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Corporate Tax in the UAE: Staying prepared

Tyne Hugo Senior Associate tyne.hugo@bsabh.com
Tyne Hugo Senior Associate tyne.hugo@bsabh.com

Senior Associate Tyne Hugo recently spoke with Gulf News regarding the implementation of Corporate Tax in the UAE and how to prepare for it. 

Corporate tax will be implemented in the UAE from June 1, 2023 at a rate of 9 per cent on all annual taxable income above Dh375,000 and is governed by Federal Decree-Law No.47 of 2022 on Taxations of Corporations and Businesses supplemented by Cabinet decisions (CT Law). It is important to note that corporate tax will apply to both legal persons (companies) and Natural persons (individuals) who carry on a business. Most businesses will be subject to Corporate tax in some shape or form, save for the exceptions provided for in Articles 4-10 of the CT Law. Mostly, the exempt entities are government related businesses, extractive businesses, charities, and certain investment funds.

Corporate tax is no doubt going to require familiarisation for a substantial amount of businesses within the UAE who are not used to it, just as VAT did when it was implemented. The best course of action is for businesses to start planning now for it. As with VAT, registration is required for corporate tax and a guide on how to complete registration is available on the FTA portal here: https://tax.gov.ae/DataFolder/Files/eservices/2023/CT_Registration_Taxpayer_User_Manual_EN.pdf

This registration is separate from any VAT registration.

Businesses can further prepare and comply by keeping accurate financial records. Only businesses with an annual turnover exceeding Dh50,000,000 are required to keep audited statements, however, this should not dissuade smaller businesses from keeping diligent and accurate records. Accurate records will ensure businesses can be confident their returns are accurate. The last thing they will want is for the FTA to audit them, deem that the return was inaccurate and apply penalties and back dated interest. Accurate records and timely returns will be some of the most important compliance and preparation requirements for businesses.

Corporate tax is not all scary though. To continue to promote business within the UAE, the CT Law grants relief to small and medium enterprises (SME Relief) as well as relief to Qualifying Free Zone entities. The SME Relief will be applicable from June 1, 2023 to December 31, 2026 and is specifically designed to help start-ups and small businesses. It effectively gives an exemption on otherwise taxable income for businesses with revenues below Dh3,000,000 per annum. Furthermore, free zone entities can also benefit from relief under Article 18 of the CT Law should they meet the requirements to be considered a Qualifying Free Zone Person.

Some requirements, such as Qualifying Income still need to be defined by the Ministry. However, the intention to give relief to qualifying free zone businesses is clear. All businesses that meet the requirements will be subject to 0 per cent tax on Qualifying Income, and 9 per cent tax on all other income.

As is natural, businesses may be looking at how to avoid corporate tax. However, this is dangerous as businesses who attempt to restructure themselves or transactions with the sole purpose of having a to pay lower tax or gain a higher tax refund, or in anyway negate a tax obligation could be considered an abuse under Article 50 of the CT Law. In such cases, the FTA will be entitled to examine the nature of the restructuring or transaction and decide that it was to avoid corporate tax. This can result in penalties and further tax being paid. Accordingly, this further demonstrates why businesses must keep accurate records.

Corporate tax is not some distant obligation that may or may not arise. It is coming, and it is coming soon, and businesses need to be fully prepared and compliant to ensure that they are ready.

The full article can be read on Gulf News.com or downloaded here: Corporate Tax In the UAE: Staying Prepared.

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