Taxation Acumen
Preface - U.A.E. Corporate Tax
Overview (CT)
UAE's Ministry of Finance has announced that Federal Corporate Tax (CT) will be implemented in the UAE from the financial years starting on or after 01 June 2023.
Businesses and commercial activities will be subject to CT, except for the extraction of natural resources, which falls under the jurisdiction of individual Emirates.
In general, CT will be due on the profits of UAE-based businesses, as reflected in Financial Statements prepared according to internationally accepted accounting standards.
CT - Applicability
Corporate tax is a tax on the profits of a corporation or business. CT will be applicable to all businesses across all Emirates in the UAE and will be administered by the Federal Tax Authority. A business is defined as a separate legal person requiring a license or permit to carry out the relevant commercial, industrial or professional activity in the UAE.
CT - Numerics
The CT rate will be 9% on taxable profits above AED 375,000 with a different tax rate, yet to be announced, for large multinationals that meet criteria set with reference to 'Pillar Two' of the OECD Base Erosion and Profit Shifting project.
CT will be levied on the tax profits after minimal adjustments to profits reported in financial statements prepared in accordance with internationally accepted accounting standards.
CT Treatment - Free Zone Entities
Businesses established in Free Zones will be within the scope of CT. However, the tax benefits and or incentives offered by the respective Free Zones will continue to apply provided the businesses comply with the statutory requirements.
CT - Exceptions
Oil and gas companies will continue to be taxed under the Emirate level Corporate Tax.
CT will not be applicable on salary, capital gains, employment income, income from real estate, income from savings, investment returns, and other income earned by individuals in their personal capacity that is not attributable to a UAE trade or business.
CT - Compliance
It is proposed that the CT return will be filed annually for each financial period.
UAE group companies can form a tax group and file a single tax return for the entire group. It will also be possible to transfer tax losses to other members of the group. Further, foreign taxes may be allowed as set-off from the domestic CT liability, if any; subject to conditions and procedures as may be prescribed by FTA.
The UAE CT regime will include transfer pricing (TP) rules and documentation requirements
Our Support
A comprehensive evaluation of the impact of CT on your businesses in the UAE, including:
- Compliance Management
- Modelling numerical simulations
- Eligibility & Exemptions
- Aligning contracts, agreements, policies and systems
- Resource and training requirements
- Registration for CT and CT returns submission
- Transfer pricing services, including annual compliance, preparation of Master and Local Files, and TP studies at domestic and international levels.
Preface - U.A.E. VAT
Overview
VAT was introduced in the UAE with effect from 1 January 2018. The standard rate of VAT is 5%. In addition, there is a zero-rate and exemptions, which apply to certain types of supply.
Registration
The threshold for mandatory VAT registration in the UAE is AED 375,000 (approx. US$100,000) per annum. This threshold is measured on the quantum of taxable supplies made by a company historically, over the preceding 12 months or prospectively, within next 30 days. There is also a voluntary registration threshold of AED187,500.
Non-resident companies making taxable supplies in the UAE are liable to register for VAT unless the VAT is paid by the UAE customer through the reverse charge mechanism.
Returns
VAT registered businesses are required to file periodic VAT returns through the FTA’s online portal. Most taxpayers file quarterly returns. However, some depending on the industry or value of taxable supplies, are required to file monthly returns. Bi-yearly and yearly VAT returns can also be granted on a case-by-case basis.
Our Support
We support clients on aspects relating to VAT treatment on transactions, Tax assessment and compliance management.
- Review of the company’s VAT accounting and policies to identify potential, errors, risks and opportunities.
- Due Diligence, Assessments and transaction support.
- Manuals and Policies - Support for drafting, reviewing & advising on the tax policies.
- Customized consultancy support.
Preface - Economic Substance Regulations
Overview
Economic Substance Regulations (“ESR”) were introduced to the UAE in April 2019.
These regulations apply to all natural or legal persons that carry out a ‘Relevant Activity’ in the UAE. This includes licensees in Free Zones, Financial Free Zones and Offshore Free Zones. The regulations apply to financial years commencing from 01 January 2019.
Reporting requirements under ESR
There are two levels of reporting for businesses falling within the scope of the Regulations which include ESR Notification & ESR Reporting.
ESR Notification & Reporting
ESR Notification:
Businesses performing Relevant Activity, including those claiming exemption from ESR, are required to file a notification to the Ministry of Finance.
ESR Reporting:
Businesses that carry out a Relevant Activity are also required to submit an annual report. In this report, the business must confirm whether it meets the ESR tests.
Our Support
We support clients on the following aspects relating :
- Review of the company’s records to identify and analyze the business framework.
- Due Diligence, Assessments, and transaction analysis.
- Manuals and Policies - Support for drafting, reviewing & advising on the policies.
- Customized consultancy support.