UAE Corporation Tax
As we begin 2023, you may already be aware of the UAE’s new Corporate Income Tax (CIT) regime which will be effective for financial years starting on or after 1st June 2023.
CIT at a rate of 9% will apply to all legal persons (individual and corporate) who carry out business activities under a commercial business license in the UAE (primarily, not solely).
The Ministry has confirmed that there will be no tax applicable on profits of up to AED 375,000, in a move that will help small businesses- and will only be applicable on profits of AED 375,000 and above.
Corporation tax will not apply on personal income from employment, real estate and other forms of investments, or any other income earned by individuals that do not arise from business or other forms of commercial activity.
In a bid to ensure that we give our clients the upmost support and guidance towards CIT, we are sharing this information now as the first step in familiarising you with the new rules however, the rules are not as straightforward as you may think!
Mainland and Freezone companies must ensure that only Freezone or offshore income is earned by a Freezone company if the concessional tax rate of 0% is to be accepted. Avoiding paying tax on non-taxable income may require transferring Freezone and offshore income to a standalone Freezone company. All companies will need to be audited annually and sign to verify that they have conformed with the rules.
It is necessary to determine whether a Freezone company earns Mainland sourced income but does not have a Mainland branch, otherwise there is strong likelihood that all income will be taxed at 9% (even Freezone and non-UAE based income)- avoiding this may require forming a branch or a new entity entirely.
Property and investment income earned by a company could be taxable, but not if earned by a natural person or in one of the business forms which will be treated as not being taxable. Various means to achieve this outcome are possible.
Reviewing a business or family investment structures can take time and identifying issues that need to be resolved may not be immediately obvious. If a restructure is required, then working out how to fix problems, drafting documents and implementing new structures will require careful thought and consideration and should not be rushed.
Freezone companies must comply with economic substance regulations (ESR) and consideration needs to be given as to whether customer contracts produce Freezone income alone, Freezone/ offshore income, or only Mainland income. Doing this requires a review of each contract, the functionality of services being provided and where profit is produced.
The closer this gets to the implementation date of 1st June 2023, you risk less professional tax expertise availability due to the same rush produced when VAT came into effect, which could leave your business exposed.
Your business must ensure that it falls in line with the new regulations or face a 9% tax rate where this may not be necessary, potential fines and/ or prosecution.
With the above in mind, AHR Corporate Services would be delighted to introduce you to a certified UAE tax advisor who we have partnered with who specialise in advising us and our clients on these issues.
We have prepared a special package for our clients to have a “health check” on their company/structures who will officially certify that your company either complies with CIT or will provide advice on how to achieve this, should this apply to you.
For a small fee of AED 3,000 + 5% VAT, you can receive the peace of mind you need when CIT comes into force later this year.
If you require further information on the UAE’s upcoming Corporation Tax and how it may affect your business, please reach out to us and one of our team will be in touch to discuss this further.
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Disclaimer: The material provided on this website does not constitute financial advice and is for information purposes only, the information provided is subject to change without notice.