Businesses Gear Up for Corporate Tax Compliance

The Federal Tax Authority's awareness campaign yields positive results as corporates are ready for new levy

By Muzaffar Rizvi

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The corporate tax awareness campaigns launched by the Federal Tax Authority (FTA) played a key role in preparing the businesses for effective compliance over the new levy.
The corporate tax awareness campaigns launched by the Federal Tax Authority (FTA) played a key role in preparing the businesses for effective compliance over the new levy.

Published: Wed 31 Jan 2024, 11:23 AM

Last updated: Fri 2 Feb 2024, 10:26 AM

THE UAE businesses are getting ready for 100 per cent compliance on corporate tax that will play significant role in economic diversification, revenue generation and contribution to gross domestic product (GDP) of the country, experts say.

Analysts, tax experts and top executives said the nine per cent levy, which was introduced last year as part of the government move to align its tax regime in line with best international standards, will help attract foreign direct investment (FDI) and give cushion to the authorities to invest tax revenue to boost the national economy.

They said the corporate tax awareness campaigns launched by the Federal Tax Authority (FTA) played a key role in preparing the businesses for effective compliance over the new levy. The FTA consistent efforts, which aims to provide continuous knowledge support to all relevant taxpayers and stakeholders, will yield positive results to ensure accurate and seamless implementation of corporate tax.

The first phase of the FTA campaign included 48 in-person and virtual workshops, which welcomed a total of approximately 13,600 participants, including taxpayers from various business sectors and tax sector stakeholders. As many as 39 virtual workshops were organised as part of the awareness campaign to introduce new tax and clarify the requirements and procedures for corporate tax registration in both Arabic and English.

The FTA Director-General Khalid Ali Al Bustani
The FTA Director-General Khalid Ali Al Bustani

The FTA Director-General Khalid Ali Al Bustani said the authority is committed to reaching out to all stakeholders involved in implementing the tax system through various channels.

“Since the introduction of corporate tax, the authority has intensified its activities to raise awareness about the tax and highlight its vital role, objectives, and compliance requirements. The positive results observed during the first phase of the campaign reflect the commitment among business sectors to implementing corporate tax law, which aims to advance the UAE’s position as a leading global business and investment hub,” Al Bustani said.

WHY CORPORATE TAX

Holger Schlechter, Chief Financial Officer at IFZA, said the UAE has a business-friendly environment, offers access to a large market, modern infrastructure, and a multicultural work force.

Holger Schlechter, Chief Financial Officer at International Free Zone Authority.
Holger Schlechter, Chief Financial Officer at International Free Zone Authority.

“Corporate tax is expected to have some far-reaching implications for the business environment in the region. Companies will now be compelled to maintain accuracy in financial records and file annual tax returns, which will lead to increased accountability,” Schlechter told BTR.

He said the introduction of the nine per cent corporate tax rate has opened the doors for businesses in the UAE to participate in international tax treaties and avoid double taxation. However, the free zone companies can benefit from a zero per cent tax rate on their qualifying income should they meet the requirements of a ‘Qualifying Free Zone Person’.

“Since the introduction of tax aligns with global best practices and international standards, corporate tax will help drive and increase FDI and allow the government to invest tax revenue to boost the national economy,” he said.

SIGN OF CREDIBLE ECONOMY

Mahar Afzal, Managing Partner at Kress Cooper Management Consultants, said corporate tax is a sign of a credible economy.

“Corporate tax would be helpful to meet international standards to bring transparency and prevent harmful tax practices. Eventually, it will enhance the trust of the investors; and play a pivotal role in nurturing and sustaining matured economy,” Afzal told BTR.

Farhat Ali Khan, Managing Partner, CMI & Co, said corporate tax will play a major role in the UAE economy.

“It is a significant move to diversify sources of revenue for the government and is likely to drive enhanced tax transparency and encourage responsible corporate behaviour,” he said.

A MAJOR FISCAL SHIFT

Vijay Valecha, Chief Investment Officer, Century Financial, said the nine per cent corporate tax introduction in the UAE signals a significant fiscal shift, presenting both opportunities and challenges.

On the positive side, he said it diversifies revenue, reducing reliance on diminishing hydrocarbon reserves. This financial boost can fund public services, infrastructure, and economic diversification, attracting foreign investment and nurturing a resilient, knowledge-based economy. A robust tax system also enhances transparency, reinforcing the UAE's global business reputation.

However, he said complexities arise as businesses adjust to this tax shift from a tax-free environment.

Vijay Valecha, Chief Investment Officer, Century Financial.
Vijay Valecha, Chief Investment Officer, Century Financial.

“Adapting to new accounting practices is resource-intensive for both established and startup firms. Free zones, traditionally tax-exempt, may need strategic reassessment. Balancing the attraction of new businesses with sustaining existing appeal is a critical government challenge. Inflationary risks loom, as businesses may transfer tax burdens to consumers, impacting affordability and exacerbating socio-economic disparities,” Valecha told BTR.

“Success depends on adept government navigation of these challenges. Transparent implementation and business support during the transition are pivotal. Simultaneously managing inflationary risks and ensuring equitable tax benefit distribution are vital for a positive economic future,” he said.

MAJOR CHALLENGE AHEAD

Valecha expressed some concerns over the future of corporate tax in the UAE and said it would be a challenging task to create awareness about the new tax.

“One thing's for sure: It's like walking a tightrope. Think of it like a seesaw. The government needs money to help people, but not so much that businesses can't afford to operate. Balancing this is tricky!”

“In the future, they might raise the tax slightly to keep things running smoothly. This could happen if other countries raise their taxes or if the UAE needs money for big projects. Nonetheless, If tax increases occur, they are likely to be implemented gradually to minimise the impact on businesses and the economy,” he said.

Business people group meeting shot from top widen view in office.
Business people group meeting shot from top widen view in office.

He said the government intends to keep companies content and the economy robust, likely implementing targeted increases on specific sectors or high-income earners to mitigate broader economic effects.

“Careful adjustments will maintain balance and support a prosperous economy,” he said.

Ultimately, he said the story of corporate tax in the UAE is one of adaptation, resilience, and strategic maneuvering.

“Time will reveal whether the promised prosperity outweighs potential pitfalls. This bold move marks a turning point in the nation's economic trajectory, closely observed by investors, businesses, and citizens alike,” he added.

AWARENESS DRIVE TO CONTINUE

The FTA continues its awareness efforts and it will be organising the second phase of the comprehensive corporate tax awareness campaign in 2024.

Phase two will focus on various specific topics, raising awareness about legislation, requirements, and procedures for precise compliance with corporate tax obligations, offering educational programmes suitable for all relevant groups, and incorporating the latest technologies in this field to ensure easy access to information and prepare the business community to efficiently implement corporate tax law.

During the workshops, the FTA tax experts review the fundamentals of the corporate tax law, along with its related policies, legislative procedures, timeline, and flexible implementation procedures. They underline the criteria to determine who would be subject to corporate tax and who would be exempt, explaining other concepts, such as taxable income, tax rates, and tax periods.

Moreover, the FTA experts outline the facilities offered for startups and small businesses, corporate tax in free zones, business restructuring relief, and tax losses relief, in addition to highlighting transitional rules and provisions for tax groups, among other topics, before answering questions from participants.

— muzaffarrizvi@khaleejtimes.com


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