Parties or Connected Persons. Generally, Transfer Pricing documentation refers to a set of records prepared by Taxable Persons to demonstrate their compliance with the Arm’s Length Principle in their Related Party transactions. The purpose of Transfer Pricing documentation is to provide the FTA with a clear and comprehensive understanding of the Taxable Person's Transfer Pricing policies and their application to test the Transfer Pricing outcome for each relevant period under review.

Transfer pricing documentation is an important aspect of corporate tax in UAE, highlighting the significance of having expert corporate tax accountants in business to ensure meticulous record-keeping.

The Tax Authority has the discretion to request a Taxable entity to submit, along with their Tax Return, a disclosure comprising details about the Taxable entity's transactions and arrangements with its Related Parties and Connected Persons. This information must adhere to the format specified by the Authority. To meet government-set conditions for corporate tax in the UAE, companies must maintain a Master File containing comprehensive details and an overview of their transfer pricing and global business operations and a Local File that provides specific information about local transactions and their compliance with transfer pricing rules.

Furthermore, adherence to deadlines is essential in tax compliance, as companies must submit the required documentation to the tax authority within 30 days of the Authority's request or any later date specified by the Authority. Corporate Tax Companies must ensure timely submission to avoid penalties and maintain regulatory compliance.

Furthermore, adherence to deadlines is essential in tax compliance, as companies must submit the required documentation to the tax authority within 30 days of the Authority's request or any later date specified by the Authority. Corporate Tax Companies must ensure timely submission to avoid penalties and maintain regulatory compliance.

RELEVANT AUTHORITY FOR CORPORATE TAX IN UAE

In the United Arab Emirates (UAE), the administration, collection, and enforcement of Corporate Tax in the UAE fall under the purview of the Federal Tax Authority. As stipulated by the Corporate Tax Law in the UAE, the Federal Tax Authority oversees corporate and other federal tax matters nationwide. This responsibility underscores the authority's commitment to ensuring compliance and upholding tax regulations within the UAE's corporate landscape.

While the Federal Tax Authority takes charge of domestic tax administration, including Corporate Tax in the UAE, the Ministry of Finance remains the competent authority for bilateral and multilateral agreements and international exchanges of tax-related information. This status reaffirms the Ministry's pivotal role in facilitating global tax cooperation and ensuring transparency in cross-border financial matters. The collaboration between the Federal Tax Authority and the Ministry of Finance underscores the UAE's commitment to international tax standards and its dedication to maintaining a robust and transparent corporate tax framework.

To navigate the complexities of corporate tax in the UAE effectively, it is also essential to get the

advice of a Corporate Tax Advisor or expert Corporate Tax companies for businesses to file Corporate Tax Returns accurately and on time and to guarantee compliance with tax regulations and standards.

COMPLIANCE AND OBLIGATIONS UNDER CORPORATE TAX IN UAE:

Businesses operating under the UAE Corporate Income Tax (CIT) regime must adhere to specific compliance requirements and obligations:

• Companies established in the UAE must register and file a CIT return, ensuring transparency and accountability in financial reporting.
• Failure to comply with the CIT regime may result in penalties, underscoring the importance of adhering to regulatory requirements and timelines.

The Ministry of Finance and Federal Tax Authority responsible for issuing necessary decisions within their respective powers to implement the provisions of the Corporate Tax in UAE, ensuring effective enforcement and administration of corporate tax regulations in the country.

Businesses often seek assistance from Corporate Tax accountants, Advisors, and Specialists to steer the complexities of corporate tax compliance. These professionals provide invaluable expertise and guidance in understanding and fulfilling CIT obligations, including accurately filing Corporate Tax Returns.

Corporate Tax Companies and Firms play a crucial role in assisting businesses to comply with Corporate Tax in the UAE, mitigating the risk of penalties, and ensuring smooth operations within the legal framework. By leveraging the services of these specialists, businesses can streamline their tax compliance processes and focus on their core activities while maintaining regulatory compliance in the dynamic landscape of corporate taxation.

OTHER KEY FEATURES:

• Withholding taxes on domestic and cross-border payments will not be imposed.
• The ministry informed that businesses "extracting natural resources," primarily referring to oil and gas production, will be exempt from the new regulations. This exemption is justified as these businesses are already subject to emirate-level taxation.
• Foreign taxes will be credited against any UAE Corporate Tax payable, meaning there will be no double taxation.
• Generous loss utilization rules will be implemented, and UAE groups will have the option to be taxed collectively as one entity or may seek group relief for losses, restructurings, and intragroup transactions.
• The taxable income will be the accounting net profit of a business after making adjustments