Updates on Corporate Tax in the UAE

Corporate Tax registration

Key highlights:
  • The Federal Tax Authority (FTA) opened pre-registration for corporate tax (CT) through EmaraTax platform.
  • The pre-registration is available from January 2023 to May 2023 for certain categories of companies operating in the United Arab Emirates (UAE). These companies will receive invitations from the FTA by e-mail and SMS allowing them to register via the EmaraTax platform. 
  • Later, the FTA will also announce the date when registration will be opened for other categories of businesses. Priority will be given to those businesses, which have a financial year starting on 1 June 2023.
  • Taxpayers (e.g., Free Zones, companies and individuals) would be required to register for UAE CT, even if the taxable income is below the threshold of AED 375,000 or exempt. Further, taxpayers would need to register for CT separately, irrespective of any VAT registration.
  • Similar to other taxes in the UAE (e.g., VAT), businesses will be subject to penalties for non-compliance with the UAE CT regime. However, no penalties will be imposed for late registration if it is completed before the due date of filing first tax return. 
Deloitte’s observation:

The implementation of CT in the UAE has reached a new milestone as some taxpayers are now invited to register with the FTA. This announcement provides important clarification to taxpayers already VAT registered in the UAE where a separate CT registration is required regardless of any existing VAT registration with the FTA.

Issuance of a Cabinet Decision

Key highlights:
  • The FTA has issued its first cabinet decision following the release of the CT law. 
  • Cabinet Decision No. 116 (the Cabinet Decision) was issued on 16 January 2023 and confirms the highly anticipated amount of taxable income that will be subject to 0% tax rate. 
  • As expected, the first AED 375,000 of Taxable Income should be subject to 0% with any excess being subject to 9%. 
  • The Cabinet Decision also clarifies that taxpayers engaged in several business or business activity in the relevant tax period will only be entitled to a single AED 375,000 amount that benefits from the 0% tax rate. 
  • Taxpayers that enter in any arrangement which essentially results in obtaining the 0% tax rate on more than a single AED 375,000 amount may be subject to the general anti-abuse rules of the CT law (i.e., article 50). 
  • In assessing whether the general anti-abuse rules apply, the FTA will consider all facts and circumstances including:
    • the legitimate commercial purpose of the arrangement;
    • whether the same business or business activity being carried after the arrangement remain substantially the same;
    • andThe financial, economic, and organizational relation of the party or parties of the arrangement.

Deloitte’s observation: 

It appears from the Cabinet Decision that arrangements, which have legitimated commercial purpose, and which result in, for example, forming multiple entities, may benefit from the AED 375,000 exemption amount for each of the entity. A simple reading of the law could then suggest that tax groups, which are treated as single taxpayers, would only benefit from a single AED 375,000 exemption amount. 

Key takeaways

The implementation of the CT regime in the UAE continues to progress with new milestones being reached. While the majority of businesses still wait for the registration portal to be opened, an impact assessment of the UAE CT regime is needed. Taxpayers that undertake any reorganization as part of their readiness process must stay vigilant on the potential application of the general anti-abuse rules. 

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