On January 31, 2022 the Ministry of Finance of the United Arab Emirates (UAE) announced the introduction of a federal Corporate Tax (“CT”) on business profits, that came into effect from the beginning of the financial year on June 1, 2023.
The UAE CT regime is based on international best practices, with a low / minimal compliance burden on businesses.
Corporate Tax (CT) Scope
All businesses and economic activity within the emirates is subject to the United Arab Emirates’ federal tax system. The Corporate Tax rate is set at 9%.
Let’s examine the below-listed corporation taxation scope.
The CT regime applies to all commercial, industrial, and professional businesses in the UAE, aside from the extraction of natural resources, which is currently subject to Emirate-level taxes up to 55%, and the branches of foreign banks, to whom 20% tax is applicable.
Companies registered in free zones are required to adhere to all legal requirements and refrain from conducting business with the UAE mainland.
All UAE enterprises are subject to corporation tax, with the exception of those engaged in the extraction of natural resources like oil and gas and overseas bank branches.
A legal entity’s actions are all regarded as “business activities” and fall under the corporate tax structure.
Corporate Tax for Free Zone Companies
The introduction of Corporate Tax in the UAE, as per the Federal Decree-Law No. 47 of 2022, has implications for businesses operating in the various free zones. Major free zones like Meydan, IFZA, RAK, Ajman, and others are not exempted from the purview of this law. Businesses operating within these zones must:
- Ensure they follow the prescribed guidelines for tax registration and disclosure of transactions with related parties and connected persons.
- Maintain both a master file and a local file, especially if their transactions with related and connected persons meet certain conditions.
- Submit documentation to the Authority within 30 days of a request or by any other specified date.
Corporate Tax for Mainland Companies
Mainland companies in the UAE now fall under the jurisdiction of the new Corporate Tax regulations. They are required to:
- File a tax return alongside disclosures pertaining to their transactions with related and connected parties.
- Maintain records and documents for a period of 7 years following the end of the tax period to which they relate.
- Comply with specific guidelines regarding tax periods and financial year definitions.
Corporate Tax for Branch Offices
Branch offices in the UAE, whether related to mainland companies or international entities, should be diligent in:
- Reporting transactions and arrangements with their parent company or other related entities.
- Adhering to the arm's length principle, ensuring their transactions reflect fair market value.
- Keeping extensive documentation on all dealings, ready for submission to the Authority upon request.
Corporate Tax for Representative Offices
Representative offices, typically responsible for marketing or other non-transactional activities for their parent companies, must:
- Ensure transparency in their operations, especially if they have any financial dealings that could fall under the Corporate Tax provisions.
- Maintain thorough records for a minimum of 7 years post the relevant tax period.
- Follow directives set by the Authority, including timely submission of relevant documentation.
Important Deadlines and Requirements
- Tax Registration and Return: Entities must file their tax return alongside a disclosure of transactions with related parties.
- Documentation: Mainland and Free Zone companies should maintain both a master and local file. Submission to the Authority should be within 30 days of a request.
- Tax Period: Defined as the financial year or part thereof for which a tax return needs to be filed. Typically, this aligns with the Gregorian calendar year or the 12-month financial statement period.
- Changes to Tax Period: Companies can apply to change their tax period dates, subject to the Authority's conditions.
Taxhelp Corporate Tax Services
At TaxHelp, we offer corporate tax advisory services for companies starting out on this new path.
Proper preparation for CT compliance is critical in avoiding high costs later on. This also helps reduce internal teams' pressure.
We can help with the start-to-finish implementation of the comprehensive CT strategy, from the initial assessment through planning, implementation and post-implementation phases.
We would be happy to help clients consider and review their current corporate structures to assess the impact of the proposed UAE CT rules, and also discuss any opportunities resulting therefrom. To get in touch with us, please fill out the contact form and one of our tax specialists will get in touch with you as soon as possible.
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