UAE has introduced Corporate Tax Law, namely Taxation of Corporations and Businesses, vide Federal Decree-Law No. 47 of 2022. AGX Team is exploring the law .
Some of the key points of considerations furnished below:
The Corporate Tax (“ CT ”) law has confirmed that it will be applicable for all financial years starting on or after 1 June 2023. For most businesses this means that the first tax year will be 1 January 2024.
As per the present notifications levy of CT will be on the following basis
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- 0% if the taxable income does not exceed the threshold (this is yet to be prescribed but the updated FAQs still mentions the threshold to be AED 375,000)
- 9% if the taxable income exceeds the thresholds
Taxable Persons
Corporate tax shall be imposed on taxable persons – which includes resident persons, certain non-resident persons and free zone persons. The definition of resident persons is quite wide and includes juridical persons incorporated, established, or otherwise recognized in UAE. Interestingly, a branch of a non-resident person that is registered in a free zone, will also be considered a resident. A resident natural person who carries out specified conducts business or business activity (yet to be prescribed) in UAE will be covered by the CT law.
Non-resident persons are taxable if they have a permanent establishment (‘PE’) in UAE, derives income from sources in UAE and has a nexus in UAE. Unincorporated partnership firms would not be considered as taxable person unless it elects to do so.
Exempted Persons
Certain PE exemptions have been provided for an investment manager. Further, a UAE resident can elect to exclude its foreign PE where such foreign PE being present where CT Rate is at least 9%.
Exempted persons are broadly similar to the ones mentioned in the public consultation document. Accordingly, inter-alia, businesses engaged in certain extractive business are exempted and even certain non-extractive natural resources businesses have been exempted, subject to certain conditions.
Income Exempted
Certain income streams such as dividends and capitals gains have been confirmed to be exempted. Foreign dividends and capital gains arising from sale of shares of a foreign investee entity will be exempt subject to participation exemption and a shareholding period has also been mentioned. Income derived by a non-resident person from operating aircraft or ships in international transportation that meets the conditions.
The CT law mentions that a Qualifying Free Zone person will be taxed at 0% on its qualifying income subject to other conditions. 9% CT rate will be applicable on the non-qualifying income. The definition of qualifying income has not been provided in the CT law and businesses will have to wait for the decision of the Cabinet on this front.
Carry Forward
The provisions for tax losses in terms of period of carry forward, cap of set offs and limitation in case of change in shareholding are broadly in line with the public consultation document.
The CT law provides a cap on maximum interest expenditure deductible to 30% of the EBITDA of the taxable person. It appears like this applies even to third party loans. Interest amounts not allowed as deduction can be carried forward for a period of 10 tax periods.
Timeline
Timelines for tax compliances such as filing CT return and payment of CT liability are in line (9 months) with the timelines indicated in the public consultation document. There is no timeline prescribed for obtained tax registration and further guidance is awaited on this aspect.
The Corporate Tax Decree Law presents new challenges that require significant planning. The transition to the new tax regime could be bothersome for many businesses requiring a lot of structural changes.
AGX team is ready to provide a range of services related to Corporate Tax, including
- Impact Assessment & Advisory
- Implementation Assistance
- Assistance in setting Transfer Price Policy
- Compliance Assistance
Our team with dedicated professionals will help to align your practices with the Corporate Tax requirements and hold you in compliance. To understand its implications on your business, feel free to reach out to us to schedule a discussion.