On January 31, 2022, the Ministry of Finance (MoF) in the United Arab Emirates (UAE) announced that a new federal Corporate Tax (CT) will be implemented in the region, effective for financial years commencing on or after June 1, 2023.
Applicable tax rates for different types of businesses
Corporate tax is imposed on taxable income at the following rates:
1. 0% (zero percent) on the portion of the taxable income not exceeding AED 375,000.
2. 9% (nine percent) on the portion of the taxable income exceeding AED 375,000.
3. A qualifying free zone person is eligible for a 0% corporate tax rate on their qualifying income.
What are the exemptions and deductions available to taxpayers in the UAE?
The Corporate Tax regime provides several exemptions, including but not limited to:
1. Domestic dividends
2. Dividends and other profit distributions received from foreign juridical persons if the recipient has a participating interest in the foreign company
3. Participation exemption for other income and gains
4. Foreign Permanent Establishment Exemption
5. Income from operating aircraft or ships in international transportation
Corporate tax also provides deductions as below:
1. Accounting income is calculated by deducting a business’s expenditure from the revenue generated in the same period. When calculating taxable income, any non-deductible expense must be added back to the accounting income.
2. For an expenditure to be fully deductible, it needs to be incurred “wholly and exclusively” for business purposes, which means that the full amount has been incurred solely for these purposes. When calculating taxable income, any non-business expense must be added back to the accounting income.
3. Capital expenditure is an expense that creates an enduring benefit to a business and is not deductible for Corporate Tax purposes.
4. Special rules are applicable for the deductibility of certain expenses, e.g., interest and entertainment expenditures.
5. Additionally, corporate tax law provides for certain reliefs, such as small business relief for businesses with revenue lower than AED 3,000,000.
Corporate tax registration and tax registration number (TRN)
Process for registering for corporate tax in the UAE:
1. Corporate tax registration is carried out through the Emaratax Portal.
2. The following documents are required:
3. Copy of Trade License (must not be expired)
4. Passport copy of the owners, partners, or shareholders who own the license (must not be expired)
5. Emirates ID of the owners, partners, or shareholders who own the license (must not be expired)
Obtaining a Tax Identification Number (TIN)
1. The Federal Tax Authority (FTA) reviews the application and issues the TRN number if approved.
2. Filing Corporate Tax Returns
3. Deadlines for filing Corporate Tax returns
4. Taxable persons should pay Corporate Tax and file their Corporate Tax return within 9 months from the end of the relevant tax period.
5. A taxable person’s (other than a natural person) tax period is their financial year, or part thereof, for which a tax return is required to be filed.
6. Electronic filing of corporate tax returns
7. Tax returns are filled out in the Emaratax Portal.
8. Penalties for late or non-filing of tax returns
9. Failure of the registrant to submit a tax return within the timeframe specified in the Corporate Tax Law will result in a penalty of:
10. AED 500 for each month of delay, or part thereof, for the first twelve months.
11. AED 1,000 for each month of delay, or part thereof, from the thirteenth month onwards.
What is the penalty for the failure of the taxable person to settle the payable tax?
A monthly penalty of 14% per annum, for each month or part thereof, on the unsettled payable tax amount from the day following the due date of payment and on the same date monthly thereafter.
For the purposes of this penalty, the due date of payment in the case of the voluntary disclosure and tax assessment shall be as follows:
1. 20 business days from the date of submission, in the case of a voluntary disclosure.
2. 20 business days from the date of receipt, in the case of a tax assessment.
Conculsion
With the regularly changing tax laws in the UAE, it is essential to be updated with the guidelines and fulfil the requirements. Gatestone Group makes a significant difference by educating the clients on a regular basis about the tax laws and their impact. They also ensure compliance is achieved so the business can be confident in them and focus on their core business.
Explore new horizons of financial efficiency with Gatestone Group’s expert insights on tax strategies. Uncover opportunities, navigate complexities, and elevate your business in the UAE’s dynamic economic landscape. Contact the team of tax experts at Gatestone Group for a free consultation via email at info@gatestonegroup.com or call +971 4 451 1023.
