Corporate Tax Highlights
1. WHEN DOES CORPORATE TAX (CT) BECOME APPLICABLE AND WHEN IS THE RETURN TO BE FILED
➢ Most companies in the UAE have Jan to Dec as their financial years. In such cases, the first financial year for which corporate tax will be assessed will be Jan to Dec 2024.
➢ Where however, the financial year is not Jan to Dec, then any financial year starting from 1 June 2023, will be under the ambit of the Corporate Tax
➢ Only one Return needs to be filed and CT to be paid in one go within 9 months of the end of the financial year. So, for Jan to Dec 2024 year first Return will be due only in Sep 2025
➢ Hence, there is a lot of time left
2. WHAT IS THE CORPORATE TAX GOING TO BE LEVIED UPON – SALES OR PROFITS
➢ Corp Tax will be levied on the business profits for the year and not the sales or revenues
➢ CT is different from VAT and both have to be complied with independent of each other
3. HOW ARE THE PROFITS TO BE WORKED OUT FOR THE PURPOSE OF THE TAX
➢ Profits will be from the accounts maintained by the company. The accounts need to be maintained as per IFRS – International Financial Reporting Standards
➢ Proper books of accounts will now be important to maintain
4. IS THERE A THRESHOLD AND WHAT IS THE RATE OF TAX AND DO YOU HAVE TO BE REGISTERED
➢ Like VAT, the threshold limit is kept at AED 375,000. Profits above this only will be taxed at 9%
➢ If you meet above criteria, you will have to register online
5. WHO DOES THE CORPORATE TAX APPLY TO
➢ It applies to all business profits of legal entities or individuals
➢ The key word is ‘business’
6. ARE ANY INCOMES OUTSIDE THE PURVIEW OF THE CORPORATE TAX
The following do not constitute ‘business’ incomes and hence are not liable to tax, if earned in the personal capacity of individuals:
➢ Salaries
➢ Dividends or distribution of profits
➢ Capital Gains
➢ Income from Real Estate held by an individual in his personal capacity
➢ Interest Income
7. WHO WILL BE IN CHARGE OF CT
The Federal Tax Authority (FTA) will be the regulatory body for CT matters. This is the same body that is responsible for VAT as well, although the two taxes are completely different
8. CAN COMPANIES FORM A TAX GROUP
➢ Yes. A Tax Group can be formed if the Parent company owns or controls at least 95% of the other company (subsidiary)
➢ Once formed the Tax Group will be treated as one entity for the purpose of CT filing and calculations
➢ Inter company transactions will have to be eliminated
9. WHAT HAPPENS IF AN ENTITY MAKES BUSINESS LOSSES
➢ Losses are allowed to be carried forward to be offset against future profits for an indefinite period
➢ Losses will be allowed as set off up to a maximum of 75% of one year’s profits only
10.WHAT ARE THE RULES FOR FREE ZONE COMPANIES
Free Zone companies will be taxed at 9% unless they earn ‘Qualifying’ Income in which case the Tax rate will be 0% The details about what constitutes ‘Qualifying Income’ have not been released yet and are awaited in a separate Cabinet Decision
11.WHAT ARE THE RULES FOR EXPENSES THAT CAN BE CLAIMED
➢ All legitimate business expenses can be claimed as deductions
➢ Expenses that have a component of both business and personal use will have to be proportionately claimed
➢ Expenses for entertainment will be allowed at only 50% of the incurred cost
➢ Donations (except those made to qualified Public Entities) will not be allowed
➢ Penalties or bribes are not allowed
➢ Dividends or profit distributions are not allowed
➢ Payment of CT itself is also not a deduction
➢ Interest expenses can be claimed only to the extent of 30% of profits before depreciation and interest and the remaining to be carried forward
➢ For expenses that are paid to a Connected Person or Related Party – for example salary paid to an owner or purchases from a related individual or company, the arm’s length principle will have to be followed. These expenses should not be more than what have been paid to a party who is not related else that portion of the expense will be disallowed
12.RULES FOR BOOKS OF ACCOUNTS
➢ Accounting records will have to be maintained for 7 years
➢ Some categories of businesses will have to get their books audited. These categories are yet to be announced.
