The fixed or permanent place used to keep, store, display or deliver the goods of a non resident person shall not be assumed PE of the non resident person. But if the non resident person or its related party has another PE within the tax jurisdiction, which has business cohesive or integrated operations with this fixed or permanent place, and on all overall basis, activities of all operations are not being used for preparatory or ancillary activities for the non resident within the tax jurisdiction, then it will be assumed that non resident has PE within the tax jurisdiction.
Generally the tax returns are filed based on the accrual system of accounting – but FTA allows entities to submit their return on Cash basis too – if they follow actual basis accounting.
EMARATAX platform shall be used to register for corporate tax The FTA will determine and contact certain types/categories of companies during the period Jan- May 2023 and will prompt for their registration. FTA clearly stated that such companies chosen this way shall be contacted by them through email in order to facilitate their registration.
FTA will send out ‘ INVITATION TO REGISTER’ and is expected to provide the link- one may simply click and follow the link for registration purposes.
It would be mandatory for all companies and individuals to register for CT even if their income is less than the VAT or profit threshold of AED. 375K
For the purpose of transparency the Partnership are split in to two; local and foreign.
‘ A relationship established by contract between two persons or more such as partnership or trust or any other similar association of persons in accordance with the applicable legislation of the state’
Based on the above explanation we can conclude that un incorporated partnership is merely a contract between the parties in accordance with the legislation of the state and has no legal status while the Incorporated Partnership has a legal status.
Article 16(1) clearly stipulate that law requires an Un incorporate partnership itself shall not considered as taxable person but the partners conducting the business as an un incorporated shall be treated as taxable persons. Such un incorporated partnership with no legal personality are called ‘ transparent’ and the income of such partnership is taxable in the hands of the partners in their respective share of income.
The tax treatment of a foreign partnership in the UAE is the same as these partnerships are being treated in the respective country. If the foreign partnership are not taxable, but each partner is individually subjected to tax for their share of income, then these partnerships will also be considered ‘ Transparent ‘ in the UAE tax law. However if the tax applies to partnership in cross- border territory, it will be treated as a judicial person.
Before we get in to details it is important to understand the terms attached to Free Zone corporate tax: Free Zone, Free zone persons, qualifying free zone persons and qualifying income:
As stated in Article 3 of the Law’ A designated and defined geographical area within the state that specified in a decision issued by a Cabinet at the suggestion of the Minister’ based on this definition, it looks all free zones of the UAE qualify as Free Zone for corporate tax purposes – it is expected that the FTA will issue with a detailed explanation and list to this affect.
A Free Zone person is “ A judicial person incorporated, established or otherwise registered in a Free Zone including a branch of a non resident person registered in a Free Zone. From this definition it is clear that a natural person who conducts business in the UAE and a judicial person not established in the Free Zone cannot be classified as a free zone person. The free zone persons can be judicial persons like limited liability companies, partnership firms where the liability of any of the partners is not unlimited means limited liability partnership, funds structured as a legal entity, public shareholding companies, public joint stock companies, branches of a non resident judicial persons etc established and incorporated in the UAE.
What is Corporate Tax?
Corporate Tax is a form of direct tax levied on the net income or profit of corporations and other businesses. Corporate Tax is sometimes also referred to as “Corporate Income Tax” or “Business Profits Tax” in other jurisdictions.
Why is the UAE introducing CT?
A competitive CT regime based on international best practices will cement the UAE’s position as a leading global hub for business and investment, and accelerate the UAE’s development and transformation to achieve its strategic objectives
Introducing a CT regime reaffirms the UAE’s commitment to meeting international standards for tax transparency and preventing harmful tax practices
Is the UAE the first country to introduce CT?
Most countries in the world have a comprehensive CT regime, including most of the GCC Member States
When will the UAE CT regime become effective?
The UAE CT regime will become effective for financial years starting on or after 1 June 2023
Examples:
A business that has a financial year starting on 1 July 2023 and ending on 30 June 2024 will
become subject to UAE CT from 1 July 2023 (which is the beginning of the first financial year
that starts on or after 1 June 2023)
A business that has a (calendar year) financial year starting on 1 January 2023 and ending on
31 December 2023 will become subject to UAE CT from 1 January 2024 (which is the
beginning of the first financial year that starts on or after 1 June 2023)
Will UAE CT be applicable to businesses in each Emirate?
The UAE CT is a Federal tax and will therefore apply across all Emirates
What will be the role of the Federal Tax Authority?
The Federal Tax Authority will be responsible for the administration, collection, and enforcement of UAE CT
What will be the role of the Ministry of Finance?
The Ministry of Finance will remain the ‘competent authority’ for purposes of bilateral/multilateral agreements and the international exchange of information for tax purpose
Who will be subject to UAE CT?
UAE CT will apply to all UAE businesses and commercial activities alike, except for the extraction of natural resources, which will remain subject to Emirate level corporate taxation
How do you determine whether a legal entity has a “business” that will be within the scope of UAE CT?
All activities undertaken by a legal entity will be deemed “business activities” and hence be within the scope of UAE CT
How do you determine whether an individual has a “business” that will be within the scope of
UAE CT?
This would generally be done by reference to the individual having (or being required to obtain)
a business licence or permit to carry out the relevant commercial, industrial and/or professional
activity in the UAE
How do you determine the business profit / income that will be subject to UAE CT?
The taxable income will be the accounting net profit of a business, after making adjustments
for certain items to be specified under the UAE CT law
The accounting net profit of a business is the amount reported in the financial statements
prepared in accordance with internationally acceptable accounting standards
What will the UAE CT rates be?
The CT rates are:
0% for taxable income up to AED 375,000;
9% for taxable income above AED 375,000; and
a different tax rate for large multinationals that meet specific criteria set with reference to 'Pillar
Two' of the OECD Base Erosion and Profit Shifting project
What is meant by “large” multinationals?
A multinational corporation is a corporation that operates in its home country, as well as in
other countries through a foreign subsidiary, branch or other form of presence / registration.
Merely earning income from outside its home country without a foreign presence or registration
would not make a business a multinational corporation
In the context of the global minimum effective tax rate as proposed under 'Pillar Two' of the
OECD Base Erosion and Profit Shifting project,” large” refers to a multinational corporation that
has consolidated global revenues in excess of EUR 750m (c. AED 3.15 bn)
Will an individual’s salary income be subject to UAE CT?
UAE CT will not apply on an individual’s salary and other employment income (whether
received from the public or private sector)
Will an individual who has a commercial license to carry out business in the UAE be subject to
UAE CT?
Business income earned under a commercial license will be within the scope of UAE CT
Will an individual who invests in UAE real estate be subject to UAE CT?
The investment in real estate by individuals in their personal capacity should not be subject to
UAE CT provided the individual is not required to obtain a commercial license or permit to
carry out such activity in the UAE.
Will an individual be subject to CT on investment returns?
Individuals will not be subject to UAE CT on dividends, capital gains and other income earned
from owning shares or other securities in their personal capacity
Will the income earned by a freelance professional be subject to UAE CT?
UAE CT will generally apply to income earned from activities carried out under a freelance
license / permit, albeit no CT will be payable unless the annual net income of the freelance
professional exceeds AED 375,000 .
Will income earned by an individual from bank deposits be subject to UAE CT?
Interest and other income earned by an individual from bank deposits or saving schemes will
Will anyone be exempt from UAE CT?
Businesses engaged in the extraction of natural resources will remain subject to Emirate level
corporate taxation and be outside the scope of UAE CT
Information on other UAE CT exemptions and exclusions will be provided in due course
Income exempt from CT
Will any income be exempt from UAE CT?
Dividends and capital gains earned by a UAE business from its qualifying shareholdings will be
exempt from UAE CT
What is a ‘qualifying’ shareholding?
A qualifying shareholding refers to an ownership interest in a UAE or foreign company that
meets certain conditions to be specified in the UAE CT law
Will intra-group transactions be exempt from UAE CT?
Qualifying intra-group transactions and reorganizations will not be subject to UAE CT provided
the necessary conditions are met
Will a foreign company or individual be subject to UAE CT?
Foreign entities and individuals will be subject to UAE CT only if they conduct a trade or
business in the UAE in an ongoing or regular manner
Will income earned by a foreign investor be subject to UAE CT?
UAE CT will generally not be levied on a foreign investor’s income from dividends, capital
gains, interest, royalties and other investment returns
Will a free zone business be subject to UAE CT?
Free zone businesses will be subject to UAE CT, but the UAE CT regime will continue to
honour the CT incentives currently being offered to free zone businesses that comply with all
regulatory requirements and that do not conduct business with mainland UAE
Will a free zone business be required to register and file a CT return?
A business established in a free zone will be required to register and file a CT return
Further details on the compliance obligations of free zone businesses will be provided in due
course
Will the UAE CT treatment be different for a free zone business established in a financial free
zone?
The UAE CT treatment that will apply to businesses in free zones will be the same across all
free zones
INDUSTRY SECTORS
Will the oil and gas sector and other extractive industries be subject to the UAE CT regime?
Businesses engaged in the extraction of natural resources will remain subject to Emirate level
corporate taxation and be outside the scope of the UAE CT
Will the banking sector be subject to the UAE CT regime?
Banking operations will be subject to UAE CT
Further details on the current Emirate level corporate taxation will be provided in due course
Will the real estate sector be subject to the UAE CT regime?
Businesses engaged in real estate management, construction, development, agency and
brokerage activities will be subject to UAE CT
LOSSES
Will the UAE CT regime allow prior year losses to reduce future taxable income?
The UAE CT regime will allow a business to use losses incurred (as from the UAE CT effective
date) to offset taxable income in subsequent financial periods
A loss for CT purposes (tax loss) would arise when the total deductions the businesses can
claim are greater than the total income for the relevant financial period
Will excess CT losses be allowed to be carried forward and used in future years?
Excess tax losses may be carried forward and used against taxable income in future years,
provided certain conditions are met
Further information on the UAE CT loss carry-forward rules will be provided in due course
Will a group be able to utilise the tax losses of one group company against the taxable income
of another group company?
Tax losses from one group company may be used to offset taxable income of another group
company, provided certain conditions are met Further information on the group loss utilisation
rules will be provided in due course
TAX GROUP
Will a group of UAE companies be able to form a “fiscal unity” for UAE CT purposes?
A UAE group of companies can elect to form a tax group and be treated as a single taxable
person, provided certain conditions are met
A UAE tax group will only be required to file a single tax return for the entire group
WITHHOLDING TAX
What is withholding tax?
Withholding tax is tax collected at source by the payer on behalf of the recipient of the income
Withholding taxes exist in many tax systems and are typically used in respect of dividends,
interest, royalties and similar payments
What is the withholding tax rate under the UAE CT regime?
UAE withholding tax will not be applicable on domestic and cross-border payments of any
nature under the UAE CT regime
TAX CREDITS
Will foreign CT paid on UAE taxable income be recognised under the UAE CT regime?
Foreign CT paid on UAE taxable income will be allowed as a tax credit against the UAE CT
liability
Transfer pricing
What are transfer pricing rules?
Transfer pricing rules seek to ensure that transactions between related parties are carried out
on arm’s length terms (i.e. as if the transaction was carried out between independent parties)
Will transfer pricing rules be applicable to UAE businesses?
UAE businesses will need to comply with transfer pricing rules and documentation
requirements set with reference to the OECD Transfer Pricing Guidelines
Administration
Will businesses be required to register for UAE CT purposes?
Yes. More information on the registration process and ongoing compliance obligations for
businesses will be provided in due course
How often will UAE businesses need to file a UAE CT return?
Only one CT return will need to be filed per financial period. No provisional or advance CT
filings will be required. A financial period is generally a year
Will the CT return need to be filed electronically?
The CT return will need to be filed electronically. Further guidance will be issued in this regard
in due course
Will businesses be required to pay tax in advance?
UAE businesses will not be required to make advance UAE CT payments
Are there any consequences for non-compliance under the CT regime?
Similar to other taxes in the UAE (e.g. VAT), businesses will be subject to penalties for non-
compliance with the CT regime. Further information on the UAE CT compliance obligations
and applicable penalties will be released in due court.
