Lorem ipsum dolor sit amet, consetetur sadipscing elitr, sed diam nonumyert et eirmod tempor invidunt ut labore et ert dolore magna aliquyam erat, sed diam voluptua. At vero eos et accusam et cer justo duo dolores et berr ea rebum. Stet clita kasd gubergren, no sea takimata sanctus est Lorem ipsum dolor.
On 31 January 2022 the UAE (“UAE”) Ministry of Finance (“MOF”) announced that the UAE will implement a Federal-level corporate tax (“CIT”) for financial periods starting on or from 1 June 2023.
The introduction of CIT in the UAE follows the proposal of a global minimum effective tax rate of 15% in 2023 and is in line with the UAE’s commitment to meet international standards for tax transparency and preventing harmful tax practices under the Organization for Economic Cooperation and Development’s (“OECD”) Based Erosion and Profit Shifting (BEPS) project.
Each of the Emirates in the UAE already has limited corporate taxes in place (which was not enforced in practice, except for upstream oil and gas companies) and specific taxes on branches of foreign banks. However, the introduction of a Federal-level CIT is a major development that will affect most UAE businesses.
Main features of the UAE CIT regime will be as follows:
1-Scope:
CIT will apply to all businesses and commercial activities in the UAE, with some exceptions outlined below.
The taxable income will be the accounting net profit of the business (which is based on amounts reported in financial statements prepared under internationally acceptable accounting standards), after making certain adjustments.
Federal tax Authority (FTA) will be responsible for administration, collection and enforcement of UAE CIT.
Ministry of Finance will be the competent authority
First option is to set up a branch of an existing overseas foreign Company (this will be extension of the parent company)
Second option is to set up a Free Zone Establishment (“FZE”) in which the sole shareholder is an individual or corporate.
Third option is to set up a Free Zone Company (“FZC”) in which there are two or more shareholders who could be individuals or corporate.
Suffix FZE/FZC/DMCC/FZ-LLC etc. will differ depending on the free zone selected. Visas can be issued for such companies. Most of the Free Zone authorities will need audited financial statements to be submitted as part of the licencerenewal process every year
You may like to visit the websites of some of the Free Zones as under:
-Jebel Ali Free Zone (www.jafza.co.ae)
-Dubai World Central (www.dubaisouth.ae)
-Dubai Multicommodity Centre (www.dmcc.ae)
-Sharjah Airport International Free Zone (www.saif-zone.com)
-Hamriyah Free Zone (www.hamriyahfz.com)
-Ajman Free Zone (www.ajmanfreezone.gov.ae)
-Ras Al Khaimah Free Zone (www.rakftz.com)
-Umm AL Quwain Free Zone (www.uaqftz.com)
-Fujairah Free Zone (www.fujairahfreezone.com)
2-Exceptions:
Extraction of natural resources:
CIT will not apply to businesses engaged in the extraction of natural resources.
Free zones:
Existing tax holidays in the free zones will continue to apply, provided that the business established in the free zone complies with all regulatory requirements and does not conduct business with the UAE mainland.
In case of business with mainland,taxability for free zone entities will be clear only when either CIT Decree is promulgated apart from any other conditions that may be stipulated.
Individuals and personal investments:
CIT will not apply to individual salaries or returns earned on investments (dividends or capital gains) generated by individuals who do not carry on a business.
3-CIT Rates:
-0% on taxable income up to AED 375,000;
-9% on taxable income above AED 375,000; and
-A different tax rate for large multinational corporations that fall within the scope of Pillar Two of the OECD’s BEPS Project [i.e., consolidated global revenues in excess of EUR 750 million (approximately AED 3.15 billion)].
4-Effective date:
The effective date is mentioned as financial year commencing after 1st June 2023
-e.g. For Jan-Dec financial year, the first year ofcorporate taxation will be the period from 1 Jan 2024 and ending 31 Dec 2024.
-e.g For Apr-Mar financial year, the first year of corporate taxation will be the period from 1 April 2024 and ending on 31 Mar 2025.
-e.g. For Jul-June financial year the first year of corporate taxation will be the period from 1 Jul 2023 and ending on 30 Jun 2024.
5-Exemptions:
Subject to certain conditions, no CIT will apply to:
-capital gains or dividends received from qualifying shareholdings;
-income arising from qualifying intragroup restructurings.
6-Losses:
Businesses will be allowed to utilise losses to offset taxable income in subsequent financial years. Excess tax losses may be carried forward and used against taxable income in future years, subject to certain conditions. 7-Withholding tax:
No withholding tax applies to any domestic or cross-border payments.
7-Foreign tax credit:
UAE businesses will be entitled to tax credit on foreign CIT paid against their UAE CIT liability – which is a feature of CIT regimes that apply on a worldwide basis.
8-Tax grouping:
Tax grouping will be available to UAE group companies, provided certain conditions are met. A UAE tax group will only be required to file a single tax return for the entire group.
9-Compliance:
Registration:
Businesses will be required to register for CIT. Further details are expected to be published soon.
Filing:
One CIT return will need to be filed electronically for each financial year. No provisional or advance CIT filings will be required.
10-Transfer Pricing:
UAE businesses will need to comply with transfer pricing rules and documentation requirements in accordance with the OECD Transfer Pricing Guidelines.
MOFhas published FAQs as under:
https://www.mof.gov.ae/en/resourcesAndBudget/Pages/faq.aspx
FTA has also published FAQs as under:
https://www.tax.gov.ae/en/faqs
Further guidance, details and Decree on CIT are expected to be issued in due course.
1234