UAE to set up bankruptcy courts to rule on disputes

The UAE will set up specialised courts to handle bankruptcy cases as the government seeks to overhaul the restructuring and insolvency legal framework, streamlining the process to enhance investor trust further.

A federal law on financial restructuring and bankruptcy was published in the UAE Gazette on October 31 and will come into effect from May 1, 2024, according to legal experts.

Currently, a dedicated section of the Courts is led by a Court of Appeal judge responsible for overseeing bankruptcy and restructuring matters. The new law protects and streamlines the process and avoids separate enforcement proceedings for creditors. Read more..

D 64. Will remuneration paid to management be a deductible expense for Corporate Tax purposes?

Remuneration paid to the management of a business will generally be a deductible expense for Corporate Tax purposes. 

There are a few specific cases that may impact on the amount of remuneration that can be deducted. These are:

1. Where the remuneration is paid to a director or owner of the business or to someone who is related to the director or the owner and considered a Connected Person, the remuneration should reflect the market rate for the relevant role and services performed. Any amount paid that is above the market rate would not be deductible.

2. Where a company pays a management fee to its parent or any other Related Party, transfer pricing rules will need to be considered to ensure that the fee is at arm’s length. Any amount paid that is above the arm’s length price would not be deductible.

Applicability of UAE Corporate tax to a Non-Resident Person

The Corporate Tax Law defines the term “Non-Resident Person” to mean a Taxable Non-Resident Person. However, it is important to note that not all Non-Resident Persons are subject to Corporate Tax in the UAE.

Under the Corporate Tax Law, the term “Non-Resident Person” means a Person who is not a Resident Person. It is therefore necessary to first understand who a Resident Person is.

A Resident Person [1] is any of the following Persons:

a.   A juridical person that is incorporated or otherwise established or recognised under the applicable legislation of the State, including a Free Zone Person.

b.   A juridical person that is incorporated or otherwise established or recognised under the applicable legislation of a foreign jurisdiction that is effectively managed and controlled in the State.

c.    A natural person who conducts a Business or Business Activity in the State.

Therefore, a Non-Resident Person is:

• A Natural Person who is not a Resident Person (see above) but:

     a.  has a Permanent Establishment in the UAE and has a Turnover attributable to their                                              Permanent Establishment that exceeds AED 1,000,000 within a Gregorian calendar year; or

     b.  derives State Sourced Income, (i.e. income accruing in, or derived from, the UAE).

• A Juridical person that is incorporated or formed outside the UAE and not effectively managed and controlled in       the UAE to the extent they:[2]

     a. have a Permanent Establishment in the UAE (i.e. a fixed place of Business or other form of presence in the               UAE); or

     b. derive State Sourced Income, (i.e. income accruing in, or derived from, the UAE); or

     c. have a nexus in the UAE.