On December 9, 2022 the United Arab Emirates issued Federal Decree-Law No. 47 of 2022 on the Taxation of Companies and Enterprises introducing Corporate Tax (CT) in the UAE.
CT is a form of direct tax that applies to the profit of Taxable Person which will be applicable across all the Emirates.
A Taxable Person shall be either a resident or non-resident person:
A resident person is a juridical person incorporated/established/recognized in the UAE, including a free zone person, or of a foreign jurisdiction that is effectively managed and controlled in the UAE
A natural person who conducts a business or business activity in the UAE.
A non-resident person that either has a permanent establishment in the UAE, derives UAE -sourced income or has a nexus in the UAE as per Cabinet Decision.
The legislation is still in implementation phase and Cabinet Decisions with clarification are regularly published, however some pillars of the new legislation have already been issued.
The tax regime for UAE mainland-registered companies imposes a 0% tax on annual taxable profit from AED 0 to AED 375,000, 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 also 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”. Only income deriving from Qualifying Activities or from activities carried out within free zones will be considered Qualifying Income (therefore subject to CT 0%).
Consequently, any other income other than “Qualifying Income” will be subject to 9% taxation.
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 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, expenditure that is not of a capital nature and is incurred wholly and exclusively for the purposes of the Taxable Person’s Business should generally be tax 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 start-ups and other small or micro businesses by reducing the tax burden on companies and 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 revenue 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.
Taxable Persons are required to file a Corporate Tax Return for each Tax Period within 9 months from the end of the relevant period. The same deadline would generally apply for the payment of any Corporate Tax due in respect of the Tax Period for which a return is filed.
For complying with this new procedure, Federal Tax Authority requests to register all Taxable Persons (including Free Zone Persons) for Corporate Tax and obtain a Corporate Tax Registration Number.
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