CORPORATE TAX LAW

What is Corporate Tax

Corporate tax is a tax levied against the profits produced by businesses or companies. It is a direct tax applied to the earnings or property of corporations, including their registered subsidiaries and
branches. The government determines corporate tax rates, which might change depending on the
company's size and the sector it serves. Annual tax returns for corporations must be filed, including their earnings, outlays, and deductions. The corporation's taxable income, which is the difference between the revenue produced and the permissible deductions, is used to determine the tax obligation. Governments frequently utilise the money they get from corporation taxes to pay for infrastructure projects and public services. Corporate tax laws may significantly affect a company's investment choices, competitiveness, and overall profitability, which can have a big effect on the economy.

Corporate Tax Law in the UAE

The Federal Decree-Law No. (47) of 2022 on the Taxation of Corporations and Business, often known as the "CT Law," outlines the requirements for qualifying public benefit entities (QPBEs) in Decision No. (37) of 2023, which the Cabinet of Ministers released on April 7, 2023. The day after this Decision was published, it became effective. The decision aims to guarantee that organisations that already exist and function for the benefit of the public are eligible for tax exemption.
The public consultation document that the Ministry of Finance (the "MoF") issued on April 28, 2022, is primarily aligned with the CT legislation, which also builds upon many of the main clauses. The
UAE CT system, as promised, is mostly based on global best practices with a reduced compliance
cost on enterprises in comparison to other regimes globally.
These entities must fulfil the requirements outlined in Article (9) of the Corporate Tax Law to qualify
for the exemption from corporate taxes. They must also maintain compliance with all pertinent state
and local laws and notify the Ministry of Finance of any changes that may affect their qualification as
Qualifying Public Benefit Entities. For corporate tax implications, the Qualifying Public Benefit
Entities must also register with the Federal Tax Authority and get a tax registration number.

Qualifying Public Benefit Entities

For the benefit of the public and society, qualifying public benefit entities are created, centring on
projects that strengthen the UAE's social fabric. Usually, this focuses on charity, community services, or corporate and social responsibility, as well as the welfare of the public. The essential role that these organisations play in the UAE, which frequently incorporates religious, philanthropic, scientific, educational, or cultural qualities, is intended to be reflected by this implementing decision. Other than those that directly relate to or are intended to achieve the objective for which it was
founded, the company should not engage in any other commercial operations. All its earnings and
resources go towards achieving the goals for which it was founded. None of its shareholders,
members, trustees, founders, or settlors (who are not themselves QPBEs, Government Entities, or
Government Controlled Entities) is eligible to receive any of its revenue or assets, nor are they made
accessible for their use.
The Cabinet may modify, include, or exclude organisations from the list of Qualifying Public Benefit
Entities at the Minister's suggestion. Any change that affects the business's ability to continue satisfying the requirements outlined in this Decision and the Corporate Tax Law must be reported by an entity that is identified in the schedule attached to the decision. Qualifying Public Benefit Entities are subject to some reporting requirements, mostly to ensure that they continue to fulfil the requirements for approval.
If they are given to one of the Qualifying Public Benefit Entities listed in the Cabinet Decision,
donations and gifts will be accepted as deductible expenditures for corporate tax purposes, further increasing taxpayer confidence and transparency regarding their deductible expenditure under Article 33 of the Corporate Tax Law.
Any government organisation may apply to the Ministry of Finance proposing additions and deletions to the list of QPBEs, together with any necessary statistics, information, and supporting documents.
The Cabinet will decide whether to add or remove something from the list of QPBEs at the MOF's suggestion.

Businesses with multiple entities in the UAE

If the requirements are satisfied, two or more UAE firms would be entitled to create a "qualifying group" without formal authorisation from FTA. Intra-group transactions may be ignored for tax reasons for a "qualifying group." To create a "tax group," nevertheless, a formal request for FTA's permission would be necessary. A "tax group" can file a single tax return on behalf of all its members.
The concept of tax groups will be distinct under the legislation for both the VAT and the CT. In other
words, if a VAT tax group already exists, creating a CT tax group is not necessary, and vice versa.

Small Business Relief Initiative

The UAE declared last year that it will impose a 9% corporate tax on businesses and independent
contractors earning Dh375,000 or more, necessitating their enrolment in the tax registration system.
The corporate tax rate in the UAE will be among the lowest in the world. Following Ministerial
Decision No. 73 of 2023, which states that companies and people with sales of Dh3 million or less
can benefit from the Corporate Tax law, the Ministry of Finance offered relief for small and micro
firms, start-ups, and freelancers.
By lowering its corporate tax burden and regulatory expenses, the Small Business Relief initiative
aims to aid start-ups and other small firms. It was released in response to Article 21 of the corporate
tax law, "which treats the taxable person as not having derived any taxable income in a given tax period where the revenue did not exceed a certain threshold."

Non-Resident Person.

A non-resident person is also exempt from registration requirements if they simply receive income
from the UAE and do not maintain a permanent establishment there. Any non-resident business that
does not pay UAE corporate taxes or has a permanent establishment there is exempt from registration requirements. The UAE corporate tax law would also exclude government-controlled companies, companies that deal in natural resources, and other organisations like pension plans and investment funds from registration requirements.
A non-resident who offers online consulting services to clients in the state without having a physical
office or any staff is also referred to as a "foreign consultant." The same is true for overseas artists who may produce and market their works online to UAE clients. Such individuals would be seen as earning state-sourced revenue without having a permanent establishment, their income is tax-exempt, and they are not needed to register.

Businesses under liquidation

The Ministry of Finance has issued a recent decision that exempts a business that is going through a
liquidation process from being subjected to the payment of the corporate tax. However, the following
is not automatically granted, business who belong to this category must submit a notification to the
federal tax authority in 20 days starting from the date of the liquidation process debut.

Benefits.

According to analysts, the corporate tax will be crucial in modernising the UAE's economic ecology, supporting the country's strategic goals, maintaining tax transparency, and eliminating unfair tax practices.

Top government officials and private sector executives said the UAE's corporate tax regime, with only a 9% levy from June 1, 2023, will be among the most competitive in the world while speaking at the second session of the corporate tax public awareness programme organised by the Ministry of Finance in Dubai.
The law supports the UAE's strategic goals and gives the federal government new revenue sources so it may carry out large-scale initiatives and sustain steady economic growth.
To diversify government revenue away from the oil industry and widen the government's revenue base, the corporate tax on firm earnings exceeding Dh375,000 ($102,110) would be applied. As the tax will be applied to all corporate and commercial activity except for the hydrocarbon industry, which will continue to be taxed at the emirate level, it will further align the UAE with worldwide efforts to combat tax dodging.
The UAE's corporate tax structure keeps up with the tax systems used by other jurisdictions and nations that have collaborated with the UAE on large-scale business initiatives and investments. This makes it easier for money to move and investments to be made both in Dubai and the UAE and in other nations across the world.
The new tax system, according to tax experts and participants in the awareness training, gives the
nation a generous compliance period to apply the new taxes. Regarding corporate tax, they stated that companies will have until February 28, 2025, to complete their tax reports and make payments for fiscal years beginning on June 1, 2023, and ending on May 31, 2024. The return and payment must be submitted by September 1, 2025, if a company's first tax period begins on January 1 and concludes on December 31, 2024.

This article’s information should not be regarded as legal advice. Hassan Al Reyami Advocates and legal consultants will be happy to discuss your concerns during a 30-minute free legal consultation session if you are involved in any legal issues related to the following subject or have any questions.