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UAE Corporate Income Tax: Uniqus explains why it’s important to join the discussion on impact beyond tax

There are implications for accounting and reporting, IT systems, finance and tax processes, governance, people and wider business

The deliberations on the tax impact have been ongoing since the announcement of CIT Law by UAE Ministry of Finance in January 2022 and release of the consultation paper in April 2022. While entities in UAE are aware of the applicability of CIT Law for the financial years beginning on or after 1 June 2023 and levy of standard rate of 9 per cent on taxable profits above the threshold of Dh375,000, much thought needs to be given to its far-reaching impact beyond tax — on accounting and reporting, IT systems, finance and tax processes, governance, people and wider business.

We, at Uniqus have an in-depth understanding and extensive experience of helping clients with similar tax and accounting challenges. Our dedicated team of professionals is continuously engaging with clients to help them navigate this exciting CIT journey and ensure smooth and seamless implementation.

Below is a brief snapshot of the multi-fold impact of CIT law on businesses along with questions for consideration, to help you get started:

Whether accounting and reporting considerations have been evaluated?

Entities preparing their financial statements under international financial reporting standard will need to obtain an understanding of the key concepts under IAS 12, Income Taxes, such as current tax, deferred tax and tax base.

The CIT Law clearly lays out rules for calculating taxable income and provides guidance with respect to various matters including election choices available, unutilised tax losses, interest and other deductible expenditure, formation of tax groups, business restructuring reliefs and transfer of tax losses.

While opting for election choices, taxable persons will need to identify financial statement line items which will be impacted on account of fair value or impairment related gains/losses. Deferred tax impact will also need to be evaluated for unutilised tax losses and interest expenses that are carried forward to the following financial year.

Another key aspect would be entities forming part of tax group under the CIT law, which could be different from the entities consolidated under IFRS. Formation of tax groups will require considerations like maintaining a separate set of financial statements, compliance with audit requirements as applicable, intra group transactions with entities outside the tax group and executing tax sharing agreement. Further, the companies will need to ensure the adequacy of the extensive disclosures prescribed as per IAS 12 including separate disclosure of major components of tax expense and effective tax reconciliation.

Has the IT system been tailored to account for current and deferred taxes?

IT systems will need to support the new requirements, including (a) managing two sets of accounts for tax and accounting purpose, (b) consolidation of tax groups and (c) computation, reporting and disclosures of CIT. Companies will have to consider data required for tax computation, accounting and reporting, including the changes required in existing chart of accounts.

Whether the people in the organisation possess the required knowledge and experience to cater to the new requirements?

Relevant departments and resources will need to be upskilled and trained on various aspects such as (a) knowledge on additional tax, accounting & reporting requirements (b) increased legal compliances & documentation; and (c) operating digital tax tools and tailored finance & IT systems.

Whether clearly defined policies and procedures are developed and communicated within the organisation?

Management will need to establish adequate policies and procedures with robust governance and internal control framework to meet the tax and accounting compliance requirements.

Whether holistic impact on business has been evaluated?

Management will need to consider tax and accounting impact on various strategic decisions such as business acquisitions, group restructuring, new company set-up (mainland vs free zone), formation of tax groups, intra-group transactions, etc.

Dinesh Jangid, Regional Managing Partner – Uniqus