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Experts deliberate of aspects of UAE corporate tax

Law is to take effect from June 1, 2023

With the UAE set to introduce corporate tax (CT) soon, there are questions in the mind of business and professionals. An event was held jointly by IBPC, India Club and Taxation Society on April 13 at India cub, which was attended by more than 200 businessmen, professionals, and others.

Naveen Sharma, the cultural events director and chairman of Taxation Society, stressed that it is now high time for the businesses to check the readiness of their books of accounts and IT systems. Although the tax law is straightforward, compliance and documentation is critical.

Dilip Jain spoke on IAS 12, while the panelists Pavithra Balaji, Girish Chand and Shailesh Kumar responded to the tax queries, moderated by Nimish Makvana, co-founder of Taxation Society and senior partner Crowe UAE.

Girish Chand said that small business relief (SBR) is a welcome measure, by which the SME sector can benefit from reduced corporate tax compliance. Maintenance of proper books of accounts is a key requirement to avail SBR. Entities need to evaluate their financial position prior to electing for SBR considering their future profitability and leverage position.

Pavithra Balaji replied that all freezone companies are required to register and file CT returns. The FTA has clarified that corporate tax treatment will be the same for freezone companies. They need to maintain proper accounting records and will need to comply with transfer pricing rules and documentation, similar to Mainland companies. The relief provided is on the tax rate, wherein freezone companies can enjoy a zero per cent tax rate on qualifying income, subject to meeting certain conditions.

Dilip Jain mentioned that the entities will need to revisit their accounting system, make changes to the chart of accounts to align with the requirements of the corporate tax law. The accounting system should also be able to generate corporate tax related reports. international accounting standard (IAS) 12 – income taxes provides the required guidance on accounting treatment for current taxes and deferred taxes and the related presentation and disclosures in the financial statements.

Shailesh Kumar in relation to allowability of director’s/ shareholders’ remuneration stated that any payment/ benefit provided to a director or shareholder will need to be corresponding to ‘market value’ of service provided by such person to company and should be incurred wholly and exclusively for the business. There are no specific rules yet for determining the ‘market price’ and it will depend on experience, qualification, critical importance and contribution of the director/ shareholder for the Company. Other topics discussed were, tax residency/ place of effective management of a foreign company, taxability of rental income and dividends received from a UAE company.

Nimish Makvana stated that the implementation of UAE corporate tax law with effect from June 1, 2023 and with robust regulatory framework and compliance will bring governance, transparency eventually attracting foreign direct investment flow. “We have witnessed how UAE economy is evolving with reforms and attracting business houses across the globe. In view of implementation of various regulations and laws, business leaders need to ensure to remain in compliant with law and expectations of regulators. In current economic scenario, UAE leadership has positioned strongly in global map making UAE is most preferred destination for the business leaders,” he said.