The United Arab Emirates (UAE) has long been recognized for its business-friendly environment, characterized by the absence of corporate and personal tax. However, a significant shift has occurred with the introduction of the UAE Corporate Tax (CT) law through Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses (CT Law). This new legislation has far-reaching implications for taxpayers, particularly for Holding Companies.

Let’s explore how this new legislation affects the Holding Companies.

Understanding Holding Companies

Holding Companies primarily hold controlling interests in other companies. Their income typically comes from dividends, capital gains, and interest. The UAE law defines a Holding Company as a company that establishes or controls subsidiaries through shares or membership interests, allowing it to influence their decisions.

Definition under Company Law (Federal Decree-Law No. 32 of 2021)

Article 268 – Definition of the Holding Company

A Holding Company is a Joint Stock Company or a Limited Liability Company that establishes subsidiaries inside the State or abroad or controls existing companies by holding shares or membership interests, enabling such a Company to control the management of the subsidiary and influence its decisions.

The name of the Company followed by the expression ‘Holding Company’ shall appear on all papers, advertisements, and other documents issued by the Holding Company.

Definition as per UAE Economic Substance Regulations (ESR)

A company that:

• Has acquisition and holding of shares or equity interests in other companies as its sole activity.
• Derives its income solely from dividends and capital gains on its equity interests.

Taxation for Holding Companies

The tax treatment of a Holding Company depends on its location:

• Free Zone: Companies in Free Zones like Abu Dhabi Global Market (ADGM) or Dubai International Financial Centre (DIFC) may be eligible for a 0% tax rate if they qualify as Qualifying Free Zone Persons (QFZPs). To achieve this, they must demonstrate sufficient substance in the Free Zone, comply with transfer pricing rules, and have audited financial accounts. Income from holding shares for at least 12 months is considered a Qualifying Activity, making such Holding Companies likely to benefit from the 0% CT rate.
• Mainland: Holding Companies outside Free Zones (mainland) are generally subject to the 9% CT unless their income falls under exemptions listed in Article 22 of the CT Law. This includes dividends and capital gains from domestic companies and, under certain conditions, dividends and profits from foreign subsidiaries.

Exempt Income for Holding Companies on Corporate Tax

Holding Companies can significantly reduce their tax burden through various exemptions:

1. Dividends from Resident Companies: Dividends received from UAE-incorporated companies are generally exempt from CT. This promotes domestic investment and simplifies the tax structure.
2. Dividends from Foreign Shareholdings: Dividends from foreign subsidiaries can also be exempt if the Holding Company meets the Participation Exemption requirements (refer to a separate post for details).
3. Capital Gains from Shareholdings: Capital gains from selling domestic or foreign shares may be exempt under the Participation Exemption, encouraging long-term investment.
4. Headquarter Services in Free Zones: Headquarter services provided to related parties in the same Free Zone or across jurisdictions qualify as a Qualifying Activity for QFZPs. This includes management, administrative, or strategic services.

Taxable Income for Holding Companies

Not all income streams are exempt from the tax, let’s look at the income categories which falls under the purview of taxation:

1. Interest Income: Interest earned from loans, exceeding a specific limit, is generally taxable. Additionally, interest expenses on loans from related parties used for dividend distributions or capital activities may not be deductible unless a legitimate business purpose is demonstrated.
2. Rental Income: Rental income is generally taxable, with exemptions under specific conditions (e.g., commercial property income within a Free Zone earned from another Free Zone person is taxed at 0%).
3. Service Fees: Fees for management, consultancy, strategic advisory, or administrative support provided to subsidiaries are subject to Corporate Tax.
4. Royalties: Royalties received for intellectual property (patents, trademarks, copyrights) are taxable.
5. Foreign Exchange Gains: Gains arising from foreign exchange transactions, realized or unrealized, are taxable.

The UAE’s new corporate tax law has some changes that Holding Companies need to grasp. However, by staying informed and meeting the requirements for exemption, you can keep your Holding Company business thriving in the UAE’s pro-business climate. Think of it as a chance to showcase your company’s legitimacy to unlock tax benefits.

MS for corporate tax compliance of Holding companies in the UAE

MS can be a valuable partner for Holding Companies for understanding the nuances of the new UAE Corporate Tax law. We offer thorough support, assisting with Free Zone and substance requirements for the 0% tax rate, ensuring compliance with transfer pricing regulations, managing tax record keeping and reporting, and keeping you updated on the evolving tax landscape. Let us help your Holding Company thrive in the new UAE corporate tax environment.

The United Arab Emirates (UAE’s) well-established reputation as a tax-advantageous jurisdiction is evolving with the recent introduction of corporate tax. While comprehension of the tax regime is essential, ensuring compliance to avoid potential penalties holds equal importance. This shift in the UAE’s fiscal strategy underscores the need for businesses to stay informed about corporate tax regulations.

Let’s delve into the potential consequences of missing deadlines or making errors in your UAE corporate tax filings.

Understanding UAE Corporate Tax Penalties

The table of violations outlined in Cabinet Decision No. (75) of 2023 details the repercussions of various offenses. Here’s a breakdown of some key points:

• Record Keeping: Failing to maintain up-to-date records for tax purposes can result in a hefty fine of AED 10,000 for the first offense. Repeated offenses within 24 months will double the penalty to AED 20,000.
• Information in Arabic: Not providing tax information in Arabic language records can incur a penalty of AED 5,000.
• Late Deregistration: Businesses that delay deregistration application submission beyond the deadline will face a penalty of AED 1,000, accumulating to a maximum of AED 10,000 per month.
• Delayed Notifications: Businesses failing to notify the authorities about changes requiring tax record updates can be penalized with AED 1,000. Repeat offenders within 24 months will see the penalty increase to AED 5,000.
• Legal Representative’s Obligations: Legal representatives who miss sending out appointment notifications or fail to file tax returns face penalties ranging from AED 500 to AED 1,000 per month, depending on the duration of the delay.
• Voluntary Disclosure: Errors in tax returns, assessments, or refunds can be rectified through voluntary disclosure. However, a 1% monthly penalty on the tax difference is applied from the due date until the disclosure is submitted.
• Failure to Disclose Voluntarily: If tax authorities discover discrepancies before a voluntary disclosure is made, a fixed 15% penalty on the tax difference is imposed. An additional 1% monthly penalty is added from the due date until the disclosure or tax assessment is issued.
• Auditor Obstruction: Businesses that hinder tax audits by not providing necessary support can be penalized with AED 20,000.
• Late Declaration: Delaying the submission of declarations attracts a penalty of AED 500 per month for the first year, rising to AED 1,000 per month thereafter.

Staying Compliant and Keep Away UAE Corporate Tax Penalties

Here are some key steps to ensure smooth sailing when it comes to UAE corporate tax filings:

• Timely Registration: Register for corporate tax within the timeframe mandated by the Federal Tax Authority (FTA) to avoid registration penalties.
• Meet Deadlines: File your corporate tax requirements by the official due date to steer clear of late filing penalties.
• Record Keeping: Maintain proper and up-to-date records of your income, expenses, and other tax-related data. This meticulousness ensures the accuracy of your tax return and minimizes the risk of penalties for errors.

By understanding and adhering to corporate tax filing requirements in the UAE, businesses can save themselves from unnecessary expenses and ensure they are compliant with the UAE’s tax regulations. Remember, a proactive approach – registering on time, meeting deadlines, and maintaining accurate records – is key to avoiding penalties and ensuring a smooth tax filing experience.

MS as Your Partner to Dodge UAE Corporate Tax Penalties

Don’t let the complexities of UAE corporate tax filing lead to penalties for your business. MS can help you understand this new corporate tax landscape. Our team of tax professionals can guide you through the registration process, ensure timely filings to avoid penalties, and help you maintain meticulous records for accurate tax return preparation. We understand the complexities of the UAE tax regulations and can minimize the risk of errors or omissions that could trigger penalties. Let MS be your partner in ensuring corporate tax compliance and saving you from unnecessary expenses.

The United Arab Emirates (UAE) is a hub for international business, and its Free Zones (FZs) are a major reason. These designated areas offer significant advantages for companies, including startups, due to their tax benefits and streamlined setup processes. The strategically located FZs offer a unique blend of advantages, including world-class infrastructure, simplified business setup processes, and most importantly, a tax regime designed to empower businesses. Unlike the mainland UAE, FZs provide a game-changing incentive for startups and established companies alike: a 0% Corporate Tax rate on qualifying activities.

Tax Advantages for Qualifying Free Zone Businesses

The UAE’s recent Corporate Tax regime recognizes the importance of FZs. Businesses operating within these zones, known as Qualifying Free Zone Persons (QFZPs), can enjoy a highly attractive 0% Corporate Tax rate on specific activities and transactions. This applies to:

• Transactions between QFZPs and Free Zone Persons (where the Free Zone Person is the Beneficial Recipient of these transactions).

• Certain activities performed from within the prescribed geographical areas of a Free Zone (or a Designated Zone for distribution activities).

Corporate Tax for Free zones: Benefits for businesses with no Initial Revenue

Even if a startup or a business within a Free Zone doesn’t generate any initial revenue (Qualifying Income), it can still qualify for tax exemptions. As long as the company operates within the designated area and doesn’t earn income from non-qualifying activities, it can benefit from this tax break. This allows startups the breathing room they need to establish themselves without the burden of corporate tax.

Maintaining Your QFZP Status in the Free Zones

The benefits of being a QFZP are substantial, but maintaining this status requires adhering to certain conditions. A company can lose its QFZP designation and be subject to standard corporate tax rates for four years if it:

• Opts Out of QFZP Benefits: Companies can choose to forgo QFZP advantages and enter the standard tax regime. However, this comes with a four-year period where they can’t reclaim QFZP tax benefits.
• Fails to Meet Qualifying Criteria: Not meeting the qualifying criteria for a specific tax period can also result in losing QFZP status for the following four tax periods.

Case Study:

Company X (a QFZP) is incorporated on July 1st, 2023, in a Free Zone with the aim of developing and providing innovative educational software (a Qualifying Activity). The company operates in the calendar year for its Tax Period. During the remainder of 2023 and the entirety of 2024, Company X focuses on its preparatory phase.

Due to being in the development stage, Company X doesn’t generate any Qualifying Income in 2023 and 2024 as its Qualifying Activity of educational software development isn’t fully operational. There’s no revenue generation during this period, but the company incurs expenses for development and staffing.

Analysis:

The absence of Qualifying Income in the initial phases (2023 and 2024) wouldn’t automatically disqualify Company X from its QFZP status. As there is no revenue generation from the Qualifying Activity. Therefore, Company X can potentially retain its QFZP status for the 2023 and 2024 Tax Periods, considering its future potential to generate Qualifying Income once the educational software is developed and launched, leading to revenue generation. Company X can file its Tax Returns as a QFZP for the initial years (2023 and 2024).

The UAE’s Free Zones, with their tax breaks and simplified setup processes, offer a ground for startups. With careful planning and adherence to QFZP requirements, companies can leverage these benefits to establish themselves and thrive in the UAE’s dynamic business environment.

Focus on your business, Let MS handle the Tax hassle

If you’re still trying to figure out the new UAE Corporate Tax system, MS can simplify the process. Our team of tax experts can handle everything from registration to filing, ensuring accuracy and efficiency. We will analyze your company’s finances to determine your exact taxable income, considering any exemptions or deductions available. By letting MS handle your corporate tax filing, you’ll save valuable time and resources, knowing your taxes are in the hands of professionals.

For businesses considering or already established in the United Arab Emirates (UAE), understanding the nuances of Corporate Tax registration is important. While the UAE is celebrated for its tax-efficient environment, recent developments have introduced specific requirements for corporate tax compliance across certain Emirates. The recent introduction of corporate tax in the UAE has sparked questions for businesses across the country. Whether you’re a mainland company or operate within a free zone like Abu Dhabi Global Market (ADGM) and Dubai International Financial Centre (DIFC) with special tax privileges, understanding the registration requirements and adhering to them is crucial.

Who needs to Register with UAE Corporate Tax?

The first step is determining if your business is subject to corporate tax. As per Article 11 of the Corporate Tax Law, the following entities must register:

· Commercial and other legal firms registered in the UAE, as well as organized foreign legal entities that handle the majority of their operations in the UAE.

· Permanent establishment; company Income tax and corporate tax; residency status: non-resident juridical persons (foreign entities).

· Consequent to this requirement, several Non-Resident persons are deriving State Sourced Income.

· Residents or companies who are non-tax residents have established an economic connection with the UAE through the legal acquisition of Income from Immovable Property.

· Legal entities provided that the person carrying out Business or Business Activities in the UAE and the Turnover of the Business or Business Activities in question, according to the Gregorian calendar year, is more than AED 1,000,000.

Step-by-Step Guide to Register with UAE Corporate Tax

1. Eligibility Check: Confirm your business falls under the UAE corporate tax bracket.

2. TRN Application: Obtain a Tax Registration Number (TRN) through the Federal Tax Authority’s (FTA) online portal. You’ll need details like your business’s legal status, trade license number, and contact information.

3. Document Gathering: Collect necessary documents, including:

· Valid trade license photocopy.

· Company’s Memorandum of Association (MOA).

· Current passports of shareholders, directors, and authorized signatories.

· Photocopies of owners’ company IDs and authorized signatories’ IDs.

4. Registration Application: Submit the application form on the FTA website. The form will request details about your business activities, any exemptions you might claim, and other relevant information. Double-check all information before submission.

5. FTA Review: The FTA will review your application. This process can take time, so be patient. The FTA may request additional documents or clarifications if needed. Respond promptly to avoid delays.

6. The Initial VAT Registration: To obtain a Tax Registration Number (TRN) for corporate tax purposes, businesses must first undergo the VAT registration process. This initial step involves completing a detailed 8-step form on the FTA portal. After submitting the application, businesses can track its progress through the provided website. Once approved, they can access their TRN number through the same portal, ensuring compliance with UAE tax regulations.

7. File for CT (In your tax period): After successfully completing and receiving approval for your registration application, you will be issued a tax registration number or certificate confirming your business’s registration for corporate tax in the UAE. Once in possession of this certificate, you can proceed to fulfil your corporate tax obligations by making the necessary payments. The specific tax liabilities will vary based on factors such as your business activities and turnover.

Deadlines and penalties for delays

It is also important to note that if the CT registration application is not filed within the mentioned periods, the administration has the right to impose a penalty of up to AED 10,000.

Beyond Registration

· Record Keeping: The UAE government emphasizes proper business conduct and maintaining accurate financial records along with on-time registration.

· Tax Filing and Payment: Once registered, you’ll need to file tax returns and pay corporate taxes based on your business activities and turnover. Consulting a tax expert is recommended to ensure you meet all tax obligations.

Embrace Transparency and Accountability while Registering with UAE Corporate Tax

Complying with corporate tax registration demonstrates your commitment to transparency and accountability. The FTA’s online portal streamlines the process, but remember, timely and accurate submissions are crucial to avoid penalties and maintain a positive relationship with the tax authorities.

Get rid of Corporate Tax burden with MS

Understanding the specific rules of Corporate Tax registration in the UAE and the requirements for free zones and mainland can be complex. Early registration ensures a smooth process and helps businesses stay compliant. This not only protects your company but also contributes to the UAE’s economic development. For a hassle-free and compliant registration, consider seeking help MS. We can address your specific needs and ensure you meet all legal requirements without fail.

The business landscape in the UAE is undergoing a significant shift with the introduction of corporate tax. This new tax regime comes with important deadlines for businesses to register, and these deadlines can vary depending on your company’s specific situation. The new corporate tax system is designed to be both effective and competitive, aligning with international standards. This will make the UAE an even more attractive location for businesses and investors. The tax system will also support the UAE’s development goals and strategic plans. Additionally, it fulfils the country’s commitment to tax transparency, which helps to prevent unfair tax competition and fosters good relations with developed nations.

While free zones are amping up their offerings to attract new businesses, all companies in the UAE, including those in free zones like Abu Dhabi Global Market (ADGM) and Dubai International Financial Centre (DIFC), need to be aware of the corporate tax registration requirements.

Key Points for Existing Businesses:

• Registration Corporate Tax Deadlines Based on License Issuance Date: The deadline for existing companies to register for corporate tax depends on when their licenses were issued. You can find the specific timelines outlined in the Federal Tax Authority (FTA) Decision.
• Multiple Licenses: If your company holds multiple licenses, the earliest issuance date dictates your registration deadline. Ensure you submit your application within the allotted timeframe to avoid penalties.

Deadlines for New Businesses (including Free Zones):

• Three Months After Incorporation: New companies incorporated on or after March 1st, 2024, including those in free zones, have three months from their incorporation date to register for corporate tax. Be aware that your registration might fall before June 30^th as the deadline for these cases is strictly three months from the date your license was issued.

For example: If your business is incorporated on March 3^rd, 2024, your Corporate Tax deadline is on June 3^rd, 2024.

• Foreign Companies: Foreign companies effectively managed and controlled within the UAE after March 1st, 2024, need to register within three months of their financial year-end.

Upcoming Corporate Tax Deadline – June 30th, 2024:

• Don’t Miss Out: This deadline applies to all businesses with licenses issued in March or April of any year prior to 2024. Failing to register by June 30th can result in a penalty of AED 10,000.

The takeaway

The introduction of corporate tax in the UAE necessitates action from businesses. Familiarize yourself with the deadlines based on your company’s specific situation and ensure timely registration to avoid penalties. While free zones are offering attractive incentives to draw in new businesses, remember that corporate tax registration applies to all companies in the UAE.

MS for ensuring hassle-free Corporate Tax registration

We know that the deadline assessment will be a daunting task, but MS is here to help you through the process. Our team of experts will assess your specific situation to ensure you meet the correct deadline. We’ll guide you through every step of the process, ensuring all documentation is accurate and filed on time. MS is here to make your Corporate Tax registration smooth and ensure compliance, sparing you from additional penalties for late registration. Take action now to ensure your business stays compliant and penalty-free.

The final call to register with the UAE Federal Tax Authority (FTA) Corporate Tax if your business license was issued in January or February, regardless of the year, is fast approaching. The deadline is May 31st, 2024, and failing to register by this date could result in significant fines up to 10,000 AED. This itself shows the stringent measures UAE is taking to implement a strong tax regime in the country.

The UAE has long been a magnet for businesses thanks to its tax-friendly policies. However, the recent introduction of corporate tax (CT) signifies a shift in the nation’s fiscal landscape. While this new system brings challenges, it also unlocks exciting opportunities for businesses to flourish in a more structured and transparent economic environment. Let’s delve into the implications of UAE corporate tax, exploring both the hurdles and the potential for growth it presents.

Understanding Corporate Tax in the UAE

The UAE’s federal CT system aims to diversify revenue streams and align with global tax transparency standards. Effective June 1, 2023, businesses pay a 9% CT rate on taqxable income exceeding AED 375,000, with income below this threshold remaining tax-free. This move aligns with the UAE’s vision of solidifying its position as a global business hub.

Opportunities for business growth with updated Corporate Tax in the UAE

Strengthened regulatory framework: The Corporate Tax (CT) system fosters a stronger regulatory environment. By adopting internationally recognized tax practices, the UAE enhances its commitment to economic stability and transparency. This attracts global investors seeking well-regulated markets, thereby enhancing business opportunities and growth.

Boosted public spending: Revenue from CT enables the UAE government to invest more in public infrastructure and services. Improved infrastructure, healthcare, and education create a more conducive environment for businesses to operate and expand. These investments likely lead to enhanced economic development and higher living standards, indirectly benefiting businesses across various sectors.

 Incentives in Free Zones: While CT applies to all businesses, Free Zone entities can enjoy tax breaks if they meet specific criteria. These incentives make Free Zones even more attractive for new and existing businesses, providing a competitive edge and stimulating economic activity within these designated areas.

Sustained competitive edge: Despite the introduction of CT, the UAE still boasts one of the world’s lowest tax rates. This positions the UAE as an attractive destination for multinationals and entrepreneurs seeking a favorable tax regime. Businesses can leverage this advantage to attract international talent and investment.

Updated Corporate Tax in the UAE: Challenges for business growth

Compliance and administrative burden: The introduction of CT brings new compliance requirements. Companies must maintain accurate financial records, meet tax filing deadlines, and adhere to the new tax laws. This increased administrative burden can be challenging, especially for small and medium-sized enterprises (SMEs) lacking robust accounting systems.

Impact on profit margins: The 9% CT will reduce net profits for businesses operating in the UAE. Companies will need to re-evaluate pricing strategies and cost structures to maintain profitability. This adjustment period may necessitate strategic planning and financial restructuring.

Navigating complex Tax regulations: The new tax regime includes specific provisions and exemptions that businesses must navigate. Understanding and applying these regulations can be complex, requiring professional guidance. Engaging with corporate tax advisory services can help businesses effectively manage their tax obligations and optimize their tax strategies.

Transitional challenges: Shifting to the new tax regime may present short-term challenges, such as updating financial systems, training staff, and modifying business operations to comply with the new laws. Businesses will need to invest time and resources to ensure a smooth transition.

Strategies for success in the new Tax environment

Here are some key strategies for navigating the new CT landscape:

Comprehensive Tax planning: Businesses should explore tax planning strategies, such as identifying and maximizing tax-deductible expenses, capitalizing on benefits within qualified free zones, and understanding the taxability of their income.

Maintaining accurate Financial Records: Detailed and accurate financial records are essential for error-free tax filing and verifiable compliance. Implementing robust accounting software can streamline tax management processes, saving time and resources.

Leveraging Tax benefits: The CT law offers various tax benefits, such as exemptions, small business relief, and the concept of Qualified Free Zones. Businesses can explore these benefits and align their strategies to claim the maximum advantages available.

Adopting technology solutions: Utilizing cloud-based technology for tax filing, record management, and financial analysis can automate tasks, improve accuracy, and significantly reduce the compliance workload.

Focusing on value creation: Businesses focusing on activities that generate genuine economic value for the UAE, such as innovation, employment generation, and knowledge transfer, will be well-positioned to thrive in this new era.

MS leveraging advisory services for Corporate Tax in the UAE

Given the opportunities and challenges of the new CT regime, businesses in the UAE can significantly benefit from professional tax consultants. The tax experts at MS offer comprehensive advisory services to help businesses navigate the complexities of the new tax environment. By providing expert guidance on compliance, tax planning, and strategic financial management, tax consultants can help businesses optimize their tax position and achieve sustainable growth with new corporate tax regime in the UAE.

The corporate tax era in the United Arab Emirates (UAE) has significantly altered the tax landscape of the nation. Compliance with transfer pricing (TP) regulations now stands as a pivotal aspect of the corporate tax framework. This not only influences businesses’ effective tax rates but also dictates how they distribute, report, and validate income within their corporate groups in a sustainable and defensible manner.
The UAE tax authorities are emphasizing the importance of adhering to transfer pricing regulations to ensure accurate calculation of the tax base, particularly in situations where transaction prices could be manipulated by involved parties. This practice has already been adopted by over 60 countries globally, with the United States pioneering these regulations as early as 1994. The OECD (Organization for Economic Co-operation and Development) issued its initial transfer pricing guidelines in 1996, which have since been expanded in subsequent years, gaining adoption from many European Union nations, 19 out of 20 G20 members, and numerous other countries.
The implementation of these regulations has brought distinct changes across the businesses in the UAE irrespective of Mainland or Free Zones. Notably free zones are an integral part of the United Arab Emirates (UAE) economy and play a critical role in driving economic growth and transformation in the country. This has been a widespread discussion among the premier International Financial Centres (IFCs) in the UAE including the Abu Dhabi Global Market (ADGM) and the Dubai International Financial Centre (DIFC) recently. Despite a flat tax rate structure, exemptions within free zones, relief provisions for small businesses, or income falls below the taxable threshold can yield tax benefits through adept management of transfer pricing.

What is Transfer Pricing?

Transfer pricing (TP) regulations worldwide aim to ensure accurate tax calculations by preventing manipulation of transaction prices, particularly by related parties seeking to avoid taxes by shifting profits to lower-tax jurisdictions. These rules establish guidelines, with the arm’s length principle at their core, ensuring transactions reflect those that would occur between unrelated parties under similar circumstances.

Violation of TP regulations can result in additional taxes and penalties for tax underpayment. Tax authorities have the authority to adjust prices in controlled transactions, calculating taxable income as if parties had adhered to the arm’s length principle. The potential additional tax liabilities are substantial, and TP audits and discussions with tax authorities are complex and time-consuming, given the nuances of each case.

Consequently, it’s advisable to proactively prepare documentation justifying prices and complying with TP regulations. Ideally, TP planning and oversight should be integrated into a company’s business processes.

Calculating the arm’s length value

The fundamental principle of an arm’s length value is that a transaction should be evaluated as if it were conducted between unrelated parties, each acting in their own self-interest, without one party unduly influencing the other. The Corporate Tax decree law confirms the acceptability of certain transfer pricing practices for determining the arm’s length value, including:

• The Transactional Net Margin Method
• The Transactional Profit Split Method
• The Cost-Plus Method
• The Comparable Uncontrolled Price Method
• The Resale Price Method

These methods are established and align with OECD transfer pricing guidelines. Typically, the standard method is employed when applying these techniques, although taxpayers may benefit from the guidance of a transfer pricing specialist. Additionally, the decree-law permits the use of alternative practices if it can be demonstrated that none of the listed methods are reasonably applicable.

What transfer pricing documentation should the UAE companies maintain and what are the contents of the TP documentation?

UAE companies are required to maintain transfer pricing documentation as per Article 55 of Federal Decree-Law No 47 of 2022 on the Taxation of Corporations and Businesses. This documentation encompasses a master file and a local file, both outlined by the tax authority.

The master file should include comprehensive information relevant to the entire multinational enterprise group. This includes details on the group’s organizational structure, business operations, transfer pricing policies, allocation of income, and other key aspects. It serves as a blueprint for the MNE group, following guidelines outlined in Clause 5.19 of the OECD Transfer Pricing Guidelines.

The local file, on the other hand, focuses on specific transactions of the local taxpayer. It comprises three main sections:

• Information about the local entity, such as its management structure, business strategy, and key competitors.
• Details of controlled transactions, including descriptions, related companies involved, transaction values, intercompany agreements, comparability analysis, TP method selection, financial information, and any existing APAs or tax rulings.
• Financial information, including local entity financial accounts, allocation schedules, and summary schedules of relevant financial data for comparison.

In essence, transfer pricing documentation for UAE companies should provide a thorough overview of both the multinational enterprise group and the local entity’s transactions, ensuring compliance with regulatory requirements.

Why MS for Transfer Pricing Regulations compliance in the UAE

The successful financial destiny of your company with strategic tax services is what MS guarantees you in the UAE. The evolving tax landscapes and their complexities in a globally connected market can be tough to deal with, but Team MS drafts tax strategies that fulfill the unique needs of each client providing a roadmap for sustainable financial growth. Regulatory adherence, optimization of deductions, and fostering competitiveness are all guaranteed here without compromise. Accurate and precise TP advisory can make your business excel in the ever-changing tax landscape of the UAE.

If you’re a business entity operating in the United Arab Emirates (UAE), staying updated with the latest regulatory changes is crucial to ensure compliance and avoid penalties. At the end of last month, the UAE Ministry of Finance introduced significant updates regarding tax registration, imposing administrative penalties for delays. The UAE Ministry of Finance has approved an administrative penalty of AED 10,000 for delays in UAE Corporate Tax registration. This decision, implemented under Cabinet Resolution No. (10) of 2024, aims to streamline the tax registration process and enforce compliance among businesses operating in the UAE.

UAE Corporate Tax Registration is a mandatory requirement for all businesses, irrespective of VAT registration status, turnover threshold, geographical presence, or financial performance. It’s crucial to note that the deadline for the same is approaching rapidly. To avoid penalties, businesses should register for corporate tax as soon as possible. For those who missed the deadlines or need a refresher on the requirements, here’s a quick overview.

UAE Corporate Tax Registration: Understanding the Amendments

Under the newly introduced amendments, businesses experiencing delays in their corporate tax registration process will face an administrative penalty of AED 10,000. This Corporate Tax penalty will be enforced if the registration is not completed within the specified timelines mandated by the Federal Tax Authority.

What are the deadlines for UAE corporate tax registration?

For UAE Resident Juridical Persons:

The registration deadlines for Juridical Persons (such as LLC, FZCO, FZ LLC, FZE, Private Companies registered with DIFC/ADGM, etc.) residing in the UAE are determined based on the Trade license issue date of taxable persons. In cases where a juridical person holds multiple licenses, the deadline will be determined by the license with the earliest issuance date.

For Natural Persons:

A Resident Individual engaged in a business or business activity during the 2024 Gregorian calendar year or later, with a total turnover surpassing the threshold specified in the applicable tax legislation, must complete registration by the 31st of March of the subsequent Gregorian calendar year.

A person who is not a resident and engages in business or business activities in the 2024 Gregorian calendar year or later, with a total turnover surpassing the threshold outlined in the applicable tax legislation, must fulfill their tax obligations within three months from the date they meet the criteria for being subject to taxation.

For Foreign Entities:

A person incorporated or established under the laws of a foreign jurisdiction, effectively managed, and controlled by the state, must submit its tax registration application within three months following the conclusion of its Financial Year.

UAE Corporate Tax Registration: Additional Guidelines for Different Entities

A juridical, non-resident person that has a permanent establishment prior to the effective date of this decision in the state shall submit a UAE Corporate Tax Registration application within nine months from the date of existence of establishment, and the permanent person that has a nexus in the state within three months from the effective date of this decision.

A juridical, non-resident person that has a permanent establishment on or after the effective date of this decision in the state shall submit a tax registration application, six months from the date of existence of establishment, and the permanent person that has a nexus in the state within three months from the effective date of the nexus.

A juridical, non-resident person that has a permanent establishment prior to the effective date of this decision in the state shall submit a tax registration application within nine months from the date of existence of establishment, and the permanent person that has a nexus in the state within three months from the effective date of this decision.

A legal entity based in the UAE, such as an LLC, FZCO, FZ LLC, FZE, or private companies registered with DIFC/ADGM, that is established on or after March 1, 2024, is required to submit its registration application within three months from the date of incorporation, establishment, or recognition.

The Corporate Tax in the UAE and Free Zone Advantages

The UAE’s introduction of a Corporate Tax regime underscores the significant contribution of Free Zones to the country’s economic development. To support this, the government provides an appealing incentive—a 0% Corporate Tax rate for qualifying Free Zone companies and branches (QFZPs) involved in specified Qualifying Activities and transactions.

Take action now with MS for corporate tax registration.

Regardless of the license issue date, it’s crucial for all entities to initiate the registration process promptly to avoid penalties and ensure compliance with the latest regulations even with the current Transfer Pricing Regulations. Understanding these updates and adhering to the specified deadlines is essential for businesses operating in the UAE. MS can be your partner in this journey to make adherence seamless without any challenges in Corporate Tax Registration. Stay informed, stay compliant, and safeguard your business interests in the dynamic landscape of UAE taxation with MS.

Disclaimer

Please be advised that the fine amounts and dates specified in the register are subject to revisions based on any modifications made to the schedule of contraventions by the UAE authorities. These revisions may arise due to updates in regulatory requirements, policy amendments, or other factors deemed necessary by the UAE Government.