The United Arab Emirates (UAE) recently implemented a federal corporate tax regime, effective as of fiscal years beginning after June 1, 2023. In this blog post we provide information on some of the key taxes and administrative requirements included within their Corporate Tax Law (CT Law). 

Key Tax Compliances Under UAE Corporate Tax Law 

The UAE CT Law details numerous tax compliance obligations for tax-paying entities, such as: 

• Corporate Tax Registration: Every company responsible for corporate taxes must register with the Federal Tax Authority (FTA) within 30 days of becoming responsible in corporate taxes. 

• Filing Tax Returns: Corporations paying corporate income taxes must file their electronic tax returns for corporate taxes through FTA in accordance with its deadlines and rules. 

• Tax Payment: Tax-paying entities must meet their corporate tax liabilities on time to avoid penalties or incurring late fees. 

• Record-Keeping: Nonprofit entities must retain complete and correct documents for at least five years so they may file tax returns to the corporate level. 

Tax Administration in accordance with UAE Corporate Tax Law 

The Federal Tax Authority (FTA) is responsible for overseeing and administering UAE CT Law, including: 

• Tax Regulations and Rulings: The FTA is empowered to issue rulings and regulations to provide further clarification about the use and interpretation of CT Law. 

• Tax Audits: FTA provides Tax Audit services to verify the accuracy of tax returns filed by corporations as well as compliance with CT Law. 

• Tax Assessments: The FTA may issue tax assessments against an entity if it finds that it has understated its tax obligations for corporate entities. 

• Tax Disputes: Taxable entities may use the dispute resolution process established by the FTA to appeal their tax assessments or penalties imposed by it. 

Financial Statements and Applications 

Financial statements play an integral part of CT Law. Taxpayer accounting earnings (profit or loss), reported in financial statements, serve as the foundation to establish their deductible income and tax deductions. Taxable people earning less than AED 3,000,000 during any year can use cash accounting. But those exceeding this threshold must use accrual accounting. 

Taxpayers who wish to take advantage of specific provisions in the CT Law must apply or vote and it can be taken unilaterally without needing FTA approval. Examples of such elections include small business relief, exempting foreign permanent establishment earnings and being taxed as a corporation at the general rate if qualifying as Qualifying Free Zone People. Applications to reverse are still subject to approval by the FTA; specifically, exempting certain individuals and entities from corporate taxes as well as treating several businesses under one tax liable individual and forming tax groups are all regulations which require an application. 

Tax Returns and Payments  

Paying taxpayers must file their corporate tax returns within nine months following the end of any applicable tax period and make payments accordingly. 

Key Features of UAE Corporate Tax Law 

The UAE CT Law introduces a federal corporation income tax system which includes several characteristics. These are as follows: 

Tax Rate: Corporate taxes will be levied based on taxable earnings of companies in the following amounts. 

• No tax deduction will be available on income not exceeding AED 375,000. 

• 9% of the tax-deductible income exceeding AED 375,000. 

Exempt Persons: The following individuals are exempt from tax on corporations: 

• UAE government entity. 

• An individual engaged in extractive business. 

• Person engaged in non-extractive natural resource business. 

• Qualifying public benefit organization. 

• Selecting investment funds. 

• Social Security, more commonly referred to as public pension, funds. 

• Juristic person established in the UAE which is controlled and managed by certain exempt individuals. 

Resident Person: An individual living in their residence meets one or all these criteria: 

• Legal entities registered within the UAE as well as free Zone persons. 

• Legal entity registered outside the UAE but under strict surveillance by its government. 

Tax Group: A Tax Group is considered a single tax-paying individual, so each subsidiary’s parent company must consolidate both fiscal results and assets and liabilities into one tax group to facilitate an accurate accounting for tax purposes. All transactions between these subsidiaries should also be removed as they arise between themselves and any tax group member that is part of it. 

Conclusion 

The Corporate Tax Dubai introduces a comprehensive tax system which seeks to streamline our current system while aligning it with global best practices. Taxable entities must abide by existing tax compliance and administration rules, including registration, filing tax returns, paying the appropriate tax liabilities and keeping records. The Federal Tax Agency is responsible for administering tax compliance and administration requirements under CT Law, including issuing laws and rulings, conducting audits, and resolving tax disagreements. Understanding CT Law’s main features, including tax rates and exempt persons, is vital for companies to navigate the tax system efficiently. Knowing about resident exempt persons as well as tax groups helps companies navigate tax systems more successfully. Engaging the best corporate tax consultants can be very beneficial as they will help you understand all rules and regulations and you could avoid any fines and penalties. ebs Chartered Accountants are consultants in Dubai and they have a proven track record of reliable corporate tax services.  

FAQs  

What are the key compliance requirements under UAE Corporate Tax Law? 

Companies need to file annual tax returns and maintain accurate financial records as per UAE tax regulations. 

How does the UAE government administer corporate tax compliance? 

The UAE’s Federal Tax Authority (FTA) oversees tax compliance, conducts audits and imposes penalties for non-compliance. 

Are there any incentives for complying with UAE Corporate Tax Law? 

Yes, companies can benefit from tax incentives such as reduced tax rates or exemptions for certain activities or sectors, promoting compliance and investment.