Allowable and non-allowable, management remuneration takes focus in Taxation Society tax session

“Be the change you wish to see in the world”. With recent clarifications and reliefs released on Corporate Tax in UAE, a fifth joint session on forthcoming UAE corporate Tax by India Club, Indian Business and Professional Council (IBPC), and Taxation Society was held at India Club on April 26. Over 350 businessmen, professionals and taxpayers attended the event.

Naveen Sharma, director of cultural events and chairman, Taxation Society, talked about the importance of understanding the type of expenses (deductible or non-deductible) under the new corporate tax law as the tax liability depends on it. He said that the UAE has kept one of the lowest tax rates in the world, and the law is simple. However, he emphasised the importance of compliance and upgrading IT systems.

CA Harikishan Rankawat, chairman of The Institute of Chartered Accountants of India (ICAI), Dubai Chapter, said that the decision to provide tax relief to companies with a revenue base below or equal to Dh3 million provides a welcome relief and reflects the visionary and pro-business leadership of the UAE. As per the new Ministerial Decision No 73, the Dh3 million revenue threshold will apply to tax periods starting on or after June 1 and will only continue to apply to subsequent tax periods that end before or on December 31.

Janak Panjuani, director of Puthran Chartered Accountants, emphasised the deductibility of interest on the lease liability and depreciation on right-of-use assets. He said that interest on lease liability does not satisfy the definition of interest as per corporate tax law. Further Article 20(7) states that where there is a conflict between provisions of corporate tax law and applicable accounting standards the provisions of corporate tax law will prevail and accordingly as things stand today subject to any cabinet decision in this regard it is advisable to disregard accounting as per IFRS 16 and in case of lessors depreciation on leased assets should be allowable as deductions while computing taxable income and in case of lessee it will be lease rent paid should be allowable as deduction while computing taxable income.

Dr Sunil Manjarekar, managing director of Sanbook Quality Consultancy and president of GMBF Global, found such a discussion led by the Taxation Society very useful. Corporate tax will apply to all businesses and commercial activities alike except for the extraction of natural resources, which will remain subject to Emirate-level corporate taxation. Businesses will only need to file one corporate tax return each financial year and will not be required to make advance tax payments.

Nimish Makwana, co-founder of Taxation Society and senior partner, Crowe, UAE, said: "The UAE has positioned as the preferred jurisdiction for business and investment. We are witnessing economic growth with a positive economic environment with the influx of foreign direct investments and conglomerates are keen to have a presence in UAE to be part of the growth story. However, the role and responsibilities of business houses and professionals have increased significantly to cope with the regulations and ensure compliance with the same.

Mithilesh Reddy, founder of SBC Tax Consulting, on tax regime preparations, added there is a need for a group restructuring, effective tax rate study, risk identification, and robust compliance framework development. This includes TP benchmarking, documentation, interest deduction limitation, and tax groupings permutations.

Rishi Sapra, associate director of Transfer Pricing MMJS, stated that the consideration of transactions with related parties and connected persons needs to be determined by reference to their 'market value', which may represent an arm’s length as if such transactions were carried out between independent parties (which in essence is the arm’s length principle). The arm’s length principle is the international standard that OECD member countries have agreed should be used for determining transfer prices for tax purposes.

• KT Network