CORPORATE TAX IN UAE – Frequently Asked Questions (FAQs)
Q: When will Corporate Tax come into effect?
A: As per the information by the UAE Ministry of Finance, the Corporate Tax will come to effect from financial years starting on or after 1 June 2023 based on its financial year-end.
Q: What is the periodicity of filing corporate tax return?
A: Corporate Tax return is to be filed annually. Accordingly,
- Entities whose financial year-end is 31 May should file their CT return for the financial year-ending 31 May 2024
- Entities whose financial year-end is 30 September should file their CT return for the financial year-ending 30 September 2024
- Entities whose financial year-end is 31 December should file their CT return for the financial year-ending 31 December 2024
Q: What is the due date for furnishing annual CT return?
A: The due date for filing Corporate Tax return in UAE has not been specified yet.
Q: When will the UAE CT law be passed?
A: It is likely that the Corporate Tax law and relevant guidance could be published from June 2022 onwards in UAE.
Q: What is the Corporate Tax rate proposed in UAE?
A: The minimum tax rate is zero and the maximum tax rate is 9% based on whether the total taxable income is lesser than or greater than AED 375,000 respectively. However, multinational corporations subject to OECD Base Erosion and Profit-Sharing laws Pillar 2 of the BEPS 2.0 framework will be entitled to varying rates.
Q: How will the taxable income be calculated?
A: The taxable income will be calculated after making specified adjustments or exceptions to accounting net profit and tax losses, if any can be carried forward to subsequent fiscal years and set off against the taxable income for the respective year.
Q: Who is responsible for the administration and collection of Corporate Tax in UAE?
A: The Federal Tax Authority (FTA) will be the responsible and regulatory authority for the
enforcement, collection of tax and administration of the Corporate Tax in UAE.
Q: Which businesses will be covered under Corporate Tax?
A: Corporate Tax covers all businesses incorporated in UAE except those involved in the production of natural resources but including businesses incorporated in Free zones and not operating or conducting business with the UAE mainland but excluding branches of foreign banks.
Q: Will tax holidays continue to apply to free zone entities?
A: Free zones in the UAE offer various incentives including tax-free periods of up to 50 years. This will continue to be honored under the Corporate Tax regime for free zone entities that comply with the relevant regulatory requirements and do not conduct business with mainland UAE.
Q: Will free zones be treated differently under Corporate Tax regime like under Value Added Tax (VAT) purposes of Designated Zones?
A: The FAQs on Corporate Tax issued by the Ministry of Finance in UAE has stated that a consistent treatment will apply across all free zones for the MoF Corporate Tax purposes.
Q: Will free zone entities of large multinationals be subject to CT?
A: While qualifying free zone entities may not be subject to the UAE CT, free zone entities that are part of a large multinational group may be subject to the 15% Global Minimum Tax (GMT) under Pillar Two.
Q: Will UAE holding companies be exempt from CT?
A: At present, it is not clear what constitutes a qualifying shareholding. In general, holding companies will come within the scope of the Corporate Tax regime. However, certain income streams of holding companies may be exempt.
Q: Will entities involved in oil and gas activities, currently subject to UAE corporate taxation?
A: Corporate Tax does not cover businesses incorporated in UAE involved in the production of natural resources. However, service companies in UAE that are part of a multinational group involved in the production of natural resources are expected to be within the scope of UAE CT.
Q: Will branches of foreign banks currently subject to CT at an Emirate level, be impacted on transition to the new CT regime?
A: As per the Corporate Tax FAQs issued by Ministry of Finance UAE, foreign corporate income tax paid on income that is taxable in the UAE will be allowed as a CT credit in the UAE.
Q: Will CT apply to government-owned entities?
A: The FAQs on Corporate Tax issued by the Ministry of Finance in UAE have not mentioned any exemptions to entities owned by the UAE government. However, it can be said that government owned entities whose principal purpose is to fulfil a government function and not conduct business will be exempt from the Pillar Two rules under the CT regime in UAE.
Q: Will individuals be subject to Corporate Tax regime in UAE?
A: The FAQs on Corporate Tax issued by the Ministry of Finance in UAE states that individuals will only be subject to CT when they are conducting business in the UAE under a commercial license and therefore not be subject to UAE CT on employment income or other personal income.
Q: When does the UAE expect to publish Transfer Pricing rules applicable to UAE-based businesses and when will these rules come into effect?
A: At this stage, no information has been provided regarding the supporting documents to be filed. The Transfer Pricing rules will certainly have an impact across the cross-border intra-group transactions of multinational groups with entities that are subject to CT in the UAE.
Q: Will all entities that are subject to CT be required to have audited FS?
A: Yes, all businesses that have a centralized system with all financial data from several ERP and non-ERP systems, as well as flat files are required to have audited FS.
Q: Will a CT deduction be allowed for interest expenses? Are interest deductions expected to be limited?
A: Since interest expenses are perceived as a profit-shifting technique in UAE, it is possible that there will be deductibility of interest like many other jurisdictions.
Q: Will Withholding Tax (WHT) paid outside of the UAE be allowed as a credit for Corporate Tax payable in the UAE?
A: The FAQs on Corporate Tax issued by the Ministry of Finance in UAE do not provide any deduction of expenses for UAE CT purposes other than those specified.
Q: What are the expenses that are generally eligible for deduction for Corporate Tax purposes in the UAE?
A: Expenses eligible for deduction for Corporate Tax purposes in the UAE would include Interest expenses, payments to foreign related parties in line with the transfer pricing rules, Depreciation as per CT rules, Salaries and wages and Overheads.
Q: What are the expenses that are not eligible for deduction for Corporate Tax purposes in the UAE?
A: Expenses not eligible for deduction for Corporate Tax purposes in the UAE would include excessive depreciation, expenses incurred to derive exempt income, personal expenses, fines and penalties.