Tag: Corporate Tax

The UAE Federal Tax Authority (FTA) has announced on 31 January 2022 the new federal Corporate Tax that will effectively start on or after June 1^st, 2023. It’s a turning point moment in UAE’s rich history 50 years of successful track record, integrating with global trade and best practices, unfolding an efficient tax framework, while minimizing compliance burden on businesses and making them more transparent.

While the law has not yet been issue, the FTA has publicly announced the key principle and policy choices for the new regime which states:

• Businesses with financial years starting on 1^st of July 2023 and ending on 30^th of June 2024, will become subject to CT from 1 July 202.

• For a business that begins its annual financial year on 1 January 2023 and ends on 31 December 2023, the UAE CT will apply from 1 January 2024 (which is the first financial year the business will begin on or after 1 June 2023).

Further information on UAE CT regime will be issued towards the middle of the year.

The CT will be applied to everyone (individuals and legal persons) carrying out business activities in the UAE, under a commercial license, including entities operating in the banking sector. Except for the following:

• Entities engaging in the extraction of natural resources.
• Free zone entities, which will continue to benefit from tax incentives offered to them at the time, as long as all regulatory requirements are complied with. However, the FTA will be releasing more information about the inquiry of registration and filing a CT return.

The corporate tax will be applied to the net profit of a business which is the amount reported in the Financial Statements prepared in accordance with international accounting standards. There will be a progressive tax rate that will be applicable on the following:

• 0% tax for businesses with income profit UP TO AED 375,000. That is to support small businesses and startups.
• 9% tax for businesses with income profit ABOVE AED 375,000
• According to pillar two of the OECD’s base erosion and profit shifting project, this rate might be different for large multinational companies that meet specific criteria.

The objective for this resolution is to cement UAE’s Position as a world-leading hub for businesses & investment. Meeting international standards for tax transparency and preventing harmful tax practices. And accelerating the UAE’s development & transformation to achieve strategic objectives.

Key features that the FTA indicated:

• CT is not applicable to an individual’s income from employment, real estate, investment in shares, or other personal income not related to UAE trade or business.
• No CT will be applied for foreign investors that do not carry out any form of business in the UAE.
• No withholding tax will be applied on domestic and cross-border payments.
• No CT will apply on capital gains and dividends received by a UAE business from its qualifying shareholdings.
• No CT will apply on qualifying intragroup transactions & restructurings.
• Foreign tax will be allowed to be credited against UAE corporate tax payable.
• Generous loss transfer and utilization rules will be available to business.

Tax rates is one of the most competitive and lowest rates in the world, with great flexibility built in. And as obscure as it may sound, this Is actually a good move that will benefit big companies, tax data will help them demonstrate their financial performance, and will get them to start financing. Full fine print details yet to be announced by the FTA. For any clarifications contact us here.

Through the ages, governments everywhere have grappled with different ways to design and implement taxes. But the recent announcement by the G7 Finance Ministers is significant in that governments are coming together to coordinate and synchronise their systems of corporate taxation.

The proposals involve fundamental changes to international tax rules – they will mean allocating more taxing rights of the largest and most profitable multinational enterprises to where their customers are; and implementing an internationally-agreed minimum effective corporate tax rate for large multinational enterprises (MNEs) wherever they operate. While the agreement is the first step in a long process before it can become a reality.

The G20, as expected, endorsed the OECD Inclusive Framework political agreement on the key components of international tax reform under Pillar One (reallocation of profits to markets) and Pillar Two (global minimum tax). The G20 has urged the OECD Inclusive Framework to address remaining issues and policy design elements, and prepare a detailed implementation plan, by the next G20 Finance Ministers meeting on 15-16 October 2021.

What will these changes mean for UAE?

For now, it is too early to say. What we know for sure is that the international rules for corporate taxation will change, and all jurisdictions will need to adjust their tax systems and rules. As for the revenue impact, it will depend on the parameters being set, the rules to be made, and crucially, how different governments and businesses respond to them.

UAE’s overall competitiveness has never been based on taxation alone. It’s about ensuring a conducive environment for businesses and entrepreneurs to thrive as an international hub. Trust, lifestyle and geography are ultimately what makes UAE an attractive place for substantial economic activities. UAE will be keen to be seen as part of the global system rather than a tax haven.

Thoughts:

Countries needs to support a multilateral consensus-based solution that is anchored on sound economic principles, promotes tax certainty, and ensures a level playing field across all jurisdictions.

However, the new rules should not inadvertently weaken the incentives for businesses to invest and innovate. Otherwise, countries will all be worse off, fighting over share of a shrinking revenue pie.