Corporate tax advisory and implementation support

The Ministry of Finance has announced the implementation of a 9 percent federal corporate tax on business profits in the UAE / Dubai, with a threshold of AED 375,000. This will take effect in the fiscal year beginning 1 June 2023.

The corporate tax rate in the UAE is among the most competitive in the world and the lowest in the GCC, with Bahrain now the only country without a CT regime.

For the time being, it has been stated that the corporate tax regime in the UAE will follow best global practises and will be implemented with simple corporate tax compliance requirements.

The corporate tax in the UAE will be levied on the profits of UAE businesses as reported in their financial statements prepared in accordance with internationally accepted accounting standards. There will be few exceptions and adjustments. This clearly indicates that financial statements must now be audited on time, without exception.

The extraction of natural resources, which is likely to continue to be subject to emirate-level corporate taxation (for example, a different corporate tax in Dubai than in Abu Dhabi or any other emirate), will be the only business activity exempt from taxation, according to the announcement. Exemptions will also be granted to entities operating in Free Zones, subject to certain conditions.

Concerns about the global minimum income tax of 15% are likely to be addressed by this introduction with conditions. There will be no withholding taxes, and the Foreign Tax Credit in the UAE will not require the payment of additional taxes up to the credit limit.

There will be no corporate tax on capital gains or dividends, which will further strengthen the holding company structure. The new tax regime allows for group tax registrations or taxability. As a result, inter-company losses must be considered when calculating taxable profits.

The OECD Transfer Pricing Guidelines will apply to UAE businesses in terms of transfer pricing and documentation.

Indigenesis Consulting can advise you on VAT and other taxes that affect your business, providing you with long-term tax solutions.

What exactly is corporate tax (CT)?

Corporate tax is a type of direct tax levied on the net income or profit of corporations and other businesses.

CT Objectives

The UAE hopes that by executing the CT, it will be able to:

  • Cement its position as a leading global hub for business and investment;
  • Accelerate its development and transformation in order to achieve its strategic objectives;
  • Reaffirm its commitment to meeting international standards for tax transparency and averting harmful tax practises.

CT will apply to:

  • All businesses and individuals operating in the UAE under a corporate licence
  • Businesses in free zones (The UAE CT regime will maintain the CT boosts
  • currently available to free zone businesses that meet all regulatory
  • Requirements and do not conduct business on the UAE's mainland.)
  • Foreign entities and individuals are only permitted if they conduct ongoing or regular trade or business in the UAE.
  • Banking activities
  • Companies involved in real estate management, construction, development, agency, and brokerage.

Exceptions to CT

  • The rules for corporate tax exemptions are outlined below.
  • Natural resource extraction businesses are immune from CT because they will continue to be subject to Emirate-level corporate taxation.
  • Dividends and capital gains earned by a UAE company from qualifying shareholdings will be tax-free.
  • If the necessary conditions are met, qualifying intra-group transactions and reorganisations will not be subject to CT.

Additionally, CT will not apply to:

  • an individual's salary and other employment earnings, whether from the public or private sector
  • interest and other income earned by a person from bank deposits or savings plans
  • dividends, capital gains, interest, royalties, and other investment returns earned by a foreign investor
  • Individuals investing in real estate in their particular capacity
  • dividends, capital gains, and other income earned by individuals from personal ownership of shares or other securities

CT Rate:

According to the Ministry of Finance, CT rates are as follows:

  • 0% for taxable income up to AED 375,000;
  • 9% for taxable income above AED 375,000;
  • a different tax rate (not yet specified) for large multinationals that meet specific criteria set in reference to OECD's 'Pillar two' Base Erosion and Profit Shifting Project.

The CT will be administered, collected, and executed by the Federal Tax Authority (FTA). FTA will soon add more corporate tax references and guides, as well as information on how to register and file returns, to its website.

Implementation of Corporate Tax in the UAE :

This new UAE Corporate Tax (Dubai/UAE CT) and its administrative corporate tax compliance framework will be widely discussed in the UAE's rapidly evolving legal and compliance environment. The wider regional and global economies will closely monitor the rollout and factor the corporate tax rate in the UAE into their calculations. While it is worth noting that the UAE corporate tax rate would remain among the lowest in the world, it is still a quantum leap from the previous tax regime. Its implementation has an impact on all aspects of business operations, including pricing, marketing, and accounting procedures, as well as documentation and IT infrastructure.

Businesses with operations in the UAE (both offshore and onshore) must consider the implications of Company Tax on their transactions, including cross-border transactions and entity structure, and ensure compliance with the new Corporate Tax requirements.

Corporate tax planning that is implemented early on will be critical for all businesses operating in the UAE.

Services for Corporate Tax Compliance and Planning

We offer practical solutions to local and multinational companies for all of their indirect tax and Economic Substance Regulations needs. To accomplish this effectively, we collaborate with other Indigenesis Consulting member firms around the world, leveraging our extensive knowledge of taxation practise, tax planning, and procedures used throughout the world, including the UAE.

Tax consulting services

  • VAT, excise, and Economic Substance Regulations impact assessments
  • Tax law training seminars
  • Issue-specific tax advisory services

Tax compliance services

  • Assistance with return preparation and filing
  • Value Added Tax (VAT)
  • Excise tax
  • Economic Substance Regulation
  • Obtaining tax registrations, de-registrations, and amendments
  • Obtaining tax clearance certificates
  • Obtaining UAE tax residency certificates

WHY CHOOSE OUR TAX SOLUTIONS?

Indigenesis Consulting's tax services and corporate tax support are designed to ensure compliance. Our advantages are as follows:

  • We provide round-the-clock availability of our tax services team
  • We have current knowledge of the latest tax laws and executive regulations and provide tax planning services based on this
  • You can benefit from proactive tax compliance strategies with full implementation

Policy Motivators

As a member of the OECD inclusive framework, the UAE is introducing the federal CT regime as a first step toward enforcing its commitment to the global minimum effective tax rate concept proposed by Pillar II of the OECD Base Erosion and Profit Shifting project ("OECD BEPS").

  • The Federal Tax Authority ("FTA") has been designated as the body in charge of oversight. The UAE intends to accelerate its development and transformation by introducing "a competitive CT regime that adheres to international standards, in conjunction with the UAE's extensive network of double tax treaties, [which] will cement the UAE's position as a leading jurisdiction for business and investment."
  • The implementation of CT is also seen as an important step toward diversifying the UAE Government's budget revenue away from revenues generated primarily by the hydrocarbon industry. The Consultation Document assures that the CT regime will be assembled on international best practices rather than introducing new concepts, assuring the regime's seamless integration and cooperation with existing international frameworks.

According to the Consultation Document, the UAE Government's legislative initiative was guided by a set of pivotal principles. Such principles include:

  • Flexibility and alignment with modern business practices, ensuring adaptability to changing socioeconomic circumstances;
  • Certainty and simplicity of tax rules to support businesses' accurate decision-making and cost-effective operation;
  • Neutrality and equity, ensuring fair taxation treatment to different types of businesses and Transparency.

The Consultation Document emphasizes the UAE's ongoing commitment to BEPS 2.0 implementation, noting that "further announcements on how the Pillar

Two rules will be rooted into the UAE CT regime will be made in due course."

The Consultation Document provides no additional practical guidance. In this regard, international entities that may be subject to Pillar II should keep a close eye on legal developments that are likely to apply to them, to the extent that they are taxable entities subject to the UAE CT regime.

Transfer Pricing

Transfer pricing rules are anticipated to apply to transactions between affiliated and connected persons in accordance with the principles of the OECD Transfer Pricing Rules. As a result, transactions between related or connected parties must be conducted on an arm's length basis.

Large business groups, particularly family-owned conglomerates with cross-border operations, may need to review their group structures and assess their intra-group

Why do you need a specialised tax consultant in the UAE?

  • VAT registration, implementation, and deregistration assistance.
  • Assist with the filing of proper VAT returns before the deadline.
  • Assisting with VAT assessments and responding to FTA questions about VAT calculations.
  • Assisting with the submission of VAT refund Dubai applications and VAT dispute applications.
  • Preparing all VAT-related accounts and documentation, maintaining adequate records, and delivering them to the appropriate authorities as and when requested, particularly during tax audits.
  • Providing VAT advice and consulting services in order to ensure VAT compliance with UAE rules.
  • Assistance during a tax audit.

Advice on how to accurately calculate your tax liability based on the VAT treatment of a given business case or different transactions in your company.

VAT Registration in the United Arab Emirates

Implementation of Tax registration in the UAE also brought about the compliance check.  Businesses must align their operations in order to maintain error-free, up-to-date books of accounts and well

organized tax-related documentation.

Following your VAT registration, you must give information on input VAT and output VAT throughout

the fiscal year. A VAT-registered business must pay the FTA the difference if output VAT exceed input VAT

Furthermore, these VAT-related processes can be complex, and guaranteeing compliance can take time. You’ll need a reputable and knowledgeable tax consulting service that understands all facets of VAT.

Which Businesses in the UAE Need to Register for VAT?

It is necessary to determine whether your firm requires VAT registration before proceeding with VAT

In the following scenarios, a firm may be required to register for VAT:

  • That require mandatory VAT registration
  • That can conduct Voluntary VAT Registration
  • Exempt from VAT Registration

VAT Registration Limit in UAE

Businesses have no option but to register for VAT in the case of mandatory VAT registration. What are the requirements for VAT registration? If the total value of taxable supplies and imports has surpassed AED 375,000 in the previous 12 months, VAT registration is required. If the total value of supplies and imports is likely to exceed AED 375,000 in the next 12 months, VAT registration is required.

Businesses with taxable expenses/value of supplies above AED 187,500 are not required to register for VAT. You do not need to register for VAT if your yearly taxable supply turnover is less than AED 187,500.

Assume your company does not have a physical presence in the UAE. Taxation will become mandatory in that case, regardless of the outcome.

There is no obligation to register with optional registration.

Even if a company’s worth of supplies or turnover is less than the above-mentioned restrictions, There’s a good chance it incurred significant costs during its formation or early stages. As a result, tax expenses are used to decide whether a business is qualified for voluntary registration. The value of exempt supplies must be excluded when determining the value of taxable supplies and imports.

What is a VAT Return?

The document prepared and filed by the taxable person at regular intervals containing information on input tax recoverable, output tax due, and any other information that the taxable person is required to provide is termed as VAT return filing or Tax Return.

What is VAT Return Filing in UAE?

In the United Arab Emirates, VAT returns must be filed on a regular basis. All of your tax payments must be documented, as well as the entire worth of the goods and transactions made. It is necessary that you comply with UAE VAT laws and submit accurate information while filing a return. Any mistake can result in penalties, which will affect your reputation in the long run.

What exactly is TRN?

In the United Arab Emirates, TRN stands for Tax Registration Number. It’s a 15-digit VAT identification number that’s unique to you. FTA issues it to businesses and individuals in order to ensure tax compliance. TRN checks are required when preparing tax invoices and other tax- related papers that are communicated between suppliers and buyers for smooth transactions.

Why is TRN check important in UAE?

On January 1, 2018, the UAE government implemented VAT. The business community found it difficult to acclimatize to the new tax regime due to the new law and accompanying rules. Some businesses may have attempted to take advantage of a few rules to avoid paying taxes or reduce their tax liabilities. The TRN check, on the other hand, allows the government to confirm that enterprises are in compliance.

FTA uses the TRN check to keep track of taxpayers and their business transactions in order to determine VAT liability. On tax invoices, each business has its own TRN. The TRN checks conducted by FTA ensure that the correct VAT rate is applied at each stage of the manufacturing and distribution process, and that the final taxable amount is transferred to the government. A corporation can apply to FTA for tax refunds and recovery if it has a valid TRN Verification.

VAT Accounting in UAE

VAT records for both the VAT imposed on sales and the VAT paid on purchases must be kept properly. According to UAE VAT laws and regulations, VAT accounting necessitates the keeping of a number of documents pertaining to supplies produced and received, as well as the VAT amount charged.

What exactly is a VAT audit?

A VAT audit is an investigation of a taxpayer’s financial data and records in the UAE. The Federal Tax Authority (FTA) determines the accuracy of the taxpayer’s VAT liability through VAT audit. Following that, it checks to see if the taxpayer is following the necessary UAE VAT legislation.

Why is it essential to conduct a VAT audit?

A return of VAT Understanding your non-compliance with UAE VAT legislation is extremely important in Dubai. You’ll get a better understanding of your internal tax procedures in relation to the UAE VAT law. You identify areas of non-compliance and work to correct them within the confines of UAE law. As a result, before the FTA conducts a VAT audit to assess your compliance, you must be well prepared.

Tax auditing by the FTA

FTA delivers a notification to taxpayers at least five days before the VAT audit. All VAT return paperwork, as well as other supporting data, must be kept by taxpayers. In addition, staff in charge of accounting and taxes records must be present to help with the audit.

  • Supply invoices and receipts
  • Tax invoices from suppliers and related paperwork are among the records kept.
  • Tax credit notes
  • Import and export proof documents
  • Customs declarations
  • Non-deducted input tax data

All of these documents are required by tax auditors for assessment. They keep track of all payment inconsistencies, receipts, and documentation for all VAT-related transactions. As a result, any suspect information or missing data is listed and double-checked.

What is a Vat refund in Dubai?

The FTA reimburses taxpayers for excess taxes. When taxpayers pay more taxes than they owe, the FTA will almost always refund the difference in the form of a VAT refund in Dubai. Businesses in the UAE are required to file a VAT refund Dubai. If the input tax is higher than the output tax, the business can claim the difference in the Vat refund filing. If the output tax is higher than the input tax, the company must pay the difference to the FTA.

Moreover, an output tax is a tax imposed on a business’s sales, whereas an input tax is a tax collected on a business’s expenditures, expenses, and imports. If taxpayers do not plan to file for a VAT refund in the UAE, the difference between input and output tax is carried forward to the following year. In subsequent tax periods, the amount will very definitely be adjusted, including penalties.