What are the five essential aspects businesses should understand about the newly implemented corporate tax system in the UAE?

Definition of UAE Corporate Tax:

The UAE corporate tax is levied on the taxable income of a taxable entity over a specific tax period. This tax is an annual obligation, requiring the taxpayer to perform self-assessment to determine the amount owed to the government. Corporate tax returns are filed through the Federal Tax Authority website to calculate accurately and timely pay the tax liability. The calculation of corporate tax is based on the taxable income, which represents the net profit or loss before tax, as indicated in the taxpayer’s financial statements. Certain adjustments are necessary before arriving at the final taxable income figure for the tax period.

Registration for UAE Corporate Tax

Every taxable person, including those under the Free Zone Persons category, must register for corporate tax. In certain cases, the Federal Tax Authority (FTA) may require exempt persons to register, based on the Authority’s discretion. Upon completing the registration, they will receive a corporate tax registration number, which must be used to file corporate tax returns for each tax period. This filing must be completed within nine months from the end of the relevant tax period. Any corporate tax due must be paid within this timeframe to avoid penalties.

5 UAE Corporate Tax Facts You Must Know

1. Availability of Small Business Tax Relief Small businesses in the UAE can benefit from tax relief under the corporate tax law. This relief applies alongside the 0% corporate tax rate for businesses with taxable income up to AED 375,000. To qualify, businesses must have revenue below a specific threshold, which the Authority has yet to announce. The tax relief offers simpler compliance obligations, and the business’s taxable income is not considered taxable during the tax period. To avail of this relief, businesses must elect to the Federal Tax Authority (FTA). Both individuals specified by the government and UAE resident juridical persons can claim this relief if all conditions are met and approved by the FTA. Additionally, group relief is available for transfers between group companies if they qualify as a group, meeting certain ownership and residency criteria.
2. Tax Exemptions for Free Zone Persons (FZPs) Qualifying Free Zone Persons (FZPs) enjoy a 0% corporate tax rate on qualifying income and a 9% rate on other taxable income. To be considered an FZP, a taxpayer must have qualifying income, adequate substance in the UAE, and comply with transfer pricing requirements, among other conditions. Free Zone entities must register and file corporate tax returns, regardless of whether they qualify as an FZP. Election to be subject to regular tax rates can disqualify a taxpayer from being an FZP, resulting in the application of the standard corporate tax from the start of the next tax period.
3. Financial Records and Permission to Maintain Unaudited Statements All taxpayers must prepare and maintain financial statements to calculate taxable income and file corporate tax returns. Even exempt entities must keep records to prove their exemption status. These records must be stored for at least seven years. Tax groups can use consolidated financial statements for returns if they meet the criteria, such as a parent company holding at least 95% of share capital and voting rights. While not all entities need audited financial statements, those specified by the Minister must comply. Unaudited statements suffice for others but must be maintained as required and submitted upon the FTA’s request.
4. Anti-Avoidance Provisions The corporate tax regime includes general anti-avoidance provisions to prevent businesses from exploiting tax laws. The FTA has a seven-year window to audit and apply these provisions. Penalties for non-compliance can include interest payments and other fees. Anti-avoidance rules ensure that businesses do not misrepresent their financial positions to reduce tax, avoid compliance, increase refunds, or defer taxes unfairly. The FTA assesses factors like transaction timing and operational changes to identify unfair practices, ensuring businesses adhere to the intended tax laws.
5. Provisions for Influencers, Freelancers, and Individuals Doing Business Individuals engaged in business activities are subject to corporate tax, as specified by the Cabinet Decision. However, salaries and other employment income are exempt. Taxable income includes earnings from business activities conducted within the UAE, but not personal investments or interest income. Freelancers and influencers are considered self-employed and are taxed if engaged in specified taxable business activities. These individuals can apply for small business relief if they meet the necessary conditions, with further details to be provided by the FTA.