Corporate tax: A timely and wise move to diversify revenue sources

The nine per cent standard tax rate to be applied to the accounting net profits of taxable entities/persons, though being one of the lowest in the world. The affected entities will have to consider the impact very carefully so to adequately revise all components of their balance sheet on the base of the kind of establishment they have and the area they operate in, the business being conducted to check on possible exceptions, the target markets, the cost structure, etc.

There are still quite a few aspects of the tax law that needs to be clarified, but we can already identify a few points, which are relevant to all stakeholders involved in the process, from the corporate entities, to sole establishments, to all those directly or indirectly connected/dependant on such entities.

First of all, the corporate tax will be applied above Dh375,000 of annual net profit of the taxable person with all the net profit below such threshold remaining non-taxable. Such a set up will protect all those entities like the sole establishment in which the vast majority of the players will sit below or just above the limit. This will prevent the corporate tax to impact beyond measure on the small existing operations and, coupled with the possibility to carry losses forward to the next financial years (up to 75 per cent) will avoid an unsustainable impact on early stage startups which constitutes a vital sector of the economy which the UAE leadership is rightfully adamant to safeguard and incentivise.

Another very important aspect of the upcoming regime is the confirmation of the exemption for the free zone establishments, provided that they are compliant with all the legal requisites, the most important of which is the provision of not conducting business on Mainland.

This is an existing requirement, which often has been disregarded, but that now will be carefully scrutinized. As mentioned, it will be necessary to carefully analyse the business generation and the area in which such flow is generated, prompting to a review of the set up and structure of the entity.

This aspect is also confirming the reliability of the UAE as a jurisdiction, which is a determining factor for investors. By granting a sizable exemption period, the trust of investors is reinforced as they are confirmed in their consideration of the UAE as jurisdiction of choice, a jurisdiction that “holds on to its word”. It also sustains and safeguards the great investments done to develop the freezones.

Roberto d’Ambrosio is chief executive officer at Axiory Global. Views expressed are his own and do not reflect the newspaper’s policy.