28-Jun-2022 FAQs on UAE Corporate Tax

1.When will the UAE Corporate Tax regime become effective?

The UAE Corporate Tax regime will become effective for financial years starting on or after 1 June 2023.

Examples:

•   1.  A business that has a financial year starting on 1 July 2023 and ending on 30 June 2024 will become subject to UAE Corporate Tax from 1 July 2023 (which is the beginning of the first financial year that starts on or after 1 June 2023)

•   2.  A business that has a (calendar year) financial year starting on 1 January 2023 and ending on 31 December 2023 will become subject to UAE Corporate Tax from 1 January 2024 (which is the beginning of the first financial year that starts on or after 1 June 2023)

1. 2.How do you determine whether an individual has a “business” that will be within the scope of UAE Corporate Tax?
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This would generally be done by reference to the individual having (or being required to obtain) a business licence or permit to carry out the relevant commercial, industrial and/or professional activity in the UAE

1. 3.How do you determine the business profit / income that will be subject to UAE Corporate Tax?

The taxable income will be the accounting net profit of a business, after making adjustments for certain items to be specified under the UAE Corporate Tax law.

The accounting net profit of a business is the amount reported in the financial statements prepared in accordance with internationally acceptable accounting standards.

1. 4.Will an individual’s salary income be subject to UAE Corporate Tax?

UAE Corporate Tax will not apply on an individual’s salary and other employment income (whether received from the public or private sector)

1. 5.Will an individual who has a commercial license to carry out business in the UAE be subject to UAE Corporate Tax?

Business income earned under a commercial license will be within the scope of UAE Corporate Tax.

1. 6.Will the income earned by a freelance professional be subject to UAE Corporate Tax?

UAE Corporate Tax will generally apply to income earned from activities carried out under a freelance license / permit, albeit no Corporate Tax will be payable unless the annual net income of the freelance professional exceeds AED 375,000.

1. 7.Will a foreign company or individual be subject to UAE Corporate Tax?

Foreign entities and individuals will be subject to UAE Corporate Tax only if they conduct a trade or business in the UAE in an ongoing or regular manner

1. 8.Will a free zone business be subject to UAE Corporate Tax?

Free zone businesses will be subject to UAE Corporate Tax, but the UAE Corporate Tax regime will continue to honour the Corporate Tax incentives currently being offered to free zone businesses that comply with all regulatory requirements and that do not conduct business with mainland UAE

1. 9.Will a free zone business be required to register and file a Corporate Tax return?

A business established in a free zone will be required to register and file a Corporate Tax return.

Further details on the compliance obligations of free zone businesses will be provided in due course.

1. 10.Will the UAE Corporate Tax regime allow prior year losses to reduce future taxable income?

The UAE Corporate Tax regime will allow a business to use losses incurred (as from the UAE Corporate Tax effective date) to offset taxable income in subsequent financial periods.

A loss for Corporate Tax purposes (tax loss) would arise when the total deductions the businesses can claim are greater than the total income for the relevant financial period.

1. 11.Will a group of UAE companies be able to form a “fiscal unity” for UAE Corporate Tax purposes?

A UAE group of companies can elect to form a tax group and be treated as a single taxable person, provided certain conditions are met.

A UAE tax group will only be required to file a single tax return for the entire group.

1. 12.Will a group be able to utilise the tax losses of one group company against the taxable income of another group company?

Tax losses from one group company may be used to offset taxable income of another group company, provided certain conditions are met Further information on the group loss utilisation rules will be provided in due course.

1. 13.Will businesses be required to register for UAE Corporate Tax purposes?

Yes. More information on the registration process and ongoing compliance obligations for businesses will be provided in due course.

1. 14.How often will UAE businesses need to file a UAE Corporate Tax return?

Only one Corporate Tax return will need to be filed per financial period. No provisional or advance Corporate Tax filings will be required

1. 15.Are there any consequences for non-compliance under the Corporate Tax regime?

Similar to other taxes in the UAE (e.g. VAT), businesses will be subject to penalties for non-compliance with the Corporate Tax regime. Further information on the UAE Corporate Tax compliance obligations and applicable penalties will be released in due course.

How should businesses prepare themselves to adapt this corporate taxation?

Business houses should start analyzing the UAE Corporate Tax Implications. The implications can be from the point of view of Business Model, Structuring of Group companies, Transfer Pricing (i.e. related party transactions), preparation of financials, Updation of ERP/Systems, etc.

1.  1.  Accounting processes and automation for detailed reports as may be needed for claiming deduction in the corporate tax computation / assessment.

•  2.  Financial Statements should be prepared in accordance with internationally acceptable accounting standards.

•  3.  Revenue Recognition & accounting of Expenditure should be accounted as per Internationally accepted accounting standards.

•  4.  Business will have to access the transactions with related parties and ensures that transactions between related parties are carried out on arm’s length terms (i.e. as if the transaction was carried out between independent parties). Transfer Pricing Rules shall be part of Corporate Tax Law.

•  5.  ERP Systems / Accounting systems should be strengthen / tax module to be activated to get the Financial Statements as per the requirements of Corporate Tax Law.

•  6.  Structuring or Restructuring of Group Companies to be analyzed.
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How can APMH assist in the implementation Phase

As we all aware that this is the new Tax Structure to be introduced in UAE, this requires timely, precisely & proper support from the entities or firms who are engaged in Global Taxation Implementation and Consultancy.

Timely Valuable support from taxation team regarding Corporate Tax Compliances is critical to properly implement the corporate tax within the organization. 

Such Implementation shall include assessment of all revenue streams & expenses relevant for Corporate Tax, review of Group Companies to form Tax Group to save Corporate Tax, assessment & Implementation of Tax Saving Measures, etc.

APMH approach for implementation assignments shall be in phase wise manner as mentioned below:

• Phase One : Assessment of Business Impact prior to issuance of the Corporate Tax Law and Regulations, Draft Planning on Structuring or Restructuring.
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• Phase Two : Thoroughly impact assessment as per Issued Law and Regulations, Final recommendation on planning for structuring & Restructuring of Businesses / Group Companies.
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• Phase Three : Guidance & Support and Monitor Planning as per Phase Two before Effective date of Implementation of Corporate Tax.
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Phase Four : Post Implementation Support, Ongoing Support till filing of First Corporate Tax Returns, Filing of first corporate Tax Returns.