CT registration/deregistration, Tax return and Payments

Every Taxable Person will be required to electronically register for UAE CT with the Authority before applicable tax period and obtain a Tax Registration Number. The registration would need to be undertaken even if the Taxable Person has already been registered for VAT purpose.

In order to keep the administrative burden on taxpayers to a minimum, the CT Law requires a Taxable Person to file only one tax return for each Tax Period.

The filing will need to be done electronically no later than nine months from the end of the relevant Tax Period. Any UAE CT payable will also need to be settled within these timelines. While further guidance on the form of the UAE CT return will be provided by the Authority, the CT Law prescribes certain specific details, which inter alia includes the Tax Period to which the UAE CT return relates, the accounting basis used in the financial statements, the Taxable Income for the Tax Period, the amount of tax loss relief claimed, the available tax credits claimed and the UAE CT payable for the Tax Period.

Financial Statements

A Taxable Person may be required to submit the financial statements used to determine the Taxable Income for a Tax Period in the form and manner and within the timeline prescribed by the Authority.

Requirement to maintain audited or certified financial statements above revenue of AED 50 Million or for a Qualifying Free Zone Person.

TP Documentation

The following TP documentation requirements could be applicable for Taxable Persons (in both Mainland and Free Zone):

• The Authority may require a Taxable Person to file a disclosure form along with the Tax Return, containing information regarding the transactions and arrangements with Related Parties and Connected Persons;
• In case conditions prescribed by the Minister are met, a master file and local file must be maintained. The master file and local file should be submitted within 30 days upon request of the Authority.
• The Authority may also require any Taxable Person to submit (within 30 days) any information supporting the arm’s length nature of the transactions and arrangements with Related Parties and Connected Persons.

A Taxable Person that meets either of the following conditions shall maintain both a master file and a local file.

• Total consolidated group Revenue = AED 3,150,000,000 or more in the relevant Tax Period, or
• Taxable Person’s Revenue = AED 200,000,000 or more in the relevant Tax

Furthermore, the above TP documentation requirements will not be applicable to a Taxable Person that would be eligible for Small Business Relief.

Record Keeping

A Taxable Person must maintain all relevant records and documents for a period of seven years following the end of the Tax Period to which they relate.

Tax Period

A Taxable Person’s Tax Period is the financial year (the Gregorian calendar year, or the twelve-month period for which financial statements are prepared) or part thereof for which a UAE CT return is required to be filed.

A Taxable Person can make an application to the Authority to change the start and end date of its Tax Period, or use a different Tax Period, subject to conditions to be set by the Authority.

Clarifications and Advanced Pricing Agreements

A Person can make an application to the Authority for a clarification regarding any part of the UAE CT Law or for concluding an advance pricing agreement for a transaction or arrangement. The form and manner of the application is to be confirmed by the Authority.

Tax Assessment

A Taxable Person may be subject to a UAE CT assessment in accordance with the Tax Procedures Law. In case a non-compliance to the CT Law will be identified during the assessment, penalties and fines determined per Tax Procedures Law could be imposed.

Other Points

The Authority will be responsible for the administration, collection, and enforcement of UAE CT, while the MOF will remain the ‘competent authority’ in terms of international tax agreements and the exchange of information for tax purposes.

How can Digits help you?

Corporate Tax implementation is a difficult and cumbersome process. With our expert guidance, you can focus on growing your business while we handle your tax matters with care and precision. At Digits, we offer corporate tax services to help you file your corporate tax returns easily. We can assist you with tax planning, preparation, and submission of tax returns, ensuring that you receive the maximum benefits available under the law. Contact us right away to learn more about our various services. We will always bring our best people to support you.

General rule

As per Cabinet Decision No. (49) of 2023, business owners in the country will be subject to corporate tax only if their combined turnover in a calendar year exceeds Dh1 million (around $272,294). The aim of the decision is to clarify how the corporate tax regime will apply to UAE residents and non-residents.

For instance, if a sole proprietor generates over 1 million AED in annual revenues from their combined retail business registered in the mainland UAE, the profits of that business would now be subject to the 9% corporate tax rate.

Exemptions

Importantly, the Ministry has confirmed that personal income from sources like employment, investments, and real estate will not be taxed. So corporate tax liability will arise solely based on business or licensed commercial activity income earned by a taxpayer.

However, the following incomes also would fall outside the tax net as per the clarification:

• Interest Income
• Dividend Income
• Capital Gains earned in personal capacity
• Rental Income

Taxability

On the individual whose income crosses the limit UAE will be imposing a 9% rate on taxable annual profits exceeding 375,000 AED. Small businesses with revenues below that were kept tax-exempt. Additionally, in April 2023, the Ministry launched a Small Business Relief program exempting firms with under 3 million AED in annual revenue from tax liabilities for an initial period until the end of 2026. This provides headroom for SME growth.

In short,

Overall, individuals operating registered businesses in the UAE can breathe easy knowing that exceeding 1 million AED in revenues will not by itself land them in a tax liability trap. Proper strategic compliance continues to be advised, though, to pre-empt uncertainties.

Consultants specializing in the UAE market can help entities and entrepreneurs incorporate, file necessary registrations, and handle reporting requirements upon commencing operations. The technology solutions offered by them simplify regulatory adherence remotely.

How can Digits help you?

The taxation structure in the United Arab Emirates (UAE) has gained a lot of attention in recent times. Keep oneself updated is difficult in an individual point of view. Our specialists track policy updates, advising clients on implications. Technology-enabled services allow remote regulatory compliance and reporting. The experienced tax consultants at Digits can assist you in getting your tax liabilities sorted and staying complied to all the tax laws prevailing in UAE. We can help you navigate your taxable income and maintain all the required documents that may be mandatory. To know more about our personalized services, feel free to contact us now.

Summary on calculation of taxable income

Set out below is an illustrative/indicative summary of how Taxable Income will generally be computed for UAE CT purposes:

Net accounting profit/(loss) before tax

Fair value accounting and capital asset adjustments (subject to election)

• less/add: unrealised gains/losses
• less/add: foreign exchange gains/losses

Exempt income

• less: Dividends and profit distributions received from Resident juridical person
• less/add: Participation exemption

– dividends and profit distributions

– other income

– gains/losses from sale

– foreign exchange gains/losses

– impairment gains/losses

• less/add: foreign PE (subject to election)
• less: international transportation (non-residents only)

Reliefs

• Transfers within a qualifying group
• Business restructuring relief

Deductions

• add: expenditure not actually incurred (including provisions)
• add: expenditure of a capital nature
• add: expenditure not wholly and exclusively incurred for Taxable person’s business
• add: expenses incurred in relation to exempt income
• add: limitation on deduction of net interest expense (30% of EBITDA-rule)
• add: other non-deductible interest
• add: donations, grant, gifts to non-Public Benefit Entities
• add: 50% of entertainment expenses
• add: penalties and fines
• add: bribes and other illicit payments

Transactions with related parties and connected persons

Tax loss relief (limited to 75% of taxable income)

• less: carried forward losses
• less: intragroup transfer of losses

Taxable income

Tax liability

• Taxable income > AED375,000 x 9%
• Less: Withholding tax credit
• Less: Foreign tax credit
• Amount owing/refundable

How can Digits help you?

The introduction of the UAE corporate tax system constitutes a substantial shift for businesses operating within the country. Understanding the adjustments applicable when calculating UAE corporate tax is paramount for compliance and financial planning. As businesses operating in the UAE navigate this new tax environment, they must take into account not only their current financial obligations but also the potential effects of their tax liabilities on their future profitability. The potential experts at Digits can help you get your tax structure simplified and help you to stay complied with the authorities. Digits can serve you with the premium services in the best personalized manner possible so that your needs are met as per your expectations. To discover more about our robust services, approach our team now.

In the UAE, a Free Zone Person is defined as an individual or corporate entity that is licensed to conduct business activities in the UAE free zones. Free zones are designated areas in the UAE that offer a multitude of incentives to foreign investors, including 100% foreign ownership, tax exemptions, and more. These free zones have become a significant driving force in attracting foreign investment and propelling economic development in the UAE.

A Free Zone Person that is a Qualifying Free Zone Person can benefit from a preferential Corporate Tax rate of 0% on their “Qualifying Income” only.
In order to be considered a Qualifying Free Zone Person, the Free Zone Person must:

• maintain adequate substance in the UAE;
• derive ‘Qualifying Income’;
• not have made an election to be subject to Corporate Tax at the standard rates;
• comply with the transfer pricing requirements under the Corporate Tax Law; and
• maintains audited financial statements

The Minister may prescribe additional conditions that a Qualifying Free Zone Person must meet.

If a Qualifying Free Zone Person fails to meet any of the conditions, or makes an election to be subject to the regular Corporate Tax regime, they will be subject to the standard rates of Corporate Tax from the beginning of the Tax Period where they failed to meet the conditions.

Applicable rates for Freezone Persons

Irrespective of being a qualifying free zone person, every entity in the free zone must get registered and file a CT return.

If the pillar two rules are to be embedded in the UAE Corporate Tax regime, then qualifying free zone entities that are part of large multinational groups are subject to being charged a different CT rate.

What is qualifying income?

Qualifying Income of the Qualifying Free Zone Person shall include the below categories of income:

1. Income derived from transactions with a Free Zone Person, except for income derived from Excluded Activities.
2. Income derived from transactions with a Non-Free Zone Person, but only in respect of Qualifying Activities that are not Excluded Activities.
3. Income derived from the ownership or exploitation of Qualifying Intellectual Property under Clause (1) of Article (7) of this Decision.
4. Any other income provided that the Qualifying Free Zone Person satisfies the de minimis requirements under Article (4) of this Decision.

What are the excluded activities referred to above?

• Transactions with natural persons, subject to few exceptions (ships, aircraft, fund, wealth, investment)
• Banking and Insurance (except reinsurance) activities
• Finance and leasing activities except related to :
  • Treasury and financing to related party
  • Related to aircrafts and prescribed components
• Ownership or exploitation of immovable property except for commercial property within FZ with FZ persons
• Ownership or exploitation of intellectual property assets

What are the qualifying activities referred to above?

The following activities conducted by a Qualifying Free Zone Person shall be considered Qualifying Activities:

1. Manufacturing of goods or materials.
2. Processing of goods or materials.
3. Trading of Qualifying Commodities.
4. Holding of shares and other securities for investment purposes.
5. Ownership, management and operation of Ships.
6. Reinsurance services.
7. Fund management services.
8. Wealth and investment management services.
9. Headquarter services to Related Parties.
10. Treasury and financing services to Related Parties.
11. Financing and leasing of Aircrafts.
12. Distribution of goods or materials in or from a Designated Zone.
13. Logistics services.
14. Any activities that are ancillary to the Qualifying Activities specified in paragraphs (a) to (m) of this Clause.

What is this de minimis rule?

The de minimis requirements shall be considered satisfied where the non-qualifying Revenue derived by the Qualifying Free Zone Person in a Tax Period does not exceed lower of:

• 5% of total revenue, OR
• AED 5 million

How can Digits help you?

Are you an organisation in the free zone? Do you want to know whether you can avail the benefits of a qualified free zone. Qualified free zone area is a complicated topic with can result in multiple repercussions if not handled properly. However, the Digits Audit team of corporate tax experts is here to guide and support you. Our comprehensive legal, compliance, and tax advisory services will help you smoothly implement the corporate tax in the UAE. We’ll even help you evaluate your business’s categorization and take care of any necessary registrations or applications. Call us today, and let us provide the perfect solution for your needs!

Corporate Tax (CT)

In January 2022, the UAE Ministry of Finance announced the implementation of Corporate Tax all over the United Arab Emirates. As per the Ministry, the Corporate Tax law will be effective from the 1st of June 2023. The Corporate Income Tax will be applicable on or after 1st June 2023, depending on the financial year of the businesses. Corporate Income Tax is a form of direct tax levied upon income. The United Arab Emirates is not the only country that practices corporate tax in the global market. If we look into it, we can find that the US, India, France, and also other GCC countries such as Oman, Kuwait, and Qatar have implemented the Corporate Tax. Compared to these countries, UAE has the least corporate tax rate which is 9%. At the G7 countries meeting held in 2021, gulf countries entered into an agreement where a global minimum corporate tax of 15% was introduced.

The Federal Tax authority will be responsible for the administration, collection, and enforcement of UAE Corporate Tax, whereas the Ministry of Finance will remain as the competent authority for the intention of bilateral or multilateral agreements and the international exchange of information for tax purposes.

Implementation of Corporate Tax has always helped the countries in sustaining their economy. The acknowledgment of the corporate tax in UAE also intends to enhance corporate governance and thus reinforce the economy of the nation. The corporate tax can also be considered as the bullet train for the UAE to reach its strategic economic transformation.

Through the implementation of the Corporate tax, the UAE aims to cement its position in the global market as the leading hub for businesses and investments, to accelerate the development of the country, and also to reaffirm the country’s commitment in meeting the international standards for tax transparency and prevent unauthorized tax practices

Value-added tax (VAT)

VAT was introduced in the United Arab Emirates on 1 January 2018. The general VAT rate is 5% and applies to most goods and services, with some goods and services subject to a 0% rate or an exemption from VAT (subject to specific conditions being met).

The 0% VAT rate applies to goods and services exported outside the VAT-implementing Gulf Cooperation Council (GCC) member states, international transportation, the supply of crude oil/natural gas, the first supply of residential real estate, and some specific areas, such as health care and education.

Further, according to Cabinet Decision (No. 46 of 2020) on 4 June 2020, a person shall be considered as being ‘outside the state’, and thus fall under zero-rating export of services, if they only have a short-term presence in the state of less than a month and the presence is not effectively connected with the supply.

A VAT exemption applies to certain financial services, as well as to the subsequent supply of residential real estate. Further, transactions in bare land and domestic passenger transport are also exempt from VAT.

Certain transactions in goods between companies established in UAE Designated (Free) Zones (DZs) may not be subject to VAT. The supply of services within DZs is, however, subject to VAT in accordance with the general application of the UAE VAT legislation.

For UAE resident businesses, the mandatory VAT registration threshold is AED 375,000 and the voluntary registration threshold is AED 187,500. No registration threshold applies to non-resident businesses making supplies on which the UAE VAT is required to be charged.

VAT grouping is allowed, provided certain conditions are met.

There are specific documentary and record-keeping requirements, such as the requirement to issue tax invoices and submit VAT returns (on a quarterly or monthly basis depending on the allocation by the FTA).

Excess input VAT can, in principle, be claimed back from the FTA, subject to a specific procedure. Alternatively, VAT credits may be carried forward and deducted from future output VAT.

Businesses that do not comply with their VAT obligations can be subject to fines and penalties. There are both fixed and tax-geared penalties.

Customs duties

Generally, a customs duty of 5% is imposed on the cost, insurance, and freight (CIF) value of imports. Other rates may apply to certain goods, such as alcohol and tobacco, and certain exemptions and reliefs may also be available. Further, the United Arab Emirates imposes anti-dumping duties on imports of certain goods, such as car batteries, ceramic and porcelain tiles, and hydraulic cement. The anti-dumping duty rates vary depending on the HS codes of the goods and country of export and/or origin. In some cases, the anti-dumping duty is 67.5% of the CIF value of the goods.

The United Arab Emirates is part of the GCC Customs Union, which was established in 2003 to remove customs and trade barriers among the GCC member states. No customs duties are levied on trade between the GCC member states (subject to certain conditions). Additionally, the United Arab Emirates grants duty-free imports to most national goods originating in member countries of the Greater Arab Free Trade Agreement, Singapore, the European Free Trade Association countries (i.e. Norway, Switzerland, Iceland, and Liechtenstein), Israel, and India.

While the UAE free trade zones (FTZs) are areas within the territory of the United Arab Emirates, these are considered outside the scope of the customs territory. Therefore, goods imported into the UAE FTZs are not subject to customs duty. Customs duty is suspended until the goods are imported into the GCC local market.

Excise taxes

On 1 October 2017, the United Arab Emirates introduced an excise tax on tobacco and tobacco products, carbonated drinks, and energy drinks.

On 1 December 2019, the United Arab Emirates expanded the scope of excise tax to include sweetened drinks, electronic smoking devices and tools, as well as liquids used in electronic smoking devices and tools.

The applicable tax rates are as follows:

• 100% on tobacco and tobacco products, electronic smoking devices and tools, liquids used in electronic smoking devices and tools, and energy drinks.
• 50% on carbonated drinks and sweetened drinks.

Tourist Tax

The UAE requires foreigners to pay taxes when enjoying the luxurious amenities of resorts, restaurants, and hotels. Tax rates may vary in different emirates. Dubai, for instance, imposes a Tourism Dirham fee on hotel guests and tenants of hotel apartments ranging from AED 7 to AED 20 per room per night, depending on the hotel’s star rating. For example, a five-star hotel will charge AED 20 per room per night, while a two-star hotel may charge AED 10 per room per night.

Apart from the tourism Dirham fee, other charges and levies may also be included in the bill, including –

• Hotel Tax – 10%
• Service Fee – 10%
• Municipal Tax – 0 to 10%
• Tourist Fee – 6%
• City Tax – 6 to 10%

Property Transfer Tax

When purchasing a property in the UAE, residents are required to pay a transfer fee that varies by emirate. For instance, in Dubai, you’ll need to cough up 4% of the property value (split evenly between the buyer and seller), whereas, in Abu Dhabi, it’s just 2%. These charges apply to any direct or indirect transfers of real estate located within the UAE, including the transfer of shares in a company that holds real estate in the UAE.

Municipal rental Tax

Residential tenants in the UAE are required to pay the municipal rental tax, which is automatically added to their bill. Depending on the emirate, the percentage of the tax varies, with residents of Dubai paying an annual rental tax of 5% while residents of Abu Dhabi and Sharjah pay 3% and 2%, respectively. Furthermore, in the case of renting a commercial property, the tenants are required to pay a 10% municipal tax. It normally varies between 6% and 10%, depending on the emirate.

Withholding Tax

There is a 0% withholding tax prevailing in UAE as of now, which is the least amount charged among the GCC countries. Hence, it attracts more investors to UAE.

Apart from the above taxes, oil and gas exploration and companies are charged at a progressive rate of 55% at the emirate level.

Stamp taxes

Currently, there are no separate stamp taxes levied in the United Arab Emirates.

Payroll taxes

Since there is currently no personal income tax in the United Arab Emirates, there is no payroll tax withholding obligation for employers.

Social security contributions

There is a social security regime in the United Arab Emirates that applies to qualifying UAE and other GCC national employees only. Non-GCC nationals are not subject to social security in the United Arab Emirates.

For UAE national employees (with the exception of those employed in Abu Dhabi), social security contributions are calculated at a rate of 20% of the employee’s gross remuneration as stated in the local employment contract. Social security obligations also apply to employees of companies and branches registered in an FTZ. Out of the 20%, 5% is payable by the employee, 12.5% is payable by the employer, and an additional 2.5% contribution is made by the government. A higher rate of 26% is applied in the Emirate of Abu Dhabi, where the contribution of the employer is increased to 15%, the government’s contribution is increased to 6%, and the employee’s contribution remains 5%. The contributions are subject to a statutory minimum and maximum salary amount (against which the amount of the pension contributions is calculated) of AED 1,000 and AED 50,000, respectively.

For other GCC nationals working in the United Arab Emirates, social security contributions are determined in accordance with the social security regulations of their home country.

The employer is responsible for withholding and remitting employee social security contributions together with the employer’s share.

In the Dubai International Financial Centre (DIFC), the DIFC Employee Workplace Savings Scheme (DEWS) has been introduced, replacing the End of Service Gratuity Benefit (EOSG), with the aim of protecting long-term employee savings. The new scheme was rolled out on 1 February 2020, and employers now are required to make monthly contributions to DEWS or an alternative regulated Qualifying Scheme, as opposed to paying a lump sum ‘gratuity payment’ to an employee at the end of their employment. Employers are required to contribute monthly contributions of 5.83% or 8.33% of the employee’s basic salary (the actual percentage is contingent upon the employee’s length of service) into the scheme.

How can Digits help you?

As the UAE aims to fuel its economic growth and development, new taxes are on the horizon. Thus, it is essential for entrepreneurs planning to incorporate or expand their business in the UAE to keep up with the latest tax regulations and avoid any unwanted fines or penalties. By staying informed, businesses and individuals can make well-informed decisions and take advantage of the diverse opportunities that the UAE has to offer.  What you need is a support from an expert team like us who will take care of all of your compliance requirements on time. Digits can enhance your tax knowledge and assist you in framing proper tax policies to stay on the same page with the authorities and get possible tax benefits. Contact our expert tax consultants now and get tax advice to stay compliant.