Corporate tax in UAE: 5 key questions answered

The key focus right now is restructuring the operations

The UAE introduced corporate tax on June 1, in line with the government's stated policy of diversifying sources of revenue. Nimish Goel, Partner at WTS Dhruva Consultants, answers key questions related to the intitiative:

What are the main issues regarding the implementation of corporate tax in the UAE?

When any new tax is implemented, there are bound to be challenges. The tax regulations were issued fairly in advance which helped in a big way. With CT being a reality now, the main factor is to be aware of the impact of CT on the business. CT awareness seminars by the Ministry of Finance / FTA are key to increasing stakeholder awareness.

There are various provisions in CT Law that may have different interpretations. CT Law provides a mechanism for seeking private clarification to ensure tax certainty. Many corporates are waiting for the clarification window to open before starting the implementation phase. Identification and implementation of changes to the accounting systems is one of the key considerations in the implementation phase.

How far are companies prepared to meet the tax requirements?

The UAE CT law was introduced in a very organised manner which helped corporates in evaluating the potential impact. Generally, groups which were proactive in starting the impact assessment earlier in the year are well-placed in meeting the UAE CT requirements. The groups which have not yet initiated the impact assessment or have just initiated it, should consider taking this up on priority given the fact that the UAE CT law is set to apply to most companies from January 1, 2024. Earlier the impact assessment is completed, more time for the implementation phase. Companies have started hiring corporate tax specialists to assist in meeting the demands to be ready with the CT implementation.

Nimish Goel Partner at WTS Dhruva Consultants

What are the main challenges facing UAE companies on corporate tax?

While the challenges are many, the key focus right now is restructuring the operations, maintaining proper records and financials, IT system / ERP changes, etc.

Another focus area would be the related party transactions which need to follow the arm’s length principle. However, given the lack of public corporate information, benchmarking the related party transactions could pose some challenges. We expect further clarity to be issued in upcoming weeks given the proactive manner and involvement of the FTA to seamlessly introduce Corporate Taxes.

How will this move benefit the UAE economy?

CT will help the UAE economy to be more integrated with the Global economy. It will help improve the image of the UAE economy as it will no longer be seen as no-tax jurisdiction. At the same time, the CT rate as low as 0 per cent for free zones and 9 per cent for the mainland, will help attract more overseas investments.

CT also provides a new revenue stream to the Government which can be utilised for funding infrastructure projects giving further impetus to the economy.

Will this affect the competitiveness of the UAE economy?

With a general CT rate of 9 per cent (for large MNEs the tax rate could be 15 per cent) and a VAT rate of 5 per cent, UAE will continue to be amongst the countries with the lowest rate of taxation. Add to it the key benefits like 0 per cent CT on qualifying income of free zones, participation exemption, a vast network of Double Tax Treaties, and more. All these aspects would only add to the overall positive sentiment of the UAE economy.

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