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7 key considerations for navigating corporate tax in the UAE

7 key considerations for navigating corporate tax in the UAE

21 March, 2024
Africa, Asia & Middle East Private Clients Private Foundation Private Company Accounting & Regulatory Reporting Private Client Family Office

The recently implemented corporate tax regime in the UAE presents new considerations for businesses operating in the region. Leevyn Isabel, Business Development Director - Private Client, Dubai, shares an overview of the key aspects you need to understand to ensure your business is prepared and compliant.

1. Understanding who & what is affected

Financial year: The corporate tax applies to financial years starting on or after June 1st, 2023. Ensure you understand your entity’s financial year to determine applicability.

Tax threshold: Businesses with taxable profit below AED 375,000 (around USD 100,000) benefit from a zero-tax rate.

Exemptions: Government entities, specific resource businesses, qualifying public benefit/ investment funds, and certain income categories may be exempt, subject to meeting specific conditions. Businesses should review their revenue streams to identify potential exemptions.

Individuals & family foundations: Individuals generating business income and family foundations may fall under the corporate tax law. Family foundations can apply for pass-through tax treatment.

2. Tax rates & calculations

Standard Rate: A 9% tax rate applies to taxable profit exceeding AED 375,000.

Multinationals: Large multinationals meeting specific criteria under the OECD’s BEPS Project Pillar Two will have a different tax rate.

Registration & compliance: Registering for Corporate Tax within three months of your UAE business registration is mandatory.

Qualifying income: Identify income streams that qualify for the 0% tax rate.

Record keeping: Implement robust recordkeeping systems compliant with IFRS to accurately track financials.

Tax Filing & payment: Familiarise yourself with tax return filing procedures and deadlines set by the UAE Ministry of Finance.

3. Impact on your business operations

Cost-benefit analysis: Assess how the corporate tax may impact your business profitability and competitiveness.

Transfer pricing: Review intercompany transactions to ensure they comply with arm’s length pricing principles and avoid potential tax adjustments.

Tax planning: Explore tax-efficient structures and legitimate deductions to minimize your corporate tax burden.

Entertainment expenses: Review the deductibility of entertainment expenses under current regulations, which may limit such deductions.

4. Revaluation & treatment of gains & losses

Unrealised vs. realised gains/losses: Understand the tax treatment of unrealised versus realised gains and losses on assets and investments.

Impact on tax basis: Consider how asset and investment revaluations might impact your tax basis and potential future tax liabilities.

5. Free zone considerations

Free zone audits: While not currently mandated, some Free Zone authorities may require audits. Be prepared for potential audits.

Free zone tax treatment: Qualifying Free Zone Persons have separate tax treatment. Maintaining adequate substance remains crucial for availing Free Zone tax benefits.

Transaction planning: Carefully plan transactions between your Free Zone entity and any mainland UAE operations to optimize tax efficiency. These transactions may be subject to scrutiny.

6. Ownership structure & tax implications

Tax residency: Your company’s ownership structure (individual, corporate shareholders, location of shareholders) can impact its tax residency for UAE corporate tax purposes. Understand how your ownership structure affects your tax obligations.

Tax groups: Businesses with at least 95% common ownership and meeting other conditions can form a tax group, allowing for consolidated tax filing and loss sharing. The holding structure should be based in the UAE.

7. Double taxation relief

UAE tax treaties: The UAE has a network of Double Taxation Agreements (DTAs) with many countries. Explore whether a DTA exists between the UAE and your company’s country of residence or operation. These DTAs can offer relief from double taxation on income earned in the UAE.

How can Ocorian support family businesses in the UAE?

Ocorian's UAE domestic and global teams are actively collaborating with numerous UAE family groups and their advisors. Their objective is to strategically assess existing structures, ensuring alignment with international tax standards, fortifying economic substance, and enhancing corporate governance best practices.

For more information contact our private client team today.