UAE Introduces Corporate Tax Law – What You Need to Know.

The UAE has released Federal Decree-Law No. (47) of 2022, also known as the "CT Law," which outlines corporate tax regulations. It will be effective from 1st June 2023. The law provides clarity on various provisions but leaves some areas to be further clarified. All businesses in the UAE should carefully assess the impact of the CT law.

Key Highlights:

1. Free Zone entities: Qualifying Free Zone Persons can have both Qualifying Income (taxed at 0%) and non-qualifying Taxable Income (taxed at 9%). However, details on this are yet to be finalized.

2. Exempt persons: The CT law defines which persons will be exempt from UAE CT, including non-extractive natural resources businesses. Government entities and Government Controlled entities have specific exemptions.

3. Calculation of taxable income: Taxable income will be based on net profit or loss reported in financial statements prepared according to accepted accounting standards. The law provides insights into tax adjustments and the treatment of unrealised gains, losses, and interest expenses.

4. Tax grouping: Tax grouping allows taxpayers to reduce administrative burdens and share losses for tax reduction. The law provides clarity on utilising tax losses when a subsidiary joins or leaves a Tax group.

5. Transfer Pricing (TP): The CT law covers several TP aspects, including the arm's length principle, TP methods aligned with OECD guidelines, definitions, transfer pricing adjustments, and TP documentation requirements.

6. Transitional provisions: Opening balance sheets for tax purposes will be the prior period's closing accounting balance sheet, simplifying deferred tax calculations. However, specific conditions or adjustments may be prescribed by the Minister.

7. Participation exemptions: The participation exemption exempts certain income (dividends, capital gains) from UAE CT, subject to criteria like ownership percentage and a 12-month holding period.

8. Global minimum tax: The CT law doesn't provide further guidance on Pillar Two. Multinationals will be subject to regular UAE CT until Pillar Two rules are adopted.

9. Other areas of note: Non-residents with business activities in the UAE are considered taxable persons. Foreign permanent establishments must be subject to foreign tax. Conditions and a two-year claw-back period apply to group transfers and restructuring. Anti-abuse rules target transactions without valid commercial reasons.

10. Administration: The CT law outlines tax return information, filing deadlines, tax payment dates, and record-keeping requirements.

What Are the Next Steps?

Companies should plan ahead and prepare for the upcoming corporate tax regime, considering the significant implications. Assessments, transfer pricing reviews, and operational updates are crucial!