Key Insights from IMA Dubai Chapter 2024: Corporate Tax Readiness and Compliance

?? Corporate Tax Compliance – A Deep Dive with Practical Insights

I recently had the opportunity to attend the IMA Dubai Chapter Ball 2024 event, where a deep and thorough session led by Vinit Gala on corporate tax management and compliance truly stood out. The insights shared during this event were invaluable for businesses preparing for the upcoming corporate tax regulations, especially in the UAE. As we navigate the complexities of corporate tax, the learnings from this session are not just theoretical—they’re rooted in practical applications that businesses of all sizes need to consider.

Here’s a detailed follow-up to the takeaways I gathered from Vinit Gala :

Adjustments to Taxable Income:

One critical area of focus was understanding the adjustments applicable to qualifying assets such as immovable property, intangible assets, and financial assets/liabilities. A key takeaway was that these adjustments impact taxable income, not book value. Decisions made regarding these adjustments are irrevocable, and businesses must be diligent in their choices—especially when it comes to opting for valuation reports.

Year-End Provisions:

For year-end provisions, the importance of being #IFRS compliant was emphasized. This includes crucial provisions like expected credit losses, expense-related provisions (bonuses, audit fees), and ad-hoc provisions. Proper cut-off procedures and documentation are necessary to avoid any potential issues with tax authorities.

Navigating Key Compliance Areas:

The session shed light on several vital areas that businesses need to monitor:

1. Nexus Rule: A one-to-one correlation between revenue and expenses is essential. Compliance with this rule, especially in cases of heavy marketing or common costs between entities, is crucial.
2. Entertainment & Marketing: Delineating between entertainment and marketing expenses is critical, as hospitality-related costs might be considered entertainment (and thus only 50% deductible). However, if marketing expenses are clearly justified, they can be fully deductible.
3. Cash Expenses: Proper invoices and KYC documentation are essential when dealing with cash-heavy expenses, especially in industries where significant amounts of business transactions are done in cash.
4. Tax Incidence on Unrealized Gains/Losses: Businesses have the option to apply realized-based taxation on certain capital items, such as fair value gains or impairment losses. It’s vital to carefully consider the timing of taxation and the implications of unrealised gains.

Transition Provisions and Practical Considerations:

Vinit emphasised the transition provisions of corporate tax—how businesses will move from non-tax to tax years. One notable area was the treatment of qualified immovable property, intangible assets, and financial assets. These provisions give businesses some relief, but elections must be carefully made in the first tax return. If not, businesses could lose out on beneficial provisions.

Provisions That Can Go Overlooked:

Key considerations like indirect holdings, impairment, and income exemption validation are crucial to avoid missteps. A thorough review of shareholder current transactions, reimbursement vs. disbursement, and proper record-keeping for grandfathered loans are necessary to avoid potential tax pitfalls.

Free Zones and Adequate Substance:

The need to ensure adequate substance in Free Zones was discussed at length. This includes having sufficient assets, office space, and key employees in Free Zones to meet operational requirements. Failing to meet these criteria could result in the loss of 0% tax benefits, and businesses may end up paying 9%.

Transfer Pricing & Related Party Transactions:

A significant portion of the presentation focused on related party transactions and their compliance with IFRS and corporate tax laws. Businesses must ensure proper mapping between the two to avoid discrepancies that may lead to audits. Also, benchmarking transactions to ensure they comply with arm’s length pricing was emphasised.

Planning Ahead for Compliance:

Businesses must plan for future compliance by:

• Setting clear timelines for finalising accounts and completing audits.
• Passing accrual entries for corporate tax provisions and deferred taxes.
• Preparing local files, master files, and related party transaction disclosures in a timely manner.
• Drafting a basis of preparation memo for future reference to ensure consistency and clarity in tax return filings.

Key Practical Considerations for SMEs and Large Organizations:

Vinit’s approach was highly practical, focusing on real-world challenges faced by small and large businesses. His recommendation for preparing detailed tax policies rather than transfer pricing policies, setting benchmarking processes, and ensuring timely filings of corporate tax returns are critical for all organisations aiming to comply with the new tax laws.

Call to Action:

If you’re preparing for the new corporate tax regulations or have questions about how these changes will impact your business, don’t hesitate to reach out! Let’s connect and discuss how we can work together to ensure your business is tax-ready.

I’ve partnered with MARS Management Consultants to offer comprehensive Tax, Accounting, and Business Advisory services. Suppose you or your organisation need assistance navigating the evolving tax landscape in the UAE. In that case, we are here to provide the guidance you need to stay compliant and optimise your tax positions.

I look forward to continuing the conversation around these critical topics and helping businesses navigate this transition smoothly.