Starting from 1st June 2023, the United Arab Emirates (UAE) will be implementing a corporate tax regime for the first time in its history. Under the UAE Corporate Tax Law, all companies conducting business within the UAE will be subject to corporate taxation. The tax rate will be set at a flat rate of 9%, and companies will be required to submit annual tax returns to the Federal Tax Authority (FTA). The introduction of corporate tax in the UAE is a significant development for the country’s economy, and businesses operating in the UAE need to prepare for the upcoming changes.

WHAT IS CORPORATE TAX

Corporate Tax is a form of direct tax levied on the net income or profit of corporations and other businesses. Generally, such taxes are computed on the accounting net profit/income of a business, after making adjustments for certain items which will be specified under the UAE Corporate Tax law.

• The UAE Corporate Tax regime will become effective for financial years starting on or after 1 June 2023.
• It is clarified that when a business has a calendar year as its financial year. then the Corporate Tax shall be effective from 1 January 2024.

Corporate Tax Rate in UAE will be applicable at the following rates:

*It is not clear what will be considered as ‘Qualifying Income’, but further clarity is expected in a subsequent Cabinet Decision.

For example, if the Company earns a taxable profit of AED 400,000 in an FY, The Corporate Tax liability will be calculated as follows:

• Taxable income of AED 0 – AED 375,000 at 0% = AED 0
• The portion of taxable income exceeding AED 375.000 (i.e., AED 400.000 – AED 375.000 = AED 25,000) at 9% = AED 2,250

What is Taxable Income as per Corporate Tax?

To reduce complexity and compliance costs, the UAE CT regime determines a company’s Taxable Income based on its accounting net profit (or loss) as disclosed in its financial statements. This requires that the financial statements be prepared according to UAE accounting standards. Businesses in the UAE commonly use International Financial Reporting Standards (IFRS) because there are no generally accepted accounting principles (GAAPs) in the UAE.

A Taxable person is someone who is subject to corporate tax. What is the tax base of a taxable person?

Resident Person	Tax base
An entity that is incorporated in the UAE. (Including a Free Zone entity)	Worldwide Income
A foreign entity that is effectively managed and controlled in the UAE	Worldwide Income
A natural Person/individual who conducts a Business or Business Activity in the UAE	Worldwide Income

Non-resident Person	Tax base
Has a permanent establishment (‘PE’) in the UAE	Taxable income attributable to the PE
Derives UAE Sourced Income	The UAE sourced income not attributable to the PE
Has a Nexus in the UAE	Taxable income attributable to the Nexus

Will any kind of business be subject to Corporate Tax in UAE?

The tax will be applicable in all businesses including the free zones except:

• Government Entity
• Government Controlled Entity
• Persons engaged in an Extractive Business
• Persons engaged in Non-Extractive Natural Resource Business
• Qualifying Public Benefit Entity
• Qualifying Investment Funds
• Pension fund and Social Security fund (subject to regulatory oversight of the competent authority)
• Any other Person as may be determined in a decision issued by the Cabinet.

How do you know if you qualify for a Freezone?

In order to qualify for the 0% CT rate, QFZP (Qualifying Free Zone Person) must meet all of the following conditions:

1. It must be a Free Zone Person (i.e., a juridical person incorporated, established, or otherwise registered in a Free Zone, incl. branches).
2. Maintain adequate substance in the UAE.
3. Derive Qualifying Income (to be defined in a Cabinet Decision).
4. Not have made an election to be subject to the standard UAE CT regime.
5. Comply with all transfer pricing rules and documentation requirements; and
6. Meet any other conditions as prescribed by the MoF.

Corporate Tax Training

MS Group has extensive training experience in every new Regulation that has been introduced in the UAE. particularly in the area of VAT. AML. IFRS, etc.

We are passionate about developing people to their true potential. We are available to conduct a tailor-made awareness program to enhance the skill set of in-house teams and senior management.

We can customize our training plan to cover all or either of the following areas:

• Provide overall awareness about Corporate Tax Regulations.
• Awareness about deductible expenses/disallowances to be taken care of while computing taxable Income.

Corporate Tax Compliance

Dynamic economic development, globalization, business pressures, and continuous legislation amendments/developments all force organizations to consider a new approach to the process of tax accounting, preparation of tax reporting documentation, and cooperation with the tax authorities.

We assist organizations to improve management effectiveness, correlating tax decisions made in one country with the business imperatives of the overall organization.

Our Corporate Tax Compliance Team assists organizations in meeting tax compliance requirements, by offering a wide range of services that include:

• General Compliance Service
• Corporate Tax Registration
• Calculation of tax payables
• Preparation of Corporate Tax returns and other tax reporting documents
• Review of the tax return prepared by the organization.
• Assistance with correspondence with the tax authorities, in case of any queries raised by the authorities.
• Coordinating with authorities to settle tax disputes if any.

Corporate Tax Implementation

In the increasingly complex areas of Corporate Tax reporting, tax authority compliance, and tax planning – in-house tax departments are often challenged to meet constantly changing requirements.

Our experienced professionals having industry experience and experience in Corporate Tax can supplement the professionals of your organization to ensure an error-free transition to the newly introduced Corporate Tax in the UAE.

Our reputation for expertise, efficiency, attention to detail, and superior service is recognized by both our clients and peers.

Whether your organization is an emerging operation or a large, established business, our team of professionals will apply their years of tax experience and resources to help you identify areas of risk, and offer solutions that mitigate financial risk and tax compliance exposures.

Our areas of expertise include:

Conduct an impact assessment of the legal structure of the organization and the group at large.

1. Conduct impact analysis of the bottom line and profits after tax.
2. Review whether the financial year followed by the organization requires any modification / adopts a uniform financial year.
3. Review Internationally Accepted Accounting Standards have been followed while making existing financial Statements, in all aspects.
4. Review whether adequate resources are available to undertake tax compliance functions.
5. Review whether the processes adopted by the organization to ensure adherence and compliance with corporate tax are adequate.

We offer a wide range of services that include general compliance, the introduction of tax, finance, and accounting services, and global coordination and management of tax accounting projects.

HOW MS CAN HELP YOU

At MS, we understand the complexity of tax laws and the challenges businesses face when it comes to tax compliance. As a leading tax and accounting consultancy in the UAE, we are well-positioned to help businesses navigate the new corporate tax regime. Our team of experienced tax consultants can provide tailored advice on corporate tax planning and compliance, ensuring that our clients remain fully compliant with the latest tax laws and regulations. Contact us today to find out how we can help you with your corporate tax requirements.