New UAE corporate tax: Top 10 questions answered

The UAE Ministry of Finance said on Monday that a federal corporate tax on business earnings would be adopted on June 1, 2023, with effect from the first day of the month.

The following are the top ten queries that have been raised by businesses around the country:

Aside from revenue generated via licenced activity, our organisation also generates revenue from non-traditional sources. If there is an increase in income, is it subject to corporation tax (CT)?

Everything the legal entity does will be considered “business activity,” and any money that is earned will be subject to CT. For the time being, however, dividends and capital gains made by a UAE firm from qualified shareholdings are tax-free in the United Arab Emirates. We’ll have to wait for further information about Qualifying shareholdings to become available.

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The Federal Trade Commission (FTA) does not seem to have any information on earnings-based slab rates. Is it feasible that future earnings may be subject to slab rates of taxation?

Except for large international firms, all other corporations will henceforth be subject to a single slab rate of tax in a fiscal year of 0% on taxable income up to Dh375,000 and 9% on taxable income above Dh375,000, with the exception of major multinational corporations. Certain enterprises, such as the exploitation of natural resources like oil and gas, will continue to be taxed at the municipal level in the United Arab Emirates. In the future, the UAE government will be able to propose other slab rates to compensate for inflation.

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Given that the CT Financial Year will begin on June 1, 2023, and that our company’s fiscal year is based on the calendar year, should we adjust our fiscal year to match the new tax regime?

Although there is no legal need to convert the fiscal year to the fiscal tax year of June to May, many organisations are likely to do so in order to better match their fiscal year with the fiscal tax year.

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It is our intention to do some business with mainland UAE companies via our free zone registration. Will we continue to be excluded from the CT?

Despite the fact that free zone firms would be subject to UAE CT, the UAE CT regime will maintain the CT incentives that are currently available to free zone businesses who meet all regulatory criteria and do not conduct business with the rest of the country. We need clarification from the FTA to ascertain whether even little transactions with a UAE mainland firm will disqualify the corporation from the exemption or if a pro rata approach will be employed.

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In our group, transactions between the various firms take place on a regular basis under conditions that have been mutually agreed upon by all parties. Is there anything we can do to prevent these kind of RP transactions from occurring?

The exemption applies to qualifying transactions between members of the organisation that fulfil the legislative requirements. Because they are likely to be statutory requirements, entities would be required to include arm’s length transactions and transfer pricing in their planning.

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Will the FTA allow for the deduction of all types of business expenditures, or will such deductions be subject to a set of requirements that must be met before they can be claimed?

The taxable income of a corporation will be the accounting net profit/income after certain criteria have been taken into consideration, which will be established later under UAE Corporate tax legislation. A set threshold is likely to be established for some expenses, such as depreciation and amortisation, as well as allowances.

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Is it conceivable for the company to roll losses over to the next year? If so, how long do you think it will take?

The UAE corporate tax system will enable a company to utilise losses that have occurred (as of the date of the UAE Corporate tax’s adoption) to offset taxable revenue in later fiscal quarters under certain conditions. The ability to carry forward excess tax losses and use them to offset taxable income in future years is available to taxpayers who meet certain requirements. It is necessary to get more information and guidance on carryover duties.

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