UAE Ministry of Finance has announced the introduction of corporate tax on business profits which will be effective from financial year starting from June 1, 2023. Here are the details being published in a series of articles.
You can read the Corporate Tax overview here: Overview
You can read the Corporate Tax Scope & Rate here: Scope & Rate
You can read the Corporate Tax Income Exemption, Foreign Persons, Free Zones info here: Income,foreign, freezone
Industry sectors
Q) Will the oil and gas sector and other extractive industries be subject to the UAE CT regime?
Businesses engaged in the extraction of natural resources will remain subject to Emirate level corporate taxation and be outside the scope of the UAE CT.
Q) Will the banking sector be subject to the UAE CT regime?
Banking operations will be subject to UAE CT. Further details on the current Emirate level corporate taxation will be provided in due course.
Q) Will the real estate sector be subject to the UAE CT regime?
Businesses engaged in real estate management, construction, development, agency and brokerage activities will be subject to UAE CT
Losses
Q) Will the UAE CT regime allow prior year losses to reduce future taxable income?
The UAE CT regime will allow a business to use losses incurred (as from the UAE CT effective date) to offset taxable income in subsequent financial periods. A loss for CT purposes (tax loss) would arise when the total deductions the businesses can claim are greater than the total income for the relevant financial period.
Q) Will excess CT losses be allowed to be carried forward and used in future years?
Excess tax losses may be carried forward and used against taxable income in future years, provided certain conditions are met. Further information on the UAE CT loss carry-forward rules will be provided in due course.
Q) Will a group be able to utilise the tax losses of one group company against the taxable income of another group company?
Tax losses from one group company may be used to offset taxable income of another group company, provided certain conditions are met Further information on the group loss utilisation rules will be provided in due course.
Tax group
Q) Will a group of UAE companies be able to form a “fiscal unity” for UAE CT purposes?
A UAE group of companies can elect to form a tax group and be treated as a single taxable person, provided certain conditions are met. A UAE tax group will only be required to file a single tax return for the entire group.
Withholding tax
Q) What is withholding tax?
Withholding tax is tax collected at source by the payer on behalf of the recipient of the income. Withholding taxes exist in many tax systems and are typically used in respect of dividends, interest, royalties and similar payments.
Q) What is the withholding tax rate under the UAE CT regime?
UAE withholding tax will not be applicable on domestic and cross-border payments of any nature under the UAE CT regime.
Tax credits
Q) Will foreign CT paid on UAE taxable income be recognised under the UAE CT regime?
Foreign CT paid on UAE taxable income will be allowed as a tax credit against the UAE CT liability.
Transfer pricing
Q) What are transfer pricing rules?
Transfer pricing rules seek to ensure that transactions between related parties are carried out on arm’s length terms (i.e. as if the transaction was carried out between independent parties).
Q) Will transfer pricing rules be applicable to UAE businesses?
UAE businesses will need to comply with transfer pricing rules and documentation requirements set with reference to the OECD Transfer Pricing Guidelines.
Administration
Q) Will businesses be required to register for UAE CT purposes?
Yes. More information on the registration process and ongoing compliance obligations for businesses will be provided in due course.
Q) How often will UAE businesses need to file a UAE CT return?
Only one CT return will need to be filed per financial period. No provisional or advance CT filings will be required. A financial period is generally a year.
Q) Will the CT return need to be filed electronically?
The CT return will need to be filed electronically. Further guidance will be issued in this regard in due course.
Q) Will businesses be required to pay tax in advance?
UAE businesses will not be required to make advance UAE CT payments.
Q) Are there any consequences for non-compliance under the CT regime?
Similar to other taxes in the UAE (e.g. VAT), businesses will be subject to penalties for non-compliance with the CT regime. Further information on the UAE CT compliance obligations and applicable penalties will be released in due course
IMP NOTE: The information in this page is meant to provide an initial introduction to the proposed UAE Corporate Tax (CT) regime in advance of relevant legislation being finalised and promulgated. It is not intended to comprehensively address all possible aspects of the UAE CT regime or to provide definitive answers, and should not be used for individual or business decisions as it does not represent the final legislation. This document is subject to change without notice.
Further information on the technical details and other specifics of the UAE CT regime will be made available in due course.
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