UAE Corporate tax

UAE CORPORATE TAX:

The UAE Ministry of Finance implemented Corporate Tax, a direct tax on corporate and business net income, starting from June 1, 2023. Also known as "Business Profits Tax" or "Corporate Income Tax" in other jurisdictions, it maintains the world's lowest tax rate, easing compliance for businesses. This initiative enhances UAE's revenue, boosts competitiveness, promotes financial discipline, and aligns with international tax transparency standards while safeguarding start-ups and small businesses.

Impact of Corporate Tax on businesses of UAE:

The implementation of corporate tax in the UAE is expected to bring about substantial changes in the tax and compliance costs for the majority of businesses. Entities will need to ensure compliance with the new tax system, necessitating a thorough evaluation of the tax implications. This evaluation should lead to necessary adjustments in corporate structure, operational models, finance and tax operations, reporting systems, legal agreements, and transfer pricing rules.

CORPORATE TAX IN UAE

Understanding and managing UAE corporate tax can be a challenging task for businesses operating in the region. Qromozone offers customized solutions for businesses seeking to navigate the complexities of UAE corporate tax regulations. Our experienced team provides expert guidance on tax planning, compliance, and reporting, ensuring your business meets its tax obligations while optimizing your tax position.

Applicable Rates of Corporate Tax in UAE

The rate of corporate tax in the UAE is one of the most competitive tax rates in the Middle East.

The UAE corporate tax will be levied on the annual taxable income of businesses in the following manner:

i. 0%, for taxable income not exceeding AED 375,000

ii. 9%, for taxable income exceeding AED 375,000

Our Tax Consultant can help you to understand the rate of corporate tax applicable to you business model.

Exempted Entities from UAE Corporate Tax

The following persons are exempted from the UAE corporate tax regime:

i.The UAE Federal Government and Governments of the Emirates, their departments, authorities and public institutions

ii. UAE companies wholly owned by the Government that conduct a sovereign or mandated activity and that are listed in a Cabinet Decision

iii. Companies engaged in the extraction and exploitation of UAE natural resources that come within the scope of Emirate-level taxes

iv. Charities and public benefit organisations listed in a Cabinet Decision

v. Public & regulated private social security and retirement pension funds

vi. Investment funds subject to certain conditions

Entities which will be consider 'Residents"

A legal entity incorporated in the UAE will be considered a resident as per corporate tax law in the UAE. Foreign companies will be treated as residents under the UAE corporate tax law if it is effectively managed and controlled in the UAE.

A company will be considered effectively managed and controlled in the UAE if its decision-makers or directors make the key management and commercial decisions in the UAE.

Non-residents will be subject to corporate tax in the UAE on,

i. Taxable income earned from their Permanent Establishment in the UAE; and

ii. Income sourced in the UAE.

Talk to our Tax Consultant to determine the residence/non-residence status.

Exempted Income Under the Corporate Tax in UAE

The following types of income are exempted from the UAE corporate tax regime.

i. A UAE corporate shareholder will be exempt from CT on dividends received, and capital gains earned from the sale of shares of a subsidiary company

ii. All domestic dividends earned from UAE companies, including dividends paid by a Free Zone Person that benefits from the 0% CT regime

iii. Dividends paid by foreign companies and capital gains from the sale of shares in both UAE and foreign companies will be exempted if certain conditions are met

iv. UAE companies are allowed to claim a foreign tax credit for taxes paid in the foreign branch country or elect to claim an exemption for their foreign branch profits

Consult with our Tax Consultant before making any tax related decision in UAE.

Who Falls Under UAE Corporate Tax Bracket

Both Natural Persons and Legal Persons will fall within the scope of corporate tax in the UAE. Natural persons who will be subject to the corporate tax regime include sole establishments or proprietorships and individual partners in an unincorporated partnership who carry out business or commercial activity in the UAE. However, there will not be a parallel tax on the income of natural persons or individuals.

Legal Persons include the UAE companies and other types of legal persons incorporated in the UAE. Foreign Legal Persons having a permanent establishment in the UAE or earning income in the UAE will also fall within the scope of corporate tax. Legal Persons who are subject to the UAE corporate tax regime include Limited Liability Companies (LLC), Private Shareholding Companies (PSC), Public Joint Stock Companies(PJSC), and entities established under the laws of UAE laws that have separate legal personalities.

Talk to our Tax Consultant to understand the applicability of corporate tax on your profits.

Corporate Tax Return Filing,Payment & Refund

A business is required to prepare and file only one UAE corporate tax return and other related supporting schedules with the FTA for each tax period. Businesses will not be required to file a provisional Corporate Tax return in the UAE and make advance corporate tax payments. Consult with corporate tax advisors to know further about the administrative requirements. Furthermore, businesses need to adhere to the following conditions:

i. Businesses must submit the tax return along with supporting documents to the FTA within (9) nine months of the end of the relevant Tax Period

ii. Payments to settle the corporate tax liability for a tax period must be made within (9) nine months of the end of the relevant Tax Period

iii. A taxpayer can apply for a tax refund request to the FTA if it can demonstrate that a corporate tax refund may be due

Formation of Tax Group

A UAE resident group of companies can form a corporate tax group. It will be treated as a single taxable person provided the parent company holds at least 95% of the share capital and voting rights of its subsidiaries. However, neither the parent company nor any of its subsidiaries should be an exempt person or a Free Zone Person that benefits from the 0% CT rate. Furthermore, all the members of the group should use the same financial year.

Corporate tax advisors can help companies to form a tax group.

Corporate Tax Registration & De-registration

Businesses that are subject to tax will be required to apply for corporate tax registration in the UAE with the Federal Tax Authority (FTA). They should also obtain a Tax Registration Number within a prescribed period. Businesses that cease to be subject to the corporate tax must apply for corporate tax deregistration in the UAE. The application should be filed within three months from the date of cessation or liquidation.

Our tax consultants can assist businesses with tax registration and de-registration.

Corporate Tax Filing & Deadlines

The table below illustrates the CT filing deadlines for businesses with financial year ends of 31 March, 30 June and 31 December:

Financial year-end 30 June

First Tax Period : 1 July 2023 – 30 June 2024

Financial year-end 31 December

1 January 2024 – 31 December 2024

Financial year-end 31 March

1 April 2024 – 31 March 2025

Corporate Tax on Freezone Companies of UAE

The highly anticipated Decisions on the Corporate Tax Rules for Free Zones have recently been released.

Cabinet Decision No 55 of 2023 was issued on 30 May 2023 on Determining Qualifying Income for the Qualifying Free Zone Person for the Purposes of Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (hereinafter referred to as the “CT Law”).

Moreover, the Ministry of Finance issued on 1 June 2023 the Ministerial Decision No. 139 of 2023 regarding Qualifying Activities and Excluded Activities the Purposes of the the CT Law. This Decision should be read in conjunction with Cabinet Decision No 55 of 2023 to obtain a full understanding of the proposed rules.

Qualifying Free Zone Person (“QFZP”) will be taxed at the following rates:

i. 0% on Qualifying Income.

ii. 9% on Taxable Income that is not Qualifying Income.

Definition of “Qualifying Income”:

i. Income derived from transactions with other Free Zone Persons, except for income derived from “Excluded Activities”.

ii. Income derived from transactions with a Non-Free Zone Person, but only in respect of “Qualifying Activities” that are not Excluded Activities.

iii. Any other income provided that the QFZP satisfies the de-minimis requirements.

Excluded Activities :

i. Transactions with natural persons (subject to certain exceptions under Qualifying Activities related to shipping and aircrafts plus fund, wealth and investment management);

ii. Regulated banking, finance, leasing and insurance activities;

iii. Ownership or exploitation of intellectual property assets, and

iv. Ownership or exploitation of immovable property, except for transactions with Free Zone Persons in relation to commercial property located in a Free Zone.

Qualifying Activities :

i. Manufacturing and processing of goods or materials;

ii. Holding of shares and other securities;

iii. Ownership and operation of ships;

iv. Regulated reinsurance and fund /wealth management;

v. Headquarter and financing services to related parties;

vi. Financing and leasing of aircraft, logistics and

vii. The distribution of goods in or from a designated zone subject to certain conditions.

Generally the listed excluded and qualifying activities shall have the meaning provided under the respective laws regulating these activities, unless otherwise prescribed.

De Minimis Requirements:

The de minimis requirements will be satisfied where non-qualifying Revenue does not exceed 5% of total revenue or AED5,000,000, whichever is lower.

Non-qualifying Revenue is revenue drive from Excluded Activities or activities that are not Qualifying Activities where the other party is a non-Free Zone Person.

Certain revenue shall not be included in the calculation of non-qualifying Revenue and total Revenue. This includes revenue attributable to certain immovable property located in a Free Zone (non-commercial property, and commercial property where transactions are with Non-Free Zone Persons). It also includes revenue attributable to a Domestic Permanent Establishment or a Foreign Permanent Establishment.

Importantly, the de minimis provisions also state that where a Free Zone Person fails to meet any of the qualifying conditions set out in UAE CT Law and in these Decisions, they will be treated as a Taxable Person subject to 9% CT rate for a minimum of five years.

Domestic Permanent Establishment (“PE”):

The Decisions introduce the concept of a Domestic PE where a Qualifying Free Zone Person has a place of business or other form of presence outside the Free Zone in the State.

Income attributable to a Domestic PE should be calculated as if the establishment was a separate and independent person and shall be subject to CT at 9%. However, it will not disqualify the Free Zone Person from benefitting from a 0% CT rate on Qualifying Income, or be factored into the de minimis test (as above).

For the purposes of determining whether a Qualifying Free Zone Person has a Domestic PE, the normal PE rules of Article 14 of the CT Law shall apply. A mainland branch of a Qualifying Free Zone Person will therefore generally constitute a Domestic PE and be subject to CT at 9%.

Adequate Substance in Free Zone:

To maintain adequate substance, a Qualifying Free Zone Person should:

i. Undertake its core income-generating activities in a Free Zone.

ii. Maintain adequate assets, adequate number of qualified employees, and incur an adequate amount of operating expenditures with regards to the level of activities in the Free Zone.

The activities can be outsourced to a Related Party or third party under the supervision of the Qualifying Free Zone Person.

Effective Solutions

Corporate Tax Planning:

Qromozone provides effective solutions for UAE corporate tax planning. Our experts analyze your business structure, operations, and financial transactions to develop tax strategies that optimize your tax liabilities while ensuring compliance with UAE tax laws. We help you identify tax-saving opportunities and minimize tax risks.

Tax Compliance and Reporting:

We assist businesses in meeting their UAE corporate tax compliance obligations. Qromozone ensures accurate and timely preparation and filing of corporate tax returns, keeping you in compliance with UAE tax regulations. We help you navigate the complexities of tax laws, ensuring that all reporting requirements are met.

Tax Advisory and Risk Management:

Our experts offer tax advisory services to provide guidance on complex tax matters. Qromozone helps you understand the implications of tax laws and regulations on your business and assists in managing tax risks. We stay updated on tax law changes and provide proactive advice to minimize tax exposure and maximize tax benefits.

Tailored Financial Solutions

Qromozone provides customized financial solutions designed to meet the unique needs of each customer. From accounting and bookkeeping to tax planning and compliance services, we offer personalized support to help optimize your financial operations.

Expert Guidance And Consulting

Our team of experienced professionals offers expert guidance and consulting services to assist customers in making informed financial decisions. Whether you need assistance with corporate tax planning or VAT advisory, we provide valuable insights and recommendations tailored to your specific business goals.

Reliable And Efficient Service

At Qromozone, we prioritize reliability and efficiency in delivering our services. With a commitment to accuracy and timely execution, we ensure that our customers receive top-quality assistance and support to navigate the complexities of financial regulations and achieve their financial objectives.

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FAQ

1.Is corporate tax applicable to all businesses in the UAE?

No, the UAE does not impose federal corporate tax on most business activities. However, specific industries, such as oil and gas, banking, and tobacco, may be subject to certain taxes or fees at the federal or local level.

2. Are there any taxes that businesses in the UAE need to be aware of?

While corporate tax is not applicable in most cases, businesses operating in the UAE should be aware of Value Added Tax (VAT) and Excise Tax. VAT is a consumption tax levied on the supply of goods and services, while Excise Tax is imposed on specific goods like tobacco, energy drinks, and carbonated beverages.

3. How can Qromozone assist with corporate tax planning?

Qromozone has a team of tax experts who can help businesses optimize their tax strategies. They can analyze your business structure, revenue streams, and expenses to identify potential tax planning opportunities that align with UAE tax laws and regulations.

4. Do businesses in the UAE need to file any tax returns despite the absence of corporate tax?

Yes, businesses in the UAE are required to file Value Added Tax (VAT) returns if they are registered for VAT. Even if there is no federal corporate tax, it’s important to comply with VAT regulations and submit accurate VAT returns on a regular basis.