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Implications of UAE corporate tax in focus

Taxation Society meeting discusses various aspects of the law

Published: Fri 3 Mar 2023, 5:21 PM

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The main panellists at the meeting. - Supplied photo

The main panellists at the meeting. - Supplied photo

A joint session on forthcoming UAE Corporate Tax (CT) in coordination with India Club, Dubai, Indian Business and Professional Council (IBPC) and Taxation Society, a not for profit tax association was held at India Club on Thursday with over 200 businessmen and professionals attending the event.

Siddharth Balachandran, honorary chairman, India Club welcomed the members and wishes more such sessions as the topic was very new and impactful. Anurag Chaturvedi, CEO, Andersen, UAE and chairman, II UAE Dubai Chapter spoke about the tax residency rules. He said: “A person staying in UAE for a period of 183 days or more in a year will be considered as a ‘Tax Resident’. For GCC nationals, the period of stay is 90 days,” He also emphasised on the new tax procedures that me into effect from March 1. “As per the procedures, now the companies must do voluntary disclosure even in the ses where the VAT impact is zero,” he added.

Naveen Sharma, co-founder of Taxation Society and honorary cultural events director, India Club, said the Taxation society will bring in various organisations to collaborate and serve as a unique platform for all tax events and matters and strive to conduct more knowledge sharing sessions in future.

Organised in question and answer sessions, the speakers attempted to reply to more than 200 questions received in advance from the participants on various topics from upcoming CT law in UAE ranging from taxable persons and taxable income, impact on free zone companies, exemptions & deductions, tax grouping, reliefs, transfer pricing and general anti-avoidance rules GAAR).

The panel speakers were Malavika Kolera, Amit Mehta, Nirav Shah, Prateem Sengupta, Rishi Chawla and Rajiv Hira. The session was moderated by Nimish Makwana past chairman II Dubai Chapter & co- founder Taxation Society.

Opening the first session, Rajiv Hira, Managing Partner RHMC Management Consultants mentioned that entities established in a free zone that meet the conditions specified will be subject to UAE CT at the following rates:

* Zero per cent on qualifying income

* 9 per cent on taxable income that does not meet the qualifying income definition

He further highlighted that qualifying free zone persons will be required to maintain adequate substance in UAE as one of the important conditions in order to avail the benefit of zero per cent rate and that clarity is awaited on the definition of qualifying income. Businesses operating in a free zone without a proper office or with a flexi-desk may face challenges now with the upcoming CT regime.

The Q&A session in progress. - Supplied photo

The Q&A session in progress. - Supplied photo

Rishi Chawla, partner at Premier Brains Accounting & Auditing shared that CT will apply to UAE companies and other legal persons incorporated in the UAE as well as to a foreign legal entity having a permanent establishment in the UAE or earning UAE sourced income. UAE resident legal persons will be taxed on their worldwide income. CT will also apply to individuals who conduct a business or business activity in the UAE. But the scope will be limited to income derived from business or business activity conducted in UAE. Other income such as salary, interest income etc. earned in personal pacity shall be outside the purview of CT. He mentioned that list of business and business activities that will be considered taxable for an individual will be specified in a binet decision in due course.

Outlining the provisions of tax grouping, Nirav Shah, founder and managing director of FAME Advisory DMCC said that grouping criteria under CT is very different from VAT and that highlighted that all three conditions of 95 per cent of share pital, voting rights and profit entitlement need to be satisfied and there has to be a parent-subsidiary relationship. He also mentioned that while making changes to a business model, one needs to be very reful of GAAR provisions as they have already been made operational, even before the law if effective. One should be able justify a valid commercial motive behind any changes made and should not have done it for only obtaining a CT advantage.

Malavika Kolera, head of VAT and compliance at TME services DMCC Dubai Branch added that there is unique provision for transfer of losses within a group subject to 75 per cent of common ownership interest in se Tax grouping is not possible beuse of higher threshold of 95 per cent. She also highlighted that, in line with international best practices, a business may be able to offset a loss up to a maximum of 75 per cent of the taxable income and rry it forward indefinitely subject to certain conditions. Also, certain relief will be available in the form simplified compliance obligations for small businesses based on revenue threshold to be specified in due course.

“Dividend and capital gains will be considered as exempt subject to certain conditions. However, domestic dividend will be exempt irrespective of any condition. Expenses will be considered as deductible if incurred for business purposes. CT law provides handful of limitations on expense deductions: Interest expense deductions will be limited to 30 per cent of earnings before interest, tax, depreciation, and amortisation (Ebitda) while entertainment expenses will be deductible up to 50 per cent. Fines and penalties, recoverable VAT, donations paid to organizations that are not qualifying public benefit entity etc. will not be considered deductible.” said Amit Mehta, Associate Partner – Tax at UHY James.

In his concluding remarks, Prateem Sengupta, associate director at Andersen in UAE, stated that transfer pricing regulations would be a game changer for most businesses in the UAE as intercompany transactions both cross-border as well as domestic will now need to be conducted on an arm’s length basis and supported by robust documentation in line with OECD transfer pricing guidelines. The scope of transfer pricing regime is wide enough to include remuneration and various other benefits given to owners and key managerial personnel within its ambit.



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