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.

Overview of the New Tax Service Fees:

Staying updated with the latest regulatory changes is crucial for businesses in the evolving landscape. In the United Arab Emirates (UAE), the government has recently announced new tax service fees, effective from June 1st. These fees aim to streamline tax administration processes and ensure efficient service provision. In this blog post, we will delve into the key details of the announcement and its potential implications for businesses operating in the UAE.
The UAE’s Federal Tax Authority (FTA) has introduced new tax service fees that businesses should be aware of. These fees cover various tax-related services provided by the FTA. It is important to consult the FTA’s official guidelines for the most up-to-date and accurate information on these fees.

Conclusion:

The UAE’s new tax service fees, implemented on June 1st, aim to improve tax administration and provide high-quality services to taxpayers. By staying informed and proactive, companies can navigate these changes smoothly, contributing to their long-term growth and success in the UAE’s dynamic business environment.

How MS Can Help You?

At MS, we understand the complexities of accounting and taxation in the UAE and are well-equipped to assist businesses in navigating these changes smoothly.
As an experienced accounting and taxation consultant, our team at MS can provide guidance and support in understanding and complying with the new tax service fees. We can help businesses assess the specific fees applicable to their operations by keeping up to date with the FTA’s official guidelines. Our experts can also assist in reviewing internal processes to ensure efficiency and accuracy in tax-related matters, minimizing the risk of penalties or additional fees.
We are committed to helping businesses adapt to the changing tax landscape in the UAE, providing expert guidance and support tailored to their specific needs.

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.