CT’s update notes that if an early-stage company incurs early-stage costs and suffers early losses, “the losses can be carried forward indefinitely, and profits can be made over the next few years.” suggests.
WTS Dhruva Consultants Partner Nimish Goel said: “This is in addition to the general provision of 0% tax on taxable income up to Dh375,000.
This is a fairly comprehensive law and incorporates quite a few proposals that the Treasury Department has sought in public hearing documents. A key inclusion is an anti-avoidance clause intended to deter potential tax abuse.
– Nimish Goel, WTS Dhruva Consultants
“Some companies will be exempt from having their accounts audited and will be permitted to use unaudited financial statements to prepare their CT debt. It will be a huge relief for such companies.”
Clearly, the UAE authorities intend to make the CT burden as light as possible in setting up or operating a new business in the market. Impressions from consultancies and other sources indicate that 2023 will see continued business transfers to the UAE, with the Gulf and Middle East regions expected to maintain higher than average GDP growth.
Reduction of CT burden for new business
According to the United Arab Emirates Ministry of Finance, the 0% threshold of taxable profits, which includes Dh 375,000, is done in “recognition of the important role of start-ups and SMEs in the economy”.
The standard tax rate of 9% also ensures that the corporate tax system is “one of the most competitive in the world and strengthens the UAE’s position as a global business and financial center.”
“The United Arab Emirates has accelerated its residency reforms with a view to bringing in investment and talent,” said an entrepreneurial consultant. “New startups are launching, the tech sector is booming, and freelance-led project work is on the rise.
“By reducing the CT burden on these companies, they will be able to grow, grow faster, and be in a position to pay their share of the tax later.”
The Dh375,000 limit is reasonable to bail out small businesses and we do not expect the limit to be increased further in the near future.
– Jitendra Janchandani of JGG
feedback is integrated
After the UAE announced a landmark transition to introduce CT from June 2023, relevant ministries and other relevant authorities sought in-depth public consultation and feedback from companies, consultancies and others.
Much of the feedback thus generated has been woven into the regulations that became law last week.Businesses under the Free Zone have also been made clearer about where they stand against the CT’s obligations.
“Existing free zone entities are eligible to benefit from a 0% CT rate on eligible income,” the decree states.
free zone incentives
So, what kind of qualifications do companies/individuals who operate free zones have?
Jitendra Janchandani, Chairman of the JGG, said: “‘Eligible Free Zone Persons’ are those who maintain sufficient ‘substance’ (i.e., sufficient office and staff capacity to match their income). and have company directors in the state).” “And they earn ‘qualified income’ (income from a business located outside the UAE, or from a free zone or other business within a free zone), maintain separate books of accounts, and comply with fair transfer prices. is needed. ”
Free zone companies and their CT obligations
Free zone persons with branches in the UAE mainland are taxed at normal CT rates.
Free zone persons can still benefit from the 0% CT if their income from the UAE mainland is limited to “passive” income. This means income from interest and royalties, as well as dividends and capital gains.
The 0% CT rate also applies to transactions between free zone entities and mainland UAE group companies.
Credit: RNI Consulting
due diligence
The new CT Decree states that “corporate tax compliance and administration requirements are tailored to the different categories of taxpayers, recognizing the diversity of businesses that fall within the scope of the new CT regime.” says.
“In addition, the corporate tax regime provides generous relief for intra-group transfers and restructurings, allowing group companies to take advantage of each other’s available tax losses.”
Companies should do more due diligence when it comes to new investments. Vijay Varecha, chief investment officer at Century Financial, said: “This tax forces them to pay more attention in all such planning.” investment is encouraged.
“This will help support domestic infrastructure, healthcare and other development projects and improve the overall quality of life for UAE citizens.”
investment trust
Investment funds structured as legal entities – this includes real estate investment trusts (REITs) or partnership funds, that apply to be treated as a taxable person for UAE CT purposes – seek exemption from the UAE CT from the federal tax authorities You can apply. Meet specific requirements.
A wholly-owned UAE investment holding company (or other special purpose company used by investment funds to deploy capital and hold investments) can also apply to the federal tax authorities for the CT exemption granted to investment funds. .
indebted company
According to Goel of WTS Dhruva, entities with high debts are also getting relief under the new regime. A welcome departure from the public consultation document is the allowance to carry forward interest that is not allowed for ten years. This should benefit companies that are actively leveraged, typically in the real estate and infrastructure sectors. ”
The Ministry of Finance has ticked all the boxes and the FTA is gearing up to make UAE businesses CT ready from 1 June 2023.
The Ministry of Finance said, “The Corporate Tax Law will build on the OECD Comprehensive Framework on Base Erosion and Profit Shifting in its commitment to introduce a global minimum tax for multinational corporations, increase tax transparency and prevent harmful tax practices. It reflects the UAE’s support for
However, by balancing these global mandates with providing sufficient leeway for companies doing business in the UAE, the Ministry of Finance has done its best.
And with a CT of 9%, the tax burden on businesses is the lightest…
