Businesses in the UAE should focus on maximising corporate tax efficiency, according to industry experts, as discussed at the Growth and Investment Forum.
In the wake of the United Arab Emirates (UAE) announcing its new Corporate Tax (CT) regime, businesses operating in the country are urged to make informed decisions when submitting their tax returns. Alia Noor, Associate Partner at Ahmad Alagbari Chartered Accountants, has emphasised the importance of understanding taxable income as the primary determinant of tax rates.
Under the new CT rules, businesses must register for CT within three months of incorporation, with late registration incurring a Dh10,000 penalty. However, penalties for late registration could be waived if the first tax return is filed within seven months of the end of the financial year.
Businesses with taxable income above a certain threshold must file annual CT returns online via the Emara Tax portal, starting with the first financial year ending on or after June 1, 2024. Maintaining accurate and robust financial records is essential for calculating taxable income and fulfilling compliance obligations.
The new CT framework applies to companies managed and controlled from the UAE, those with a permanent establishment in the UAE, or those earning state-sourced income in the country, all of which fall under the scope of taxation. Offshore companies and entities with overseas operations must also comply with the new tax rules, including reporting taxable income within the UAE jurisdiction if applicable.
Certain entities are exempt from UAE CT, including government and government-controlled entities, entities engaged in natural resource extraction taxed at the emirate level, charities, public benefit organizations, pension funds, and qualifying investment funds. Free Zone companies that meet specific conditions may be eligible for 0% CT on qualifying income. To potentially benefit from this, businesses must meet the criteria of a "Qualifying Free Zone Person".
The UAE tax law includes rules limiting the deductibility of interest expenses. Businesses should carefully assess their financing arrangements under these rules to optimise interest deductions. Transfer pricing documentation is also mandatory to ensure arm's length transactions and avoid penalties for tax evasion.
Alia Noor has also highlighted the "Safe Harbour" provision, exempting companies with revenue less than EUR 10 million or experiencing a loss or income of less than EUR 1 million from the "domestic minimum top-up tax" if they make an annual election.
For all businesses, being located in a Free Zone doesn't automatically guarantee a 0% tax rate in UAE. Businesses need to prioritise tax efficiency and understand the CT rules, particularly regarding irrevocable elections for Free Zone status, realisation basis accounting, small business relief, business restructuring relief, and foreign permanent establishment exemptions.
Lastly, businesses are advised to streamline their structures by closing inactive companies to reduce compliance costs and to follow the correct procedures for company liquidation, including CT registration and obtaining a liquidator report.
This new framework aims to balance international tax standards while supporting UAE’s economic diversification goals. Businesses are encouraged to seek professional advice to navigate these changes effectively.
[1] https://www.fta.gov.ae/corporatetax/en/resources/publications/guidance-publications/ [2] https://www.fta.gov.ae/corporatetax/en/resources/publications/guidance-publications/ [3] https://www.fta.gov.ae/corporatetax/en/resources/publications/guidance-publications/
- In the context of the UAE's new Corporate Tax (CT) regime, staying updated on news related to business taxation, such as financial implications, filing deadlines, and exemptions, is crucial for businesses to comply with regulations and minimize penalties.
- As businesses diversify their operations to include entertainment, finance, or other sectors, it is essential to understand the tax ramifications for each industry, particularly with the implementation of the UAE's new CT framework, to ensure business efficiency and financial stability.
