Світлана Рудюк
WEB-3 and tax lawyer
In January 2022, the Ministry of Finance announced that it would introduce federal Corporate tax (CT) on the net profits of businesses. The tax will become applicable either on 1 June 2023 or on 1 January 2024, depending on the financial year followed by the business. CT will be applied across all the emirates.
According to the UAE Federal Decree-Law No. 47 of 2022 on taxation of corporations and businesses (the “Corporate Tax Law”), businesses will become subject to UAE Corporate Tax from the beginning of their first financial year that starts on or after 1 June 2023 at a headline tax rate of 9%.
The taxable person also will need to register with the Federal Tax Authority and on an annual basis submit tax returns, pay tax liability, and prepare necessary documents.
In case of failure to comply with the requirements of the Corporate Tax Law, the taxpayer will be responsible for corresponding penalties.
What main steps need to be taken?
Determine whether your business will be subject to CT and if so, from what date
The provisions of the Corporate Tax Law indicate the conditions under which the person is subject to Corporate Tax in the UAE under the Corporate Tax Law.
You can check your CT's status and conclude the possible tax obligations.
If you fall under the Corporate Tax Law requirements as a CT taxpayer you need to determine the moment of starting your tax (financial) year.
The provisions of the statutory documents indicate the length of the financial year. Please check the provisions of your statutory documents to determine the tax (financial) year.
According to the provisions of the Corporate Tax Law, the tax year responds to the financial year and is calculated according to the Gregorian calendar.
The taxable persons are required to file a CT return for each tax period within 9 (nine) months from the end of the relevant period. The same deadline would generally apply for the payment of any CT due in respect of the tax period for which a return is filed.
Additionally, it's important to know that according to the provisions of article 69 of the Corporate Tax Law, it is possible to understand that if the financial and tax period of some legal entities starts earlier than 01 June 2023 and continues up to the 31 of December 2023 there are no legal requirements to comply with the obligations of filing the declaration and paying taxes for the year, which started before the 01 June 2023 and continues up to the 31 of December 2023.
Review the opportunities of the Free zone taxation
The businesses in the Free Zones have the opportunity to benefit from a 0% CT rate. Such opportunities are available if you comply with the conditions of Article 18 of the Corporate Tax Law and the provisions of decrees and will be defined as the Qualifying Free Zone Person. Calculate whether it is profitable to correspond with such requirements.
Review the group structure
Review the legal entity structure and consider whether it gives pros or cons for the CT obligations. Probably, the operational structure, which you have created does not fulfill the duties assigned to it. The special characteristics of the structure may limit the interest deductions. Calculate the profitability of the operational structure and maybe you need to make some changes in it.
Review the financial profile
You need to review the accounting policies, entries, and disclosures that need to be updated with changes in the applicable legislation. Take into account the fact that in some cases you will be obliged to provide financial statements to the FTA for the CT requirements. Up to now, you have the time to check it.
Review the transfer pricing obligations
You need to define whether you fall under the transfer pricing obligations. If you fall under the transfer pricing obligations you need to review the transfer pricing model to ensure alignment with the operating model and check the transactional scheme is in line with the principle of value creation within the group based on the key functions, assets, and risks.
Other requirements
The Corporate Tax Law requires separate financial statements for each entity. Get ready for the need to prepare separate financial statements for each entity. Review the Chart of Accounts and distribute the type of income and expenses.
Of course, these are not all the requirements that may be applicable, however, you should understand that taking the minimum steps for preparing for the fulfillment of obligations of the Corporate Tax Law will minimize the possible penalties.