February 13, 2023Dated: | Byadmin admin | On January 31, 2022, the United Arab Emirates (UAE) Ministry of Finance announced the implementation of a federal Corporate Tax (“CT”) on business profits, beginning with the fiscal year beginning June 1, 2023. Since then, Individuals and businesses have perceived Corporate Taxation in different ways. Even after the Ministry of Finance published the Corporate Tax law on 9 December 2022, there has been discord among people about it. But no need to worry as the authorities are making sure to clarify the law for the better understanding of people. The Ministry thus explains 9 key aspects for a better understanding of the Corporate Tax Law. Registration: The VAT registrations will not overlap with the CT registration, which will stand alone. Even if their taxable income is less than Dh 375,000 or they are exempt, all enterprises (including free zones, corporations, and individuals who are conducting business or business activity) must register. The Federal Tax Authority (FTA) will issue “invitations to register” to particular enterprises throughout the following six months. As of right now, businesses are not compelled to take any action. If firms register at least before the deadline for filing tax returns, no registration-related penalties may be imposed (i.e. nine months after the conclusion of the fiscal year in question). There would be no concept of deregistration from CT like VAT. Future laws & regulations: For Corporate Tax, a decree law has already been published. Instead of having a distinct set of “executive rules,” CT laws would be implemented through a distinct set of cabinet decisions that would be released periodically. Free Zones: The details of “Qualifying FZ” and “Qualifying income” will be published soon. The Following criteria are being fulfilled by a licenced free zone resident: A. Maintain adequate substance in UAE. B. Receiving Qualified Income – Income received from other free zone companies C. Not elected 9% corporate tax voluntarily. D. Complies with Arm’s length principle & Transfer Pricing Documentation. Individuals: Individuals conducting business activities would be coming under CT. Individuals are deemed to be’residents’ if they conduct business in the Emirates. Even individuals who are engaged in a business – such as social media influencers, freelancers, sole proprietorships or unincorporated partnerships and civil companies. Companies with multiple UAE entities: If the requirements are satisfied, two or more UAE businesses would be considered qualified to form a “qualifying group” without the need for official FTA clearance. Intra-group transactions may be ignored for tax reasons for a “qualified group.” To create a “tax group,” though, a formal request for FTA’s approval would be necessary. A “tax group” can file a single tax return on behalf of all of its members. Under the VAT rules and the CT regulations, the idea of tax groups will be different. In other words, it is not essential to create a CT tax group if a VAT tax group already exists, and vice versa. Anti-Abuse Rule: The session highlighted that businesses should have commercial reasons for reorganisation. Any reorganisation, without any valid commercial reasons, aimed to gain tax benefits could be disregarded under anti-abuse rules. Small business relief: Businesses qualified for “small business relief” would be recognized as having NIL taxable income in addition to the Dh 375,000 taxable threshold and under the following conditions The revenue of a taxable person is less than the threshold set by authority in the current year and previous tax years The taxable person meets all the other conditions prescribed by the authority The authorities will ask for necessary supportive documents to verify whether a taxable person is eligible or not. Documentation and accounting: Taxable income will be obtained from the enterprises’ financial books of account. Businesses are not required to keep separate books for tax purposes. Any accepted accounting standard, such as IFRS, should suffice. Simplified accounting systems may be perothers, simplified accounting methods may be permitted. Businesses must keep records and documents for at minimum seven years. Even if a business is not taxable, claimed exemption, or did not pay tax in a particular year, the documentation requirements will still apply to facilitate future audits/assessments. International tax aspects The location of key management employees and/or the board of directors, as well as where decisions are made, will determine the place of effective management (PoEM). Corporate Tax will apply if an overseas company’s POEM is situated in the UAE.