Overview of the corporate tax public consultation document

The consultation document is containing 10 sections starting from the introduction and ending with the administration



If the individual is doing any business in the UAE, which requires a commercial licence, the income of that individual from the business will be subject to corporate tax. — File photo
If the individual is doing any business in the UAE, which requires a commercial licence, the income of that individual from the business will be subject to corporate tax. — File photo

By Mahar Afzal/Compliance Corner

Published: Sun 22 May 2022, 4:59 PM

On January 31, 2022, the Ministry of Finance (MoF) announced that the UAE will introduce the corporate tax on the taxable profits of the businesses effective from the financial year starting on or after June 01, 2023. In continuation of the finalisation of the UAE corporate tax (CT) regime, on April 28, 2022, the MoF issued the public consultation document to seek the opinion of the stakeholders on the main features and smooth implementation of the corporate tax which would be helpful for the MoF to receive input from the interested parties and make informed decisions.

The consultation document is containing 10 sections starting from the introduction and ending with the administration. In the first and second sections of the consultation document, MoF has highlighted the purpose of issuing the consultation document and the rationale behind the issuance of CT regime in the UAE respectively.

In the third section scope of the corporate tax has been defined in detail which covers the application of the corporate tax on the natural persons, and legal persons. The businesses exempt from CT, and the taxability of the businesses located in the free zones have been discussed in detail. If the individual is doing any business in the UAE, which requires a commercial licence, the income of that individual from the business will be subject to corporate tax. A legal person incorporated in the UAE will be subject to corporate tax and if the businesses are incorporated out of the UAE, still their income will be subject to corporate tax if these businesses:

• are being controlled and managed in the UAE.

• have Permanent establishment in the UAE (UAE source income will be subject to CT)

• earn any UAE source income (UAE source income will be subject to CT)

The tax on unincorporated partnerships, joint ventures and associations of persons depends upon their presence and liability of their partners.

The fourth section covers the definition of residents and non-residents. The legal persons incorporated in the UAE will automatically be considered residents. The foreign companies will be UAE residents if effectively managed and controlled in the UAE. The natural person who is engaged in business or commercial activity in the UAE will be a UAE resident. Anyone who is not a resident will be considered a non-resident. The residents are taxable in the UAE on their worldwide income and non-residents will be subject to tax in UAE on taxable income of their PE in the UAE and UAE sourced income.

The fifth section contains the approach to calculate the taxable income which states that financial statements profits calculated as per IFRS will be adjusted to arrive at the taxable income.

In the sixth section, it has been given that the UAE resident group of companies can form a tax group and be treated as a single taxable person. Moreover, it covers the conditions to enter into the tax group. The rules related to the transfer of losses, group relief and restructuring relief has been given in detail.

The seventh section highlights that there would be transfer pricing rules and transactions between the related parties would be on an arms-length basis. Arm length principles and documents requirement has been given in this section as well.

In the eighth section, it has been given that the zero per cent tax would be applicable on the taxable income up to Dh375,000, and any taxable income beyond Dh375,000 would be subject to tax at the rate of nine per cent. The zero per cent withholding tax would apply to the following domestic and cross border payments made by the UAE businesses:

• UAE sourced income earned by a foreign company that is not attributable to a PE in the UAE of that foreign company.

• Mainland UAE sourced income earned by a Free Zone Person that benefits from the zero per cent CT regime

• Dividends and other profit distributions made by a Free Zone Person that benefits from the zero per cent

The UAE and over 130 other countries reached an agreement on BEPS 2.0. The ninth section will cover the proposed approach by the UAE to respond to BEPS 2.0, and set the basis for the reallocation of profits from where sales arises and the requirement for the global minimum tax of fifteen per cent

A business subject to CT will need to register with the FTA and obtain a tax registration number. Every registered business will be required to file an annual tax return and make payment within nine months from the end of the relevant financial year, and it has been given in the last section of the public consultation document.

Mahar Afzal is a managing partner at Kress Cooper Management Consultants. The above is not an official but a personal opinion of the writer. For any queries/clarifications, please write to him at compliance@kresscooper.com


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