Kelmer Middle East is part of an international group that, through a team of expert consultants with local market knowledge, offers a range of services to help companies access the rapidly growing market of the United Arab Emirates by creating and developing business opportunities.
The Accounting Department is responsible for maintaining and recording all transactions in accordance with accepted accounting principles in the UAE, and it offers the following services:
- Accounting/registration of all accounting entries
- Bank/cash, inventory, and intercompany reconciliations
- Execution of logistic functions such as customs clearance of shipments and related documentation
- Execution of customer and supplier accounting functions
- Processing of client employees’ payrolls through the Wage Protection System (WPS), preparation of payrolls, and calculation of gratuity according to Dubai’s labor law
- Finalization of annual financial statements ready for accounting review in accordance with International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP)
- Interface and relationship with Approved Auditor firms
- Analysis of business operations, trends, costs, revenues, financial commitments, and obligations to forecast future income and expenses
- Development, maintenance, and analysis of budgets and preparation of periodic reports comparing budgeted costs with actual costs
- VAT consulting, registration, and VAT filing
- Corporate Tax consulting, EMARATAX Portal registration, CT filing
In anticipation of the introduction of Corporate Tax by the UAE government, we asked our professionals at Kelmer to clarify the implications of the new regulations.
On December 9, 2022, the United Arab Emirates issued Federal Decree-Law No. 47 of 2022 on the Taxation of Companies and Enterprises.
The implementation of Corporate Tax in the UAE marks another step toward the country’s revenue diversification and economic goals, which were previously manifested in 2018 with the introduction of VAT.
But what exactly is Corporate Tax?
Corporate Tax (CT) is a form of direct tax that applies to the net profit of companies and enterprises. UAE CT will be applicable across all Emirates and, in general, will cover all companies and commercial activities.
The tax regime for UAE mainland-registered companies imposes a 0% tax on taxable profit from AED 0 to AED 365,000, while a 9% tax will be applied to profit exceeding AED 375,000 (approximately 90,000 euros).
Companies operating within the UAE Free Zones will also be subject to the new federal tax regime and will need to register and file an income tax return. However, they will continue to benefit from the Free Zone Corporate Tax ‘Holiday’ and will be subject to a 0% rate on the so-called “Qualifying Income,” which is still being defined by the Tax Authority. The 9% rate will be applied to income generated from ‘Non-qualifying’ activities (Non-Qualifying Income) such as passive income like interest, royalties, dividends, and capital gains from shares held in mainland companies.
The new CT regime will come into effect for fiscal years starting on or after June 1, 2023, and will be applied on an annual basis. This means that for companies with a January-December fiscal year, CT will be applicable starting from January 2024.
The taxable income will be calculated based on the net accounting profit as presented in the financial statements prepared in accordance with international accounting standards, with minor exceptions and adjustments made for determining the taxable profit. Only some of the revenue and cost items that will be deductible have been published so far, but in general, all legitimate business expenses incurred solely and exclusively to determine taxable income will be deductible, although the timing of deductions may vary for different types of expenses and accounting methods.
Additionally, on April 6, 2023, the Ministry of Finance issued Ministerial Decision No. 73 of 2023 on relief for small businesses under Federal Decree-Law No. 47 of 2022 on the Taxation of Companies and Enterprises. Small Business Relief aims to support startups and other small or micro businesses by reducing the tax burden on companies.
Small Business Relief can be claimed when the turnover in the relevant fiscal period and preceding fiscal periods is below AED 3 million per fiscal period. This means that once the turnover threshold of AED 3 million is exceeded in any fiscal period, Small Business Relief will no longer be available.
The AED 3 million income threshold will apply to fiscal periods starting from June 1, 2023, and will continue to apply only to subsequent fiscal periods ending before or on December 31, 2026.
The rationale behind Corporate Tax:
The introduction of corporate taxation aims to help the United Arab Emirates achieve strategic goals and accelerate its development and transformation.
It represents a significant step in the process of transitioning from reliance on oil and diversifying the country’s economy. The UAE seeks to diversify its revenue sources beyond the elements that have thus far driven its development and growth, with the aim of strengthening and integrating its economy within the global economic system. The UAE intends to invest in new urban projects, infrastructure projects, and renewable and sustainable energies. The country can contribute to economic growth by creating new demands and opportunities for foreign investments.
For more information, please visit the page on our website: https://kelmer.com/offices/dubai/