UAE corporate tax: Ministry explains 9 key aspects of new law

Tax professionals, business owners and a host of experts were recently invited to the second awareness session that the Ministry of Finance had held to explain important aspects of the upcoming corporate tax (CT) regime in the UAE.

Here are some insights that were shared during the session:

1. Registration: The CT registration will be distinct and independent of the VAT registrations. All businesses (e.g. free zones, companies and individuals) would be required to register even if the taxable income is below the threshold of Dh375,000 or exempt.

Over the next six months, the Federal Tax Authority (FTA) will send out ‘invitation to register’ to select businesses. Businesses are not required to take any action as of now. No penalties relating to registration may be imposed if the businesses ensure to register at least before the due date for tax return submission (i.e. nine months from the end of the relevant financial year). Unlike VAT, and correctly so, there would be no concept of deregistration from CT.

2. Future laws & regulations: The decree law for CT has already been issued. CT laws would not have a separate ‘executive regulations’ but various cabinet decisions would be issued from time to time containing details and guidance for implementing CT.

3. Free Zones: The details of “Qualifying FZ” and “Qualifying income” will be published soon. It was emphasised again that the FZ business will need to maintain adequate substance in the UAE and meet other conditions to avail tax exemptions.

4. Individuals: In our Tax Conversation column on December 10, 2022, we highlighted the expression ‘Corporate Tax (CT)’ is a misnomer as even individuals who are engaged in a business – such as social media influencers, freelancers, sole proprietorships or civil companies — could be subject to CT.

The session reaffirmed that individuals conducting business activities would be covered under CT. Individuals would be considered as ‘resident’ if he/she conducts business activities in the UAE. The details — about the businesses categories covered under CT — will be published soon.

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5. Business having multiple entities in the UAE: A formal approval from FTA would not be required to consider two or more UAE entities eligible to form a ‘qualifying group’, if the conditions are met. For a ‘qualifying group’, intra-group transactions could be disregarded for tax purposes. However, a formal application for FTA’s approval would be required to form a ‘tax group’. A ‘tax group’ can submit a single tax return for all members of the group.

The concept of tax groups under the VAT laws and the CT laws will be distinct. In other words, if you have formed a VAT tax group, it is not necessary to form a similar CT tax group or vice-versa.

6. Anti-abuse provisions: In another Tax Conversation of December 17, 2022, we highlighted the significant impact of anti-abuse rules under the CT laws.

The session highlighted that the businesses should have commercial reasons for reorganisation. A reorganisation, without valid commercial reasons, aimed to gain tax benefits could be disregarded under anti-abuse rules.

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