Recent updates from the UAE Federal Tax Authority (FTA) underscore the urgency for businesses to stay informed about Corporate Tax (CT) regulations. For instance, companies with licenses issued in June 2024 must complete their CT registration by August 31, 2024, to avoid penalties. The introduction of the UAE Corporate Tax CT regime not only brings new compliance requirements but also opens up opportunities for optimizing tax positions. Companies can benefit from incentives for Qualifying Business Activities and must understand detailed rules on expense management and financial reporting. Adopting a proactive approach to these changes is essential for maximizing benefits and ensuring compliance in this complex tax environment to optimize your UAE Corporate Tax position.
Here’s a quick rundown of key points that help you ensure compliance and enhance your tax positioning:
- Strategic Tax Optimization and Adjustments
The UAE’s CT framework offers potential incentives for Qualifying Business Activities, providing opportunities to reduce tax liabilities. While specific details are still emerging, businesses should stay updated on these developments. Additionally, understanding the deductibility of local taxes, such as municipal and property taxes, is essential. However, taxes under certain Emirate laws, like those on foreign bank branches, are not deductible.
Key considerations:
- Qualifying Business Activities: Research potential incentives and explore how your business can align with qualifying criteria.
- Local Tax Deductibility: Understand the deductibility of various local taxes and plan accordingly.
- Expense Management and Allocation
Proper management and allocation of expenses are critical under the new CT regime. Employee costs, including benefits like medical insurance and travel allowances, are generally deductible subject to the arm’s length standard. However, excessive contributions to private pension funds are not deductible.
For expenses serving both business operations and exempt income, businesses must allocate them on a fair and reasonable basis using a consistent method. Non-deductible expenses capitalized cannot be depreciated for CT purposes, requiring careful consideration when determining capitalizable costs.
Key considerations:
- Arm’s Length Standard: Ensure that expense allocations comply with the arm’s length principle.
- Expense Allocation Methods: Adopt a consistent and justifiable method for allocating expenses.
- Capitalization and Depreciation: Carefully evaluate the capitalization of expenses and their potential impact on tax deductions.
- Financial Reporting and Compliance
As businesses approach the financial year-end, accurate and compliant tax-related reporting is essential. Companies with a revenue threshold of AED 50 million must prepare audited financial statements in accordance with the arm’s length standard.
Decisions regarding the election to apply the realization basis for unrealized gains or losses should be made early, as this choice is irreversible. Pre-incorporation and pre-trading expenses, deductible even before revenue generation, need careful recording.
Key considerations:
- Audited Financial Statements: Ensure compliance with audit requirements for businesses exceeding the revenue threshold.
- Realization Basis Election: Make informed decisions about the realization basis to optimize tax positions.
- Pre-Incorporation and Pre-Trading Expenses: Accurately record and document these expenses for potential deductions.
- Preparing for Tax Adjustments
The UAE’s CT regime requires a structured approach to calculating taxable income and CT payable. Multiple tax adjustments may be necessary, involving data from various business functions.
Key considerations:
- Tax Policy and Procedures: Implement documented policies and procedures to streamline tax calculations and ensure compliance.
- Year-End Reporting: Prepare for year-end reporting to accurately calculate CT and related deferred taxes.
Optimize Your UAE Corporate Tax Position with MS
It’s vital for all businesses to begin their UAE Corporate Tax impact assessment to understand where they stand according to the regulations of the CT. Partner with MS to properly assess your Corporate Tax and our expertise will help you understand the UAE taxation, keeping your business compliant and protected. Act now—secure your business’s future with MS today.