On December 09, 2022, the UAE Ministry of Finance released the long-awaited Business Tax Law (Federal Law No. 47 of 2022, “CTL“). It is effective 15 days after its publication and applies to tax periods beginning on or after 01 June 2023. This legal briefing will provide an overview of the main points and proposed proposals. .

General Affairs & Administration

Corporate income tax (CIT) may apply for financial years beginning on or after June 1, 2023. Companies with a financial year beginning on January 1, will be subject to CIT from January 1, 2024.

Taxpayers must register with all Federal Authorities (see definition below). get a tax registration number (different from the current TRN issued for VAT) and the login credentials for the portal.

Tax returns must be filed within 9 months from the end of the financial year / tax period. CIT (if any) is payable – also – in 9 months from the end of the financial year / tax period. All records and documents related to CIT must be kept for 7 years (following the year of their relationship).

Must prepare and provide Federal Authorization (upon request) audited financial statements.

The CTL explains many things related to the introduction of CIT in the UAE. However, many details are still subject to additional requirements that should be included Implementation of CTL regulations. These Implementing Rules have not yet been published.

Taxable persons

The CTL defines these resident and non-resident persons who are subject to tax under the law.

population:

Non-residents:

  • Any entity incorporated or established in the United Arab Emirates (including free zone entities)
  • A company duly incorporated under foreign ownership but effectively managed and controlled from the UAE
  • A natural person carrying out commercial activities (freelancer, sole proprietorship) in the UAE (?)
  • Incorporated Partnership (if elected as a taxable person)
  • Foreign companies or individuals with a permanent establishment in the UAE (including branches, offices, factories, workshops, residences, houses or buildings for at least 6 months)
  • Foreign companies receiving money from the UAE
  • Foreign companies with connections in the UAE

Free Zone Company

The companies included in the free zone, can choose to be exempt from corporate tax under the following conditions:

  • Maintain sufficient raw materials in the United Arab Emirates (meets ESR standards);
  • Earn a decent income;
  • Elect not to be subject to corporate tax;
  • Complies with arm’s length rules and transfer pricing documentation.

Unfortunately, the CTL does not specify what income is to be classified as “income”; the definition will be given in the implementing rules which have yet to be published.

The advantage of such an exclusion is the corporate tax rate of 0% of taxable income. Income that does not meet the exclusion is taxed at a rate of 9%. However, free zone companies that choose to be exempt from corporate income tax cannot be included in the tax group and/or benefit from losses. corporate tax of the group.

Taxable income

According to the CTL, the taxable income that is the basis for the calculation of the CIT, is defined and calculated as follows:

Profit/loss account

– unrealized gains or losses

– unpaid income (dividends

from the population)

– help

– deductions (expenses)

– dealing with related

parties and related persons

– tax loss

= Taxable income

Summary & Recommendations

Although the long-awaited CTL was finally published and brought some clarification, one of the main questions remains unanswered: How to tax free zone companies is still unclear. Each – unpublished – Rules of application expected to provide more information on this topic.

Foreign companies operating in the UAE either through branches or other forms of permanent establishment are subject to CIT. In particular, structures where consultants and freelancers work for foreign companies in the UAE are subject to corporate income tax.

The company must prepare the accounting / finance department for the registration, submission and payment of future taxes because it does not depend on VAT. Entities that are not required to prepare and/or submit audited financial statements until now, must start doing so at the latest in the 2023 financial year (as this is the opening balance for the first tax period in 2024).

Additionally, companies operating in the UAE are advised to review their existing corporate structure and intercompany agreements regarding their operations in the UAE.



Source link