New UAE corporate tax: Info questions answered

The UAE's Ministry of Finance on Monday announced a federal corporate tax on business profits from June 1, 2023.

Below are the top queries raised by business establishments in the country:

Apart from the licenced activity our company earns some income from non-regular sources. Will this other income attract corporate tax (CT)?

All activities undertaken by the legal corporate will be deemed as 'business activities'; hence any such income will attract CT. However, dividends and capital gains earned by a UAE business from its qualifying shareholdings will be exempt from UAE CT. We need to wait for more clarification about Qualifying shareholdings.

Has FTA announced any slab rates based on earnings? Are profits likely to be taxed on slab rates in the future?

Currently, except for large multinational companies, all other corporates will attract a unified slab rate of taxes -- 0% to be applicable on taxable income up to Dh375,000 and 9% on the taxable income above Dh375,000 in a financial year. However, certain sectors like extraction of natural resources -- oil and gas etc., will continue to be subject to Emirates level corporate taxation. To define different slab rates in the future is the UAE government prerogative.

The government has announced CT Financial Year to start from June 1, 2023, our corporate FY is as per the calendar year; should we change our FY to align it to the tax regime?

There is no prescribed requirement to change the financial year to the tax financial year of June - May; however, many entities are likely to change their financial year to be better aligned to the fiscal tax year.

We are a free zone registered entity; a small portion of our business is with UAE mainland companies. Will we still be exempt from CT?

Free zone businesses will be subject to UAE CT, but the UAE CT regime will continue to honour the CT incentives currently being offered to free zone businesses that comply with all regulatory requirements and that do not conduct business with mainland UAE. We need clarification from FTA as to whether even a small portion of the business with UAE mainland entity will disqualify the entity from the exemption or a pro rata will be considered.

We are a group; transactions between the entities within the group happen very frequently on mutually agreed terms. Do we need to take any precautions against such RP transactions?

Qualifying transactions between the entities within the group shall be exempt provided they meet the prescribed criteria. Entities would have consider arms length transaction and transfer pricing as these are likely to among the prescribed criteria.

Will FTA allow all kinds of company expenses as deductible or is there any criteria for such deductions?

The taxable income will be the accounting net profit/income of a business after making adjustments for certain items to be later specified under the UAE CT law. It is likely that certain expense like depreciation, amortisation, allowances, etc. would have a defined threshold.

Will the corporate be allowed to carry forward losses? If yes, for how many years?

The UAE CT regime will allow a business to use losses incurred (as from the UAE CT effective date) to offset taxable income in subsequent financial periods. Excess tax losses may be carried forward and used against taxable income in future years, provided certain conditions are met. More clarifications and guidelines on carry forward criteria is awaited.

Can a group of companies register as a single tax entity?

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.

What is the deadline within which the corporate entity is expected to file the returns and pay taxes?

The CT return filing shall be on an annual basis. Filing deadlines and other conditions are yet to be defined by the UAE authorities.

What are penalties for deviation or compliance for CT?

Penalties and other compliance procedures are awaited to be clarified by the authority.

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