Corporate Tax is a form of direct tax levied on the net income of businesses. Corporate Tax is sometimes also referred to as “Corporate Income Tax” or “Business Profits Tax”.
Registration for Corporate Tax in UAE has been started. Hiring the best corporate tax consultants in the UAE for tax advisory services has become the need of the hour as businesses need to be registered for Corporate Tax.
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Broadly Corporate Tax applies to the following “Taxable Persons”
● UAE companies and other juridical persons
● Natural persons (individuals) who conduct a Business
● Non-resident juridical persons (foreign legal entities) that have a permanent establishment in the UAE.
UAE FREE ZONE is also within the scope of Corporate Tax as ” Taxable Persons”.
Qualifying Free Zone person can benefit from a Corporate Tax rate of 0% on their qualifying income. Other Income 9%.
Qualifying income as specified in a decision issued by the Cabinet at the suggestion of the Minister.
Qualifying Public Benifit Entities
• A juridical person that is incorporated or otherwise including a Free Zone Person
• A juridical person that is incorporated under a foreign jurisdiction that is managed and controlled in UAE.
• A natural person who conducts a Business or Business Activity in the State.
• Any other Person as may be determined by the Minister.
• Have a Permanent Establishment In UAE
• Derive State Sourced Income.
1. Corporate Tax is imposed annually.
2. Calculation and payment of Corporate Tax is done through the filing of a Corporate Tax Return with the Federal Tax Authority.
3. Taxable Income is the Taxable Person’s accounting income (i.e. net profit or loss before tax) as per their financial statements on an accrual basis.
4. The Taxable Income shall be the Accounting Income for that period adjusted for the following:
• Any unrealized gain or loss
• Exempt Income
• Reliefs
• Deductions
• Transactions with Related Parties.
• Tax Loss
• Any income or expenditure determined by Ministery
• Dividends and capital gains earned from domestic and foreign shareholding
• Income of a Foreign Permanent Establishment.
• Income derived by a Non-Resident Person from operating aircraft or ships in international transportation
| Types Of Expenditure | Limitation To Deductibility |
|---|---|
|
Bribes |
No Deduction |
|
Fines and Penalities (other than
amounts awarded as compensation for damages or breach of contract) |
No Deduction |
|
Donations, grants or gifts made to an
entity that is not a Qualifying Public Benefit Entity |
No Deduction |
|
Dividents and other profits distribtion |
No Deduction |
|
Corporate Tax imposed under the
Corporate Tax Law |
No Deduction |
|
Expenditure not incurred wholly and
exclusively for the purpose of the
Taxable Person’s business |
No Deduction |
|
Expenditure incurred in deriving
income that is exempt from Corporate
Tax |
No Deduction |
|
Client entertainment expenditure |
Partial Deduction of 50% of the amount
of the expenditure |
|
Interest Expenditure |
Deduction of net interest expenditure
exceeding a certain de minimis threshold up to 30% of the amount of earnings before the deduction of interest, tax, depreciation and amotisation ( except for certain activities ) |
Interest expenditure limitation does not apply to
• A Bank
• An Insurance Provider
• Natural Person
• Any other person as may be determined by the Minister.
Any expenditure incurred for the purposes of receiving and entertaining the Taxable Person’s customers, shareholders, suppliers,or other business partners, including, but not limited to, expenditure in connection with any of the following:
• Meals.
• Accommodation.
• Transportation.
• Admission fees.
• Facilities and equipment used in connection with such entertainment, amusement, or recreation.
• Such other expenditure as specified by the Minister will be allowed 50% only.
Dividends, profit distributions, or benefits of a similar nature paid to an owner
Amounts withdrawn from the Business by a natural person who is a Taxable Person or a partner in an Unincorporated Partnership
| Resident Taxable Persons | |
|---|---|
|
Taxable Income not exceeding
AED 375,000 (this amount is to be
confirmed in a cabinet decision) |
0% |
|
Taxable income exceeding
AED 375,000 |
9% |
| Qualifying Free Zone Persons | |
|---|---|
|
Qualifying Income |
0% |
|
Taxable income that does not
meet the Qualifying Income
definition |
9% |
The amount of Tax Loss used to reduce the Taxable Income for any subsequent Tax Period cannot exceed 75% of the Taxable Income for that Tax Period.
A Taxable Person cannot claim Tax Loss relief for:
• Losses incurred before the date of commencement of Corporate Tax.
• Losses incurred before a Person becomes a Taxable Person
• Losses incurred from an asset or activity the income of which is exempt
Tax Losses can only be carried forward provided that:
• The same Person or Persons continuously owned at least a 50% ownership interest in the Taxable Person.
• The Taxable Person continued to conduct the same or a similar Business or Business Activity following a change in ownership of more than 50% with the same assets and liabilities before ownership changes.
To form a Tax Group, both the parent company and its subsidiaries must be resident juridical persons, have the same Financial Year and prepare their financial statements using the same accounting standards.
Additionally, to form a Tax Group, the parent company must:
• Own at least 95% of the share capital of the subsidiary;
• Hold at least 95% of the voting rights in the subsidiary; and
• Is entitled to at least 95% of the subsidiary’s profits and net assets.
Taxable Persons are required to file a Corporate Tax return for each Tax Period within 9 months from the end of the relevant period.
The same deadline would generally apply for the payment of any Corporate Tax due in respect of the Tax Period for which a return is filed.
• The Authority may, by notice or through a decision issued by the Authority, request a Taxable Person to submit the financial statements used to determine the Taxable Income.
• Taxable Persons shall prepare and maintain audited or certified financial statements.
• For the purposes of Clause 1 of this Article, the Authority may request a partner to provide financial statements showing The total assets, liabilities,
income and expenditure and The partner’s distributive share.(profit and loss statement and Balance sheet)
• Notwithstanding the provisions of the Tax Procedures Law, a Taxable Person shall maintain all records, documents and accounting data for a
period of (7) seven years following the end of the Tax Period to which they relate.
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