A Guide to UAE Corporate Tax Compliance

Corporate tax is levied on various entities, including UAE-incorporated businesses, individuals engaged in business activities within the country, and foreign enterprises with a permanent presence here. On qualifying income, however, Free Zone Persons are eligible for a 0% tax rate under certain circumstances.

The tax system and business-friendly climate of the UAE are well-known. The UAE does not charge federal corporate income tax on the majority of businesses. But to guarantee compliance, businesses must be aware of certain taxes and levies. Here is a guide to UAE Corporate Tax Compliance. 

Understanding Corporate Tax Registration

The United Arab Emirates Ministry of Finance declared in January 2022 that corporate tax would be implemented nationwide. The Ministry states that the Corporate Tax legislation would go into force on June 1st, 2023. The Corporate Income Tax will become operative on June 1, 2023, or later based on the business’s fiscal year. One type of direct tax imposed on income is the corporate income tax. Other nations apply company tax in the international marketplace besides the UAE. 

A 9% corporate tax will be applied to UAE enterprises whose taxable revenue exceeds AED 375,000 as of June 1, 2023. All qualified companies need to register using the EmaraTax online platform with the Federal Tax Authority (FTA). Submitting information and documents accurately and transparently is essential. 

Obligations

Business Eligibility: The tax applies to companies that are incorporated in, domiciled in, or carry on business in the United Arab Emirates. 

Deductions and exemptions: There are numerous deductions and exclusions available to reduce your tax liability. Become acquainted with these. 

Navigating the registration process:

• EmaraTax platform: Log in and add a “Taxable Person.”
• Click “Start” on the Corporate Tax Registration tab to begin the registration process. 
• Type and identity of the entity: Select the sort of entity you want to work with and enter precise identification data. 
• Commercial endeavors: Enumerate the things you do for a living. 
• Owners and ways to get in touch: Please fill out the “Add Owners” tab and send in your contact information. 
• Nominate a signatory who has been given authorization. 
• Examine and send in: Examine your application carefully, then send it in. 
• Verified and CTRN: Await to receive your Corporate Tax Registration Number (CTRN) and the confirmation email.

Understanding Taxable Persons for Corporate Tax in UAE

Understanding taxable people for corporate tax in the United Arab Emirates (UAE) is crucial for companies doing business there. The United Arab Emirates enacted a federal corporation tax code as of the last update in 2022, which applies to specific business entities.

1. All firms Founded in the UAE: Unless otherwise exempt, all firms based in the UAE are subject to the federal corporate tax. 
2. Foreign Companies’ Branches in the UAE: Foreign corporations are liable to federal corporate tax on the profits attributed to their branches or permanent installations in the UAE.
3. Free Zone enterprises (unless excluded): Except for those that are expressly exempt, free Zone enterprises in the United Arab Emirates are normally liable to federal corporate tax. It’s crucial to remember that not every business located in a free zone is exempt. Only people who fit specific requirements might be excused. 
4. Joint investment vehicles, investment companies, and other entities are designated as taxable under the federal corporate tax law by the UAE Ministry of Finance. This comprises: 

• Financial firms. 
• Vehicles for joint investments. 
• Other entities engaged in specific activities as determined by the Ministry of Finance.

Required Documents

To see the list of documents you must send, look through the list below. 

• Valid trade licenses 
• Owners’ or partners’ valid passport photocopies 
• Owners’ or partners’ valid Emirates IDs 
• The appropriate MOA or power of attorney 
• Contact details (email and mobile) 
• Details about the company, including the full location and PO Box 
• Financial audit report for the year (if appropriate) 
• Depending on your unique business setting, further documentation can be needed.

UAE Corporate Tax Groups

When two or more entities have an owner who owns at least 75% of each entity directly or indirectly, the entities can be considered a qualified group. It is noteworthy that the establishment of a qualifying group does not require approval from the Federal Tax Authority. The capacity to transfer assets and tax losses amongst group members at their recorded value without realizing gains or losses is one of the main benefits of a qualifying group.

Federal Corporate Tax: There is no federal corporate tax levied on businesses in the United Arab Emirates. One of the main draws for companies looking to establish themselves in the nation is this.

Emirate-Level Taxes: Dubai has imposed several levies and fees, including the Dubai Tourism Dirham Fee and the Dubai Municipality Fee. Businesses should be aware of these regional laws because they can differ between emirates.

Value Added Tax (VAT): On January 1, 2018, the UAE implemented VAT. A consumption tax called VAT is applied to the provision of goods and services. In the UAE, the usual VAT rate is 5% as of my most recent update. Businesses whose taxable imports and supplies surpass specific levels must register for VAT.

Tax Treaties: With several nations, the UAE has been negotiating Double Taxation Avoidance Agreements (DTAAs). The taxation of companies that operate between the United Arab Emirates and treaty countries may be impacted by these agreements.

Free Zones: The UAE has numerous free zones that offer various incentives to businesses, including exemptions from corporate taxes for certain periods. However, these benefits are subject to specific conditions and may vary between different free zones.

Foreign Company Branches: When a foreign company operates in the United Arab Emirates, its branches are usually bound by the same tax laws as locally owned businesses.

Transfer Pricing: To guarantee that transactions between related parties are carried out at arm’s length by international norms, the UAE has implemented transfer pricing legislation. 

Economic Substance Regulations (ESR): To comply with global guidelines established by the Organization for Economic Co-operation and Development (OECD), the United Arab Emirates has enacted Economic Substance Regulations. These regulations mandate that entities exhibit sufficient economic activity within the UAE. 

Arm’s Length Principle

Determining the transfer pricing between related firms in various tax countries is done using the Arm’s Length Principle (ALP), a foundational idea in international taxes. Tax authorities seek to guarantee that transactions between companies within a multinational group are carried out at fair market value, treating the entities as independent and unconnected. By ensuring that profits are divided equally among the nations in which the multinational operates, this approach aids in the prevention of tax avoidance. 

Importance

• Fairness: It ensures that each entity within a multinational group pays its fair share of taxes based on the profits it earns.
• Avoiding Tax Evasion: Without the ALP, companies could artificially inflate or deflate prices in intercompany transactions to shift profits to low-tax jurisdictions.
• Consistency: It provides a standard method for determining transfer prices, promoting consistency and transparency in international transactions.
• Compliance: Tax authorities use the ALP to assess whether transfer prices are appropriate and adjust them if necessary to prevent tax avoidance.

Transfer Pricing Documentation Under Corporate Tax

A collection of guidelines and procedures known as transfer pricing is used to determine the price of transactions between related parties, such as businesses that are members of the same multinational organization (MNE). Ensuring that these transactions are priced at arm’s length, or as though they were carried out between independent parties, is the aim of transfer pricing.

Importance of Transfer Pricing

• Companies need to establish a transfer pricing policy that outlines the pricing they will apply to transactions between related parties. 
• Companies that want to defend their transfer pricing practices must maintain records. 
• Companies could be asked to participate in a transfer pricing audit conducted by tax authorities

In the UAE, Ministerial Decision No. 97 of 2023 on Maintaining Transfer Price Documentation lays down the standards for transfer price documentation. All UAE-based enterprises, regardless of size or sector, are subject to the ruling.

A transfer pricing policy: This document outlines the transfer pricing guidelines and practices of the company. It should contain an explanation of the company’s related party transactions, the procedures it will employ to establish arm’s length pricing, and the records it will retain to back up those prices.

A master file: An overview of the company’s transfer pricing procedures and policies is given in this paper. It ought to contain details on the company’s related party transactions, group structure, and arm’s length pricing methodology.

A Local File: The business’s transfer pricing policies and procedures for the applicable tax period are covered in further detail in this document. In addition to the procedures used to ascertain arm’s length prices, it ought to contain details on the particular related party transactions that took place during the tax period and the supporting records.

UAE Corporate Tax Exempted Parties and Excluded Incomes

• Natural resource extraction enterprises are excluded from CT because they will continue to be subject to the present Emirate-level corporate taxation. 
• CT will not apply to dividends and capital gains made by a UAE company from its qualifying shareholdings.
• Qualifying intra-group transactions and reorganizations will not be subject to CT as long as the prerequisites are satisfied.
• A person’s salary and other job income, whether from governmental or private sources.
• Interest and additional income received by individuals from savings plans or bank accounts
• Dividends, capital gains, interest, royalties, and other investments received by a foreign investor.
• Individuals who make real estate investments on their behalf.
• Owners of shares or other assets are entitled to dividends, capital gains, and other forms of income.

Certain expenses that are subject to general accounting rules may not qualify for a tax deduction in corporate tax. To calculate the taxable income, these are added back to the accounting income. Several of them are listed below.

• Depreciation or amortization expenses for Capital Assets.
• Business setup, license renewal, and other government fees and charges that are paid entirely or primarily in the course of business.
• A value-added tax that is not recoverable under VAT legislation.
• 50% of the client’s leisure costs.
• Interest costs on debt funding up to 30%.
• Loans to related parties are deductible only if they serve a legitimate business purpose.
• Payments made to a mainland branch of the Free Zone entity may be deductible.

The tax system of the UAE is built to be transparent and compliant, yet still business-friendly. Companies that do business in the UAE should acquaint themselves with the laws governing VAT, excise tax, customs charges, CSR tax (where applicable), and the particularities of the area in which they operate (including free zones). Maintaining compliance promotes a stable and trustworthy corporate climate in addition to avoiding penalties. Businesses should speak with tax specialists or the Federal Tax Authority (FTA) of the UAE(FTA) for the most up-to-date and detailed advice.

You can now visit CDA, to get more details and consultation for UAE Corporate Tax.