Today's Edition
A. SREENIVASA REDDY (ABU DHABI)
UAE businesses are busy registering for Corporate Tax (CT) as the deadline for the first batch of registrants - May 31 - is nearing.
The UAE decided to collect CT effective from June 1, 2023 from all businesses whose financial year starts on June 1 or later. But most companies use the Gregorian calendar for accounting purposes and, hence, are liable to pay the new tax for their financial year starting on January 1, 2024.
The CT is a levy on net profits of companies after they have crossed a certain threshold of business. The UAE decided to collect tax at 9% of net profits after allowing for some exemptions and deductions. Details of the implementation have been issued in various government orders which are available on the Federal Tax Authority website.
Businesses can figure out how much they need to pay as CT after preparing their audited statement of accounts according to international best practices.
Experienced tax professionals’ help may be necessary to navigate through the various rules governing free zones, mainland companies, exemptions and deductions.
All incorporated businesses and individuals doing business are subject to the tax. But individuals earning money from personal investments in property, stocks etc are not subject to the new tax.
The money earned from regular employment too is not liable to be taxed. The CT is a sort of income tax on big corporations, not on individuals earning their livelihood through their regular jobs. Net profits up to Dh375,000 attract zero tax and the rest are taxed at the rate of 9%.
The Federal Tax Authority recently issued a timeline for all companies to register for the new tax.
Those companies who have got got their licences after March 30, 2024 should register for the CT within three months.
A foreign-based business entity which has set up permanent establishment in the UAE this year before March 1, 2024 must register for CT within a period of nine months, whereas a foreign entity with a nexus in the country must apply to register by May 31, 2024.
However, a foreign-based business entity which has set up permanent establishment in the UAE after March 1, 2024 is required to register for CT within six months of the start of the business whereas a foreign entity with a nexus in the country on or after March 1, 2024 must apply to register within a maximum timeframe of three months from the date of establishing a nexus in the UAE.
The deadlines are specified in Federal Decree-Law No. 47 of 2022.
As for the compliance deadlines, Dhaval Jasani, Founder & CEO, ZTI Global, a corporate services firm, told Aletihad all incorporated bodies should register for CT at the earliest without waiting for the deadlines. Business entities and persons whose annual income falls below Dh375,000 should also file returns with audited statements to prove their zero tax status.
Jasani says that corporate tax will not apply to individual business owners or sole establishments whose turnover is less than Dh1 million during the calendar year from January to December and their turnover can be easily gauged from their Value Added Tax records filed with Federal Tax Authority.
There is another provision called “small business relief” from which businesses can benefit if they meet relevant requirements laid down by law, he added and said even those businesses need to register for CT and file tax returns.
Companies can carry forward tax losses of the previous years to offset against the profits of the current and future years. But Jasani says the offsetting of the loss against current profits should not exceed 75% of taxable income for the current year. If tax losses are still remaining, they can be carried forward to another tax year.
When asked about the timing of payment of the CT, Jasani said filing of returns and payment should be done within nine months from the end of the tax period.
On the payment schedule the tax, Jasani said filing of returns and payment should be done within nine months from the end of the tax period.
Those companies and business persons who fail to comply with the registration deadlines set by the FTA will attract penalties, the FTA warned in a recent statement. The registration can be completed on the EmaraTax digital platform in four steps within 30 minutes. Those who are already registered for the VAT and Excise Tax can use their profile to register for the the corporate tax. But those who have not not should create a new profile to commence the process of registration.
Documents and other information should be provided during the process of registration. The process can be made easier if the registrants approach an accredited business service centre where trained personnel can help complete the process. Once registration is done, it will be reviewed by the FTA officials and an approval will be given.
