Taxes are the major source of income for any government that are subsequently used for the welfare of the people or incurring expenditure for the government. Taxes are usually of two types (i) Direct taxes i.e applied directly to the income of tax payer most common example would be withholding tax on salary. (ii) Indirect taxes (this is the advance form of tax that are indirectly applied and received from end consumer for example VAT)

CORPORATE TAX GEOGRAPHICAL BOUNDRY

Corporate tax (CT) is the example of direct taxation that is applied directly on the income of the company exceeding the specified amount prescribed by the government. It will be applicable to across the EMIRATES

OBJECTIVE TO BE ACHIVE BY CORPORATE TAX IN UAE

UAE by introducing corporate taxation system is establishing a firm base of taxation for all investor, attracting investment by having transparency in taxation methods thus avoiding any ambiguity for investor and preventing harmful tax practices. UAE corporate tax rates are the lowest as compared to the rest of the world.

UAE generates major income from export of OIL products thus with the innovation in technology and to shift the paradigm

WHEN CORPORATE TAX WILL COME INTO ENFORCE

The UAE has announced to introduce the corporate tax on business profits. It will come into effect on 1st June 2023 or January 2024 depending upon the financial year followed by the Company. It is recommended that businesses shall evaluate the impact of UAE CT early on and proactively plan for a smooth implementation. We at total tax accountant can help you evaluate the challenges and opportunities that corporate tax can bring for the companies.

CORPORATE TAX IN UAE APPLICABILITY

The United Arab Emirates has implemented a federal tax structure that applies to all enterprises and commercial activity throughout the emirates.

  • Besides the extraction of natural resources, which is presently liable to Emirate-level taxes up to 55%, and the branches of foreign banks to whom 20% tax is applicable, the planned CIT regime is designed to be applicable to all commercial, industrial, and professional businesses in the UAE.
  • Foreign companies conducting regular business in an ongoing manner within UAE.
  • Business conducted in free zones except to whom exemptions has been provided previously or under any other regulations not conducting business in UAE mainland.
  • Businesses engaged in real estate management, construction, development, agency and brokerage activities
  • Any business carried out by legal cooperation that is termed as business activity: will be subject to a corporate tax framework.
  • EXEMPTION TO CT

However authorities to avoid duplication of taxes has given exemption to few sources from CT for detail following must be considered

Extraction of natural resources will not fall under ambit of CT as it would be subject to normal tax category.
Dividend income.
Individuals making investment in real estate in personal capacity subject to few requirements.
Capital Gain earned in UAE through qualified shareholdings (qualifying shareholding refers to an ownership interest in a UAE or foreign company that meets certain conditions of UAE CT law.)

REGISTRATION UNDER CT

All business carried on in UAE must be registered under corporate tax laws, even the businesses conducted under free zone will be required to register and submit CT return.

SET-OFF LOSSES IN CASE OF MULTIPLE BUSINESS

Laws established under CT allows the Company to set off their losses that have arisen during the operations in subsequent years. Further, Tax losses from one Group Company may be used to offset taxable income of another group company, provided certain conditions are met. (i.e the company elect to form a group of single taxable person).

WITH HOLDING TAX RATES ON CT.

With-holding tax is usually applicable in many tax system around the globe, however under the proposed corporate tax in UAE no with-holding tax will be deductible on payment made either domestically or cross borders.

The taxpayer while filling return under this regime can claim tax credit against foreign CT paid on UAE taxable income against the UAE CT liability.

APPLICABLE RATES / TIME PERIOD FOR FILLING OF CT

As per the law falling corporate rates will be applicable which are so far less than the equivalent economies of the world;

  • 0% on income up to AED 375,000.
  • 9% on income exceeding AED 375,000.

Each return shall be filed within the period on 9 months from the end of the relevant financial year along with the payment of tax liability therewith.

CONCLUSION

With the recent initiative of UAE government it’s eminent that foreign investment will rush towards UAE due to lower rates attracting international cooperation, shifting its paradigm from OIL based economy to a global producer and exporter of commercial products. With this major shift to CT entities must be compliant with new tax laws and thus require precise knowledge of all the relevant information.

Our designated team of professional accountants can provide a guide to your queries on corporate taxation.