TABLE OF CONTENTS
UAE is tax heaven for a long time! Entrepreneurs and small business owners were coming to Dubai and other Emirates from all over the world to live their dreams. For the corporate tax-free, business-friendly environment. To thrive. To achieve.
Time changes and business environment changes. International obligations and the legal environment changes. Change is investable. So is the tax environment.
The UAE's Ministry of Finance has released a public consultation document. The document contains information and primary aspects of the proposed UAE CT regime. The purpose of the document is to seek the views and comments of business communities and other interested parties. Interested people may provide their comments on or before 19 May 2022.
Now that the change is coming soon, and UAE is introducing corporate taxes, it is important to consider:
These were the questions bothering the business owners in the UAE.
Here is our attempt to help you understand the new tax laws proposed to be introduced soon.
Before talking about the rate, it is good to know the rate will be applied on what? on the profits? Which profit? How the profit is calculated? What adjustments are made to the profits?
Let us try to get answers to these questions
The accounting net profit or loss is the starting point for determining the taxable income.
What are the accounting profits? How do we calculate accounting profits?
For free zone entities, the audit of financial statements is mandatory.
For mainland Entities, the requirements are not clear. We have to wait for the Law.
No, the corporate tax is applicable for financial years starting on or after 1 June 2023. Companies can continue with their existing financial period as their corporate tax year.
For example, if a business follows April to March as its financial year, the first corporate tax year would be from 1 April 2024 to 31 March 2025.
UAE proposes to have a slab-based CT rate:
UAE resident companies will be subject to UAE Corporate Tax on their worldwide income, including capital gains. However, the following income is exempt from Corporate taxes.
A taxpayer with the foreign branch(es) may select either of the two options for all of their foreign branch profits:
An option once selected will be irrevocable.
Income from activities like leasing or operating aircraft/ships is exempt from taxation if the following conditions are met:
Are all expenses allowed as deductions?
The P&L Account shows the accounting net profit after deducting all the costs and expenses incurred for the business.
However, not all expenses incurred by a business are allowable as deductions to arrive at taxable income.
What does this mean? It means that non-deductible expenses will be added back to the accounting profits to arrive at the taxable income. CT is payable on taxable income.
The following expenses are not allowed as deductions. They are added back to accounting profits.
The above expenses are not deductible in their entirety. In addition, there are some partially allowed expenses. These expenses are allowed a deduction with certain limits.
Moreover, payments or benefits to Connected Persons will be allowed as expenditure only if the business can demonstrate that:
In addition to the above, if a Free Zone person wants to avail of 0% CT tax, then its mainland UAE group company will not be allowed deductions of payments made to such Free Zone Person.
Unrealized gains or losses on capital items are not considered when calculating taxable income. However, unrealized gains or losses on revenue items are to be considered when calculating taxable income.
Corporate tax will be calculated after making adjustments to Accounting profits as follows:
|Net Profit/loss as per the financial statement||xx|
|Add/Less: Adjustments as per the CT legislations||xx|
|Taxable Income up to AED 375,000||@0% (A)|
|Taxable Income above AED 375,000||@9% (B)|
|CT Liability||A + B|
|Less: Foreign Tax Credit||xx|
Businesses should prepare their financial statements as per the generally accepted accounting principles.
It is a good idea to get the current year’s financial statements audited, (the year before the UAE CT comes into effect).
This would be beneficial as it would be easier for Tax Authorities to consider or rely on the opening balances, wherever required.
Businesses must critically analyze the various expenses that might be disallowed in the future. Evaluate such expenses, analyze the impact on taxation, and, prepare and implement an alternative approach.
Have a say in how the UAE Corporate Tax laws should be - submit your comments and learn more about the new CT Law.
All the answers on Tax loss carry forward under the new Corporate Tax Law.
Calculating your tax liability under the Corporate Tax Law
Are companies in UAE Free Zones subject to Corporate taxes?
The Corporate Tax Law is a Federal Law that will apply to all businesses and commercial activities(legal entities)in the UAE. Find out more.