Understanding Corporate Tax in the UAE: 5 Essential Questions Answered

Understanding Corporate Tax in the UAE: 5 Essential Questions Answered

The key focus right now is restructuring the operations.

On June 1, the UAE implemented corporate tax as part of the government's strategy to diversify revenue sources. Nimish Goel, Partner at WTS Dhruva Consultants, provides insights by addressing important inquiries about this initiative:

Nimish Goel Partner at WTS Dhruva Consultants

What are the main issues regarding the implementation of corporate tax in the UAE?

When introducing any new tax, challenges are to be expected. However, the timely issuance of tax regulations has significantly aided in the process. Now that corporate tax (CT) is a reality, it is crucial for businesses to understand its impact. The Ministry of Finance / FTA's CT awareness seminars play a vital role in raising stakeholders' awareness.

CT Law contains various provisions that may have differing interpretations. To ensure tax certainty, the law offers a mechanism for seeking private clarification. Many corporates are awaiting the clarification window before initiating the implementation phase. Identifying and implementing changes to accounting systems are critical considerations during this phase.

How far are companies prepared to meet the tax requirements?

The introduction of the UAE CT law followed a well-organized approach, benefiting corporates in evaluating its potential impact. Groups that took proactive measures and started the impact assessment earlier in the year are in a favorable position to meet the UAE CT requirements. However, those groups that have not yet begun the impact assessment or have recently started should prioritize this process, as the UAE CT law is set to apply to most companies from January 1, 2024. Completing the impact assessment early allows for more time during the implementation phase. As a result, companies are now hiring corporate tax specialists to meet the demands and be fully prepared for CT implementation.

What are the main challenges facing UAE companies on corporate tax?

Amidst the numerous challenges, the current priority lies in reorganizing operations, ensuring accurate record-keeping and financials, and implementing changes in IT systems or ERP.

Another crucial area of focus is related party transactions, which must adhere to the arm's length principle. However, benchmarking these transactions might be challenging due to the scarcity of public corporate information. We anticipate that further clarity will be provided in the coming weeks, given the proactive approach and involvement of the FTA in the smooth introduction of Corporate Taxes.

How will this move benefit the UAE economy?

Corporate tax (CT) implementation in the UAE will foster greater integration with the global economy, improving the image of the UAE as it will no longer be perceived as a no-tax jurisdiction. The low CT rates, ranging from 0% in free zones to 9% on the mainland, will serve as a magnet for increased foreign investments.

Furthermore, CT offers the government a fresh revenue stream that can be channeled toward funding infrastructure projects, thereby providing additional momentum to the economy.

Will this affect the competitiveness of the UAE economy?

The UAE maintains its position among the countries with the lowest taxation rates, featuring a general CT rate of 9% (with the possibility of 15% for large MNEs) and a 5% VAT rate. Additionally, significant advantages such as 0% CT on qualifying income in free zones, participation exemption, an extensive network of Double Tax Treaties, and more, further contribute to the overall positive sentiment surrounding the UAE economy.

News Source: Khaleej Times

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