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A Look At The Corporate Tax Consultation Document Issued by the UAE

The UAE corporate tax will come into effect from 1st June 2023, requiring relevant businesses to assess their liability and stay prepared. Ahead of the implementation of corporate tax in the UAE, the Ministry of Finance (MoF) has issued a public consultation document. The document provides the government’s provisions regarding the UAE corporate tax and the businesses can provide their feedback on the tax provisions.

However, before sending their opinion, the businesses must study the consultation document properly. You can consult with tax consultants in Dubai for assistance on the consultation document and submitting the response. Read ahead further about the consultation document on the UAE corporate tax.

Timeline for Responding to Consultation Document 

The UAE corporate tax consultation document will be in the public domain till 19th May 2022. Businesses in the UAE can submit their response to the corporate tax consultation document on or before the deadline. However, you must note that the corporate tax consultation document doesn’t mirror the final view of the government on the tax. The government may further improve the proposed UAE Corporate Tax regulations after receiving input from the businesses.

What does the document say about the scope of corporate tax?

All entities established in the UAE fall within the scope of the corporate tax. Yet, the consultation document gives clarity over certain entities that enjoys exemption from the scope of the UAE corporate tax. They are governments, entities wholly owned by the government listed in the cabinet decision, companies conducting natural-resource extraction and exploration, charities and public benefit organisations, investment funds, public and regulated private social security and retirement pension funds.

How will the UAE Corporate Tax Affect Free Zone businesses? 

As expected, the companies operating within the UAE free zones will be subject to 0% corporate tax. However, they should maintain adequate substance and ensure compliance with relevant regulations. The 0% tax rate applies to income earned from outside the UAE as well as from other entities in other free zones. However, the mainland branch of a UAE free zone business will come within the scope of the UAE corporate tax but the free zone entity will not lose the 0% corporate tax rate for its free zone income.

Permanent Establishment Concept 

The corporate tax consultation document includes the Permanent Establishment (PE) concept in line with the International laws of taxation. It includes provisions of a fixed place of business and dependent agent PE provisions in line with OECD guidelines.

Further Exemptions  

Dividends to be paid by foreign entities, and capital gains from the sale of shares in both UAE and foreign companies will be exempt if the UAE shareholder owns at least 5% of the shares of the subsidiary company and the foreign subsidiary is subject to at least 9% corporate tax (or equivalent). The government may allow exemption for foreign branches.

Provisions to Offset Losses 

The consultation document allows businesses to offset tax losses incurred in a certain period against the taxable income of future periods. They can offset up to a maximum of 75% of the taxable income in each of those future periods. It is possible to carry forward the tax losses indefinitely if the same shareholders hold at least 50% of the share capital from the start of the period a loss is incurred to the end of the period in which a loss is offset against taxable income. Tax agents in Dubai can help you with more information on offsetting corporate tax losses.

Provision of Tax Groups 

Companies that are resident in the UAE are allowed to form a corporate tax group if the parent entity holds at least 95% of the share capital and voting rights of its subsidiaries. The government will treat a tax group as a single taxable person. Tax consultants in Dubai can assist you in establishing corporate tax groups.

Hire the Best Tax Consultants in Dubai, UAE 

The consultation document published by the MoF allows the businesses to provide their feedback on the new tax regime to be introduced by the UAE government. The document sets out the conditions and exemptions and various tax treatments under the UAE corporate tax framework. The key conditions are related to the formation of tax groups, treatment of tax losses, tax exemptions, the tax liability of free zone entities etc. Businesses must submit their feedback after going through the document, for which tax consultants in Dubai such as Jitendra Chartered Accountants (JCA) can help. Our years of experience and expertise will help businesses navigate the complexities of corporate tax in the UAE.

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