March 4, 2023Dated: | Byadmin admin | The Federal Decree-Law No. (47) of 2022 referred to as the “Corporate Tax Law” was issued by the United Arab Emirates, on 09 December 2022. The introduction of corporate tax is meant to help UAE achieve its strategic objectives and accelerate its development and transformation. The certainty of a competitive Corporate Tax regime that adheres to international standards along with the UAE’s extensive network of double tax treaties, will strengthen the UAE’s position as a leading jurisdiction for investment & business. In UAE, a 9% corporate tax will come into effect from June 2023. In the mainland, all businesses shall pay a 9% corporate tax on the taxable profit above AED 375,000. However, Qualifying Free zone companies having qualified income are eligible for a 0% corporate tax. Anti-abuse Rules (AAR) are designed to stop the misuse of tax laws and stop taxpayers from assuming a tax position. Generic Anti Avoidance Rules, or GAAR as they are more frequently known, are the foundation of AAR. Transactions covered under AAR could be disregarded by the tax authorities to determine taxable profits and/or the taxability of entities. How is ARR applied? AAR follows the ‘substance over form principle. AAR applies to a transaction or an arrangement which being done without valid commercial or non-fiscal reason which reflects economic reality or to gain a corporate tax advantage. Factors to check the AAR applicability involve how businesses carry out the transaction/arrangement, the result thereof, the expected financial result etc. In corporate tax, businesses must remember that the timing of the transaction/arrangement will also decide if AAR will be applied or not. For example: If a business suddenly shifts its operation from the mainland to the freezone, or starts to withdraw salary from its own company, changes its financial year etc. If the authority finds out any such changes are made, penalties shall be imposed and the company will be instructed to reverse the changes. The penalties will be according to the gap between the corporate tax implementation date and the audit. During the assessment, the authority must demonstrate that the decision taken by the authority is reasonable AAR will be implemented to control the following things – (a) avoidance/reduction of tax; (b) creation/increasing tax refunds; (c) deferral of corporate tax, or (d) avoidance of withholding tax compliances. The main motive behind corporate tax implementation is to promote SMEs. So if any business abuses this, it shall be treated just like looting the government and actions shall be taken accordingly.