The UAE announced on Monday it will implement corporate taxes from June next year. Therefore, it is important to know what this taxation means, and how it impacts expats and entrepreneurs in the region.
The UAE CT regime will be based on international best practices, with a low / minimal compliance burden on businesses.
Further information is expected to be released by mid 2022.
Non-residents who conduct business in the UAE through a permanent establishment will be subject to corporate tax from June next year. The UAE authorities reaffirmed that it is not an income tax.
Therefore, corporate tax will not apply to an individual’s salary or other employment income (received from the public or private sector).
Entrepreneurs or business owners in a range of industries will also pay corporate tax, such as those in the oil and banking industries, which are already in place in several GCC countries. There are therefore a wide range of government fees and levies in all sectors throughout the region.
If you earn more than Dh375,000 per year in profit, you will be subject to the tax on freelance income. A person who invests in real estate in their personal capacity should not be required to obtain a commercial license or permit for such an activity.
Apart from the UAE, four out of the six GCC countries have corporate tax regimes, ranging from 10 per cent in Qatar, through 15 per cent in Kuwait and Oman, to 20 per cent in Saudi Arabia. So a tax rate of 9 per cent in the UAE makes it ‘among most competitive’ in world, said the country’s finance ministry.
The key features of the proposed UAE CT regime such as a 0% CT for small businesses and startups, exemptions for UAE based headquarters and international business hubs, no taxation on foreign direct investment, no taxation on personal income, and a minimal compliance burden for businesses should strengthen the UAE’s position as a global hub for business and investment and a leading international financial center.
With a 9% statutory tax rate and exemptions and reliefs (that we understand will be based on international best practice) the UAE CT regime should remain one of the most competitive in the world. The UAE would also continue to offer the most competitive CT regime in the region, with Egypt, Jordan, Kuwait, Lebanon, Oman, Saudi Arabia and Qatar imposing CT at rates between 10% to 35% (Bahrain currently does not have a broad based CT regime).
The introduction of a UAE CT regime would enable the UAE to adopt and implement the OECD BEPS 2.0 measures to address the tax challenges arising from the digitalisation of the global economy, and the introduction of a global minimum tax rate for large multinationals.
Whilst the press release and FAQs provide helpful information on the expected key features of the proposed UAE CT regime, further specifics and technical details will be needed for businesses to assess the impact and their readiness for the new UAE CT regime. We understand that further information is expected to be made available by mid 2022, which would give UAE businesses at least 12 months to get ready.
Most UAE businesses will be affected by the introduction of UAE CT in terms of taxes and compliance costs. It is imperative that companies carefully identify the tax ramifications, available optimisation/mitigation strategies, and any necessary changes to their corporate structure, operating model, finance/tax function, reporting systems, and TP policies in order to prepare for the new UAE CT regime. Companies need to assess the impact of UAE CT early on and plan proactively for a smooth implementation.
Develop an implementation roadmap, outlining the project timeline and steps to be taken to address the introduction of CT and TP in the UAE
Identify the relevant departments and stakeholders in your organisation who should be involved / consulted
Initial assessment of the anticipated impact of the introduction of CT and TP on the basis of the existing legal and operational structure
A systems review focused on the data that is generally required for CT and TP compliance and how this data is currently captured in the system(s)
Detailed analysis of the impact of UAE CT and TP on your business
Identify possible uncertain CT positions and key decision points
Identify restructuring and optimisation opportunities to minimise administrative complexities and UAE CT cost
Perform fit / gap analysis to identify required system changes to meet financial information and CT compliance requirements
Perform TP risk and opportunity analysis to identify the changes required from a transfer policy standpoint
Amend contracts and other legal agreements
Review and implement necessary TP policies
Implement changes to legal / organisational structure
Obtain clarifications / tax rulings
Apply for CT groups / exemptions
Amend tax function and tax governance framework.
Implement system changes / updates
Registration, compliance, etc.
Submit applications for tax groups and exemptions
Prepare and submit CT returns
Prepare and submit TP documentation
Tax accounting / provisioning support
If you have not yet considered the impact of the UAE CT on your business, we would be happy to assess your position and guide you as to what actions are required to make sure you are ready to comply with CT once it becomes effective.
Should you have any questions, we have a designated team who will be able to assist you. You can reach us by emailing Corporate Tax in the UAE at firstname.lastname@example.org.