Corporate Tax

The UAE’s Ministry of Finance made a groundbreaking announcement of implementing Corporate Tax in the region, effective financial years from or after 1 June 2023. The UAE has undertaken this action in its attempts to adhere to global standards and to align with OECD’s Global Minimum Tax Proposal under Pillar 2.

On 9 December 2022, the UAE Federal Tax Authority (FTA) released the final version of the UAE Corporate Tax (CT) law (hereinafter referred to as the law) through Federal Decree Law No. 47 of 2022. The law is largely based on the public consultation document issued earlier during the year 2022. However, it also contains certain new provisions which inter-alia include General Anti Abuse Rules, Small Business Relief, detailed definition of UAE sourced income, etc.

Businesses based in UAE would need to be geared up to adapt to these new changes. The companies need to evaluate the applicability of the provisions, align structure to make it tax efficient in UAE, and align policies for related party transactions.

Basis of Tax

Tax residents would be liable for UAE CT on its worldwide income. Non-residents will be subject to UAE CT on taxable income from their PE in UAE and income which is sourced in the UAE.

CT will be charged on the annual taxable income of a business. The rates are provided in the table below:

UAE Corporate Tax Rates

Free Zone Companies (FZCs)

Special tax regime for FZCs

• FZCs are within the scope of UAE CT and would be required to obtain a Tax Identification Number (TIN) and also file income tax returns.
• FZCs would continue to be entitled to tax incentives under the UAE CT regime if they maintain adequate substance and comply with all regulatory requirements.
• FZCs would be liable to pay CT on the entire income in case of transactions with mainland entities. The specific exclusion is provided for passive income and group company transactions.

Tax Administration

• Every person who falls within the scope of the UAE CT regime is required to register with the Federal Tax Authority (FTA) and obtain a TIN.
• Annual tax returns are required to be furnished by each company or person carrying on any business. Tax returns will have to be filed and CT liability will have to be paid up within 9 months from the end of the relevant tax period.
• UAE CT regime will be based on self-assessment principles. However, the FTA may review a CT return and issue an assessment within the timeframe prescribed in tax procedures law. A taxpayer may challenge an amended assessment issued by FTA by processes and procedures prescribed in the law.
• Clarifications may also be obtained from FTA on any CT-related matter.
• FZCs will have to be audited if they want to benefit from the 0% CT regime.

How Nexdigm can help?

Nexdigm has a highly experienced team of professionals who understands the complexity of the new law and also the importance of implementing the same in a correct manner to ensure there are no tax leakages. Nexdigm is well positioned to support mid-size and large corporates with its presence in UAE through three offices and also has a support team in India.

Corporate and International Tax

Advisory

• Corporate Tax Impact assessment
• Advising on structuring of businesses in a tax-efficient manner
• Advising on cross-border transactions and impact of recent changes
• Advising Free Zone Companies on requirements to avail 0% corporate tax regime
• Advising on the global restructuring of corporate structure and business models to minimize the impact of corporate tax, keeping in mind the overall effective tax rate for the group

Compliance and Litigation Services

• Assistance in obtaining Tax Registration Number
• Preparation of Tax Computation for corporate tax purposes
• Assistance in filling relevant forms and filing of tax returns
• Litigation Support and representations