UAE Corporate Tax Compliance

In UAE, Corporate tax law was effective from June 1, 2023. It introduced a federal corporate taxation on the net profits of UAE businesses. The person who conducts business activities in UAE with specific qualifications is subject to corporate taxation. The 9% of taxable profits will be levied as per UAE corporate tax regulations. Understand the basic concepts and UAE corporate tax compliance in this detailed article.

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Basic Concepts in UAE Corporate Tax

Here are fundamental concepts associated with UAE Corporate tax system. 

Taxable Person

"Taxable Person" is any entity (resident or non-resident) that conducts a business or commercial activity within the UAE's territorial boundaries. This includes a broad range of entities, including corporations, partnerships, limited liability companies, branches of foreign companies, and even sole proprietorships engaged in commercial activities. It's important to note that certain entities, such as UAE government entities, specific natural resource businesses, and qualifying public benefit organizations, are exempt from CT under defined criteria.

Taxable Income

The UAE CT system focuses on the concept of "Taxable Income," which forms the basis for calculating the tax liability. This refers to the gross income earned by a Taxable Person within the UAE, less any allowable deductions as outlined in the Corporate Tax regulations. Allowable deductions typically include expenses incurred wholly and exclusively for the purpose of generating the taxable income. The CT regime offers a structure, with a 0% tax rate for taxable income up to AED 375,000 and a standard rate of 9% for income exceeding this threshold.

Business Activity

For CT purposes, the concept of "Business Activity" encompasses any activity undertaken with the objective of generating profits. This covers a wide range of commercial efforts, such as trading goods and services, manufacturing, providing professional services, leasing assets, and engaging in investments that generate rental income. It's crucial to distinguish business activities from passive income streams, such as dividends received from foreign subsidiaries, which may be subject to different tax treatments.

Ongoing and Independent

The UAE Corporate Tax regime emphasizes the concept of "Ongoing and Independent" activities when determining a taxable presence. This implies that a business must have a physical or digital presence within the UAE and conduct its activities with a degree of continuity and autonomy. Mere one-off transactions or activities with a limited duration may not necessarily qualify as a taxable business activity under the CT regulations. Understanding this concept is critical for companies with limited operations in the UAE to assess their CT registration obligations.

Determining your Corporate tax Obligations

Not all businesses need to register for Corporate Tax. Here's how to determine your obligation:

• Exempt Entities:
• UAE government entities and controlled entities.
• Businesses engaged in specific extractive and non-extractive natural resource activities.
• Qualifying public benefit entities and investment funds (subject to conditions).
• Registration Threshold: Businesses with taxable income exceeding AED 375,000 in a financial year must register for CT.

Important Documents for Corporate Tax Compliance

Here are some key documents required for Corporate Tax compliance:

• Audited financial statements or financial records.
• Tax invoices and supporting documents for income and expenses.
• Transfer pricing documentation (if applicable).
• Contracts and agreements related to taxable activities.

Key Corporate Tax Compliance Requirements

Complying with UAE Corporate Tax involves several crucial steps:

• Corporate tax Registration: Registering for CT with the Ministry of Finance (MoF) is mandatory for taxable entities.
• Recordkeeping: Maintain accurate financial records for at least five years, including income, expenses, and transactions.
• Tax Returns: File CT returns electronically with the MoF within the stipulated deadlines (likely towards the end of 2024 for FY June 2023 - May 2024).
• Tax Payments: Pay any CT liability within the specified timeframe to avoid penalties.
• Transfer Pricing: Multinational corporations with related party transactions may need to comply with transfer pricing regulations.

When to Deregister from Corporate Tax?

Deregistration is necessary if the natural person is no longer subject to UAE Corporate tax. It usually occurs when the company's business activity ends. A single "Tax registration number" is provided for all of their business operations. Deregistration only comes into effect when all of the activities terminated. Application for deregistration must be submitted within the three months of cessation, by the natural person or legal representative. Before the submission, ensure all the necessary tax returns, payment of corporate tax, and penalties are completed. Deregistration is not approved if any of the requirements set by UAE government are not fulfilled or any of new business activity takes place within the same tax period application got submitted. 

Penalties for Non-Compliance

Failure to comply with CT regulations can result in penalties, including:

• Fines for late registration or filing of tax returns.
• Penalties for inaccurate or incomplete information in tax returns.
• Additional tax assessments and interest on unpaid taxes.

Conclusion

The UAE Corporate Tax regime, effective from June 1, 2023, introduces a 9% tax on the net profits of most businesses operating in the UAE. This article has provided a comprehensive overview of the key concepts, compliance requirements, and registration obligations for businesses navigating this new tax landscape. Understanding these aspects is crucial to ensure timely tax filings and avoid potential penalties.

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