CORPORATE TAX FAQ's

New corporate tax in UAE

The Federal Decree-Law No. (47) of 2022 on the Taxation of Corporations and Businesses - issued 3 October 2022 (Effective 15 days after publishing in the Official Gazette), provides the legislative basis for the introduction and implementation of a federal corporate tax in the UAE and is effective for financial years starting on or after June 1, 2023. 

Listed below are the key F.A.Q's from the Decree-Law:

D 41. What is taxable income?

The taxable income for a Tax Period is the accounting net profit (or loss) of the business, after making adjustments for certain items as defined in the Corporate Tax Law.

D 40. What income is exempt from UAE CT?

The following income is exempt from UAE CT:

1. Dividends and other profit distributions received from UAE incorporated or resident legal persons;

2. Dividends and other profit distributions received from a Participating Interest in a foreign juridical person;

3. Certain other income (e.g., capital gains, foreign exchange gains / losses and impairment gains or losses) from a Participating Interest;

4. Income from a foreign branch or permanent establishment where an election is made to claim the “Foreign Permanent Establishment” exemption; and

5. Income earned by non-residents from the operation or leasing of aircrafts or ships in international transportation where certain conditions are met.

D 39. How are UAE tax residents subject to UAE CT?

UAE resident juridical persons will be subject to UAE CT on their income source from both the UAE and from abroad, although certain income earned through foreign subsidiaries and income of foreign branches that is subject to tax in another jurisdiction will generally be exempt from UAE CT.

Where income earned from abroad is not exempt, relief for income taxes paid in the foreign jurisdiction can be taken as a credit against the CT payable in the UAE on the relevant income to prevent double taxation.

D 38. Who is considered resident for UAE CT purposes?

UAE incorporated companies such as LLCs, PSCs, PJSCs, and other UAE juridical persons will be subject to CT as resident persons.

An entity that is incorporated in the UAE will automatically be considered a ‘resident’ person for UAE CT purposes. Equally, an individual who is engaged in a business or business activity in the UAE will also be considered a resident person for UAE CT purposes.

A foreign company may be treated as a resident person for UAE CT purposes if it is effectively “managed and controlled” in the UAE. All facts and circumstances must be considered in determining where a company is effectively managed and controlled, but a relevant indicator may include the place where the strategic decisions affecting the business are made.

D 37. What is a “Business” or “Business Activity”?

The terms “Business” and “Business Activity” as defined in the Corporate Tax Law identify when the activities of certain persons give rise to a UAE CT liability by considering the person to be a taxable person.

“Business” means any economic activity, whether continuous or short term, conducted by any person. It is implied that a business is conducted with a profit motive, and that there is the existence of some system and organisation to the activity conducted. However, a business or business activity for UAE CT purposes does not lose its identity simply because it does not make a profit.

For the application of the Corporate Tax Law to companies and other juridical persons, all activities conducted and assets used or held will generally be considered activities conducted, and assets used or held, for the purposes of a “Business”.

Individuals can earn income from wages and salaries, investments or from practising a commercial, industrial or professional activity, either directly or as sole proprietor of a business. For natural persons, a Cabinet Decision will be issued in due course specifying further information on what would bring a natural person within the scope of UAE CT.

D 36. Will self-employed persons (e.g. freelancers) be subject to UAE CT?

Self-employed persons would only be subject to UAE CT if their activity is a taxable business or business activity as per the Cabinet Decision that will be issued in due course.

Even if the self-employed person is considered to be undertaking a taxable business or business activity, no CT would be payable on the first AED 375,000 of net income / profit earned from the activity, and further relief (small business relief) may be available to the self-employed person and other individual entrepreneurs.

D 35. Who will be required to register for UAE CT purposes?

All taxpayers, as prescribed by the Minister, will be required to register for UAE CT and obtain a Corporate Tax Registration Number. The Federal Tax Authority may also request certain Exempt Persons to register for UAE CT.

D 34. Will a Free Zone entity be required to register and file a UAE CT return?

Yes. All Free Zone entities will be required to register and file a CT return, irrespective of whether they are a Qualifying Free Zone Person or not.

D 33. Is there a registration threshold for UAE Corporate Tax?

There is no registration threshold for UAE Corporate Tax.

D 32. I am already registered for VAT purposes. Do I have to register for UAE CT?

Yes. Taxpayers will be required to register for UAE CT (and update their details, if required), even if they are already registered for VAT.

D 21. What are transfer pricing rules?

Transfer pricing rules seek to ensure that transactions between Related Parties are carried out on arm’s length terms, as if the transaction was carried out between independent parties. To prevent the manipulation of taxable income, various articles in the Corporate Tax Law require that the consideration of transactions with Related Parties and Connected Persons needs to be determined by reference to their “Market Value”.

VAT FAQ's

B31) I paid on time, but forgot to file my return. Can I avoid late fees?

The mistake means a Dh1,000 fee plus interest is owed to the Federal Tax Authority.

The quarterly VAT return process has two parts. First, you must complete and submit the VAT return online in the Federal Tax Authority’s Portal and secondly make the required VAT payment, which can be done through various channels, including e-dirham, visa or debit cards, bank transfer or through UAE Exchange. 

The FTA legislation explains that making a payment is not recognised until the corresponding VAT return has been filed. Therefore, despite making the payment in full and the funds reflected on your FTA account, the FTA don’t recognise that payment against your missing VAT return. Read more...

A34) Can I reclaim the VAT on a New Year party for my staff?

The Federal Tax Authority have issued some really useful Public Clarification guides which can be found on their website under 'getting help'.  These guides give additional detail to the published legislation on certain topics. There is one entitled “Non recoverable input tax – entertainment services”.  There is a specific section on entertainment provided to employees which states: “Where events are held purely for the purposes of entertaining staff, for example staff parties, the VAT incurred on the associated costs shall be blocked from recovery unless a charge is made to the employee for attending." So, if you are paying for the party, you cannot recover the VAT. Read more...

B25) Do I have to pay VAT twice on an item posted to the UAE?

Article 50 of the Executive Regulations of the Decree Law states that where goods are imported into the UAE by a consumer (defined as someone not registered for VAT) then UAE VAT must be paid to the authority before the goods are released. This is why the courier will charge you UAE VAT plus a fee for collecting the VAT at the point of delivery, and this process is entirely compliant with the legislation. Read more...

A36) Should companies deregister if they make less than Dh375,000?

VAT de-registration is where a registered taxable person cancels their existing VAT registration. They then no longer charge tax on their sales and cannot claim any input VAT recovery. The Federal Tax Authority legislation sets out rules for both mandatory and permissible de-registration.

You must de-register if your business stops making taxable supplies entirely, or if the total value of these supplies in the preceding 12 months is less than the voluntary registration limit of Dh187,500. Read more…

A28) What entertainment expenses can my company reclaim VAT on?

The legislation in this area is very general, so it was welcomed when the Federal Tax Authority recently issued detailed guidance on the subject.

Where goods or services are purchased for employees to use - at no cost for them and for their personal benefit - including the provision of entertainment, then the VAT incurred on the cost is not recoverable. There are three circumstances in which a taxable entity is entitled to recover the tax on such costs.

Firstly, where there is a legal obligation to provide those services or goods to employees, for example medical insurance in Dubai.  Secondly, where there is a contractual obligation or company policy to provide those goods or services to employees to ensure they perform their role, it must also be part of the normal business practice. Read more...

 

No VAT on donations, grants, sponsorships in some cases: FTA

The Federal Tax Authority, FTA, has clarified that donations, grants and sponsorships are outside the scope of Value Added Tax, VAT, only when no benefit is received in return.

Any benefit in return for such payments will be subject to VAT, the authority said. Read more...

FTA clarifies VAT on healthcare of employees' families

The Federal Tax Authority issued a clarification on insurance that states that an employer would only be able to claim the input VAT on the health insurance provided to employees' families if it is the legal obligation of the employer to provide the insurance.

Pratik Shah, partner at Dhruva Advisors, said there is no legal obligation in Dubai on the employer to provide health insurance to the family of an employee, whereas Abu Dhabi mandates employers to provide such extended benefits. Read more...

Compensation payments are not subject to VAT, the Federal Tax Authority says

Companies and consumers in the UAE will not be taxed on payments listed in their business and legal contracts, such as a speeding ticket or a late-delivery fine, unless these payments are related to the supply of goods and services, according to the Federal Tax Authority. Read more...

FTA clarifies VAT for independent director fees

The Federal Tax Authority (FTA) has confirmed that the date of supply for value-added tax (VAT) with regard to independent directors' services is determined either in accordance with the general rules or the special rules, depending mainly on whether the fees for the said directors were known from the outset or not. Read more...

Profit margin scheme applies only to goods already subjected to VAT: FTA

The Federal Tax Authority (FTA) has reaffirmed on Monday that the profit margin scheme - which allows a taxable person to calculate value added tax on eligible supplies on the basis of the profit margin earned instead of the original selling price - cannot be used in cases where VAT was not earlier charged.

Such instances include if the goods were purchased by the taxable person prior to the implementation of VAT, or if stock in hand was also acquired prior to January 1 2018, the FTA clarified. Read more...

What is tax?

It is a monetary contribution imposed by a government on individuals and organizations to raise revenue to pay for public services.

What is Excise Tax?

It is a tax on specified goods that are intended for consumption in the UAE. Tax is due when goods enter free circulation in the UAE. It is not a transaction-based tax, which means that goods do not need to be sold for the tax to be due.

What is the effective date of Excise Tax in the UAE?

Federal Decree-Law No. (7) of 2017 on Excise Tax was issued on 17^th August, 2017 and is effective from 1^st October, 2017.

Which goods are subject to excise tax in the UAE?

• Carbonated drinks – 50%
• Energy drinks – 100%
• Tobacco – 100%

On which value will excise tax apply to?

Excise tax will be applied to the retail selling price of specified goods at the applicable rates.

What are the details of retail selling price issued?

You can find a list here.

Who is required to register for excise tax?

Producers, Importers, Stock pilers and Warehouse keepers of Excisable goods.

What should businesses required to pay excise tax do?

Register with the FTA, submit monthly excise tax returns and pay the excise tax due on the same date as submitting the tax return.

When is excise tax due?

Excise tax is due when goods enter free circulation in the UAE.

Will excise tax be payable by travellers entering the UAE?

Travellers will not need to pay excise tax on goods if the value of goods is below the Custom Duty exemption threshold. Where the value of excise goods exceeds the exemption threshold, then excise tax will be due on the total value of goods.

Will refunds of excise tax be available?

Excise tax is paid once in the supply chain and a refund will be available under limited circumstances.

Can payment of excise tax be delayed until the goods are sold?

Since excise is due at the point the goods are released for consumption in the UAE, payment of excise tax cannot be delayed till goods are sold.

Will excise tax apply to goods released for consumption in a free-zone?

Yes, including a free-zone that is registered as a designated zone.

Will samples be subject to excise tax?

Regardless of whether or not they are intended for sale, excisable goods will be subject to excise tax.

Office 408, Indigo Icon,

Cluster F, Jumeirah Lake Towers,

Dubai, UAE

(T) + 971 4 453 9709

(E) [email protected]