WHEN AND WHY WAS CORPORATE TAX INTRODUCED IN UAE?
Announced in the January 2022, UAE introduced a brand-new tax regime for all businesses being operated inside the country by the name of Corporate Tax. According to the scope of corporate tax in UAE, all kinds of businesses, keeping the extraction of natural resources in exception, will be liable to pay a certain amount of tax under some defined conditions. All countries of the GCC have corporate tax regime in practice except for Bahrain now. UAE will however have the lowest rate for corporate tax in GCC which will be a minimum of 9%. Profits and revenues from the businesses in UAE will now be subject to a federal corporate tax of 9% with an AED 375,000 barrier, according to the Ministry of Finance. This takes effect in the beginning of June 2023, from the 1st day of the month.
The profits of UAE enterprises as recorded in their audited financial statements in conformity with generally accepted accounting principles will be subject to corporate taxation in the UAE. There won’t be many deviations or modifications. This demonstrates that accounting records must now always be audited on schedule.
The announcement states that the only business activity to receive a tax exemption is the exploitation of natural resources, which is expected to continue to be liable to emirate-level corporate taxes. Businesses functioning in free zones will also be subject to exemptions, under certain restrictions.
The main objectives according to the Ministry of Finance for introducing the Corporate Tax in United Arab Emirates are to:
Solidify its position as a major international center for trade and investment
Speed its growth and change in order to fulfill its strategic goals
Reiterate its dedication to avoiding unfair tax practices and fulfilling international norms for tax transparency
WHAT IS MEANT BY THE TAX PERIOD?
Usual tax returns must be submitted to Federal Tax Authority of UAE by taxable firms, often within 28 days after the conclusion of the ‘tax period’ that varies depending on the type of business. A “tax period” is a defined time frame for which the applicable tax must be determined and paid.
The regular tax year is:
- for companies having annual revenues under AED 150 million, quarterly.
- for companies with a yearly revenue of AED150 million or more.
The Federal Tax Authority has the discretion to designate a distinct tax period for a certain class of firms. According to the terms of Cabinet Resolution No. 40 of 2017 on Administrative Penalties for Violations of Tax Laws in the UAE, failure to file a tax return within the allotted time frame shall subject the offender to fines.
HOW DO WE DETERMINE THE CORPORATE TAX PERIOD IN UAE?
The Corporate Tax will be applicable to fiscal years beginning on or after 1 June 2023, according to information released by the UAE Ministry of Finance. Based on the conclusion of its fiscal year, an entity’s UAE’s Corporate Tax period is calculated. Consequently, entities with a
- Individuals with their first UAE’s Corporate Tax return due for the fiscal year ending May 31, 2024, should do so.
- For the fiscal year ending on September 30, 2024, individuals should file their first UAE Corporate Tax return.
- For the fiscal year ending on December 31, 2024, individuals should file their first UAE Corporate Tax return.
The deadline for submitting Corporate Tax returns has not yet been established.
HOW IS CORPORATE TAX COMPUTED IN UAE?
The UAE Corporate Tax Public Consultation Document specifies a procedure for calculating the required tax amount. Business owners can use the steps indicated in the consultation paper to assess their tax liability by speaking with corporate tax consultants in Dubai. The procedure to calculate the company tax due in the UAE is as follows:
- Step 1: Determine the qualifying business’s final taxable revenue
- Step 2: Final taxable income of between 0 and 375,000 AED (CT @ 0%); mark this as ‘X’.
- Step 3: Enter “Y” if your final taxable income exceeds AED 375,000 (CT @ 9%).
- Step 4: Subtract AED 375,000 from the total revenue to arrive at the difference.
- Step 5: Multiply X + Y to find the business tax liability.
- Step 6: Subtract the foreign tax credit from the total to determine the amount that represents the due corporate tax.
SEEKING PROFESSIONAL GUIDANCE FOR YOUR CORPOATE TAX RETURNS IN YEAR 2023?
Most of the nation’s leading companies have already started their evaluations of their readiness for the UAE CT. To avoid greater implementation costs and lessen the strain on internal teams to finish these preparations by a strict last-minute deadline, early planning for corporation tax compliance is essential.
knowledge and experience at Corporate Tax UAE will assist you navigate this new environment and guarantee that your company transitions to the Corporate Tax regime in UAE without any major hiccups.