Recent Updates and Changes in Corporate Tax Laws in the UAE: What Businesses Should Know

The United Arab Emirates (UAE) has recently implemented significant changes in its corporate tax laws, which have important implications for businesses operating in the country. This blog provides a comprehensive guide to the latest updates and changes in the UAE’s corporate tax regime, helping businesses understand their rights, obligations, and the impact of these changes on their operations. From the introduction of a federal decree-law on corporate tax rates to the pre-registration process and key exemptions, this blog covers all the essential information that businesses need to know.

1. UAE’s Federal Decree-Law on Corporate Tax Rates:

• Overview of the federal decree-law that introduced corporate tax in the UAE.
• Explanation of the rationale behind implementing corporate tax and its impact on businesses.
• Details about the 9 percent tax rate for taxable business profits exceeding AED375,000.
• Introduction of a zero percent tax rate for small businesses and startups on profits up to AED375,000.

The UAE has officially issued a federal decree-law on corporate tax, which serves as the legal framework for taxing corporations and businesses in the country. The decree-law, known as Federal Decree-Law No. 47 of 2022 on Taxation of Corporations and Businesses, establishes the rules and regulations for corporate tax and sets the tax rates for taxable profits.

2. Timeline and Implementation:

1. Understanding the timeline for businesses becoming subject to UAE corporate tax:

• Businesses will become subject to UAE corporate tax from the beginning of their first financial year that starts on or after 1 June 2023.
• This timeline provides businesses with a clear indication of when they need to start considering their tax obligations and preparing for compliance with the new tax regime.

2. Detailed explanation of the implementation process and its effects on different financial years:

• The implementation of the corporate tax regime follows the issuance of the Federal Decree-Law No. 47 of 2022 on Taxation of Corporations and Businesses.
• For businesses, the implementation process involves aligning their financial year with the new tax regulations, as they will become subject to corporate tax from the beginning of their first financial year that starts on or after 1 June 2023.
• It is important for businesses to carefully review their financial year and ensure that they are aware of the specific dates that trigger their tax obligations.

3. Importance of businesses planning and preparing for the transition to the new tax regime:

• The introduction of corporate tax brings a significant change to the tax landscape in the UAE, and businesses need to be proactive in planning and preparing for this transition.
• Businesses should assess their current financial structure and operations to understand how the new tax regime will impact their profitability and tax liabilities.
• It is crucial to review existing financial systems and processes to ensure they are capable of handling the requirements of corporate tax compliance.
• Seeking professional advice from tax experts and consulting with legal advisors can help businesses navigate the complexities of the new tax regime and ensure they are fully compliant.

By understanding the timeline for implementation and taking proactive steps to plan and prepare, businesses can effectively adapt to the new corporate tax regime in the UAE and ensure compliance with the regulations.

3. Exemptions:

The introduction of corporate tax in the UAE does not mean that all entities and individuals are subject to taxation. There are specific exemptions in place to provide relief for certain categories of entities and individuals. Understanding these exemptions is crucial for businesses to accurately assess their tax obligations. Here are some key points regarding corporate tax exemptions in the UAE:

1. Exemptions for government entities and government-controlled entities:

• Government entities and government-controlled entities are exempt from corporate tax. This exemption recognizes the unique role and nature of these entities in serving public interests and promoting government initiatives.

2. Exemptions for specific business categories:

• The Federal Decree-Law No. 47 of 2022 on Taxation of Corporations and Businesses provides a list of business categories that are eligible for exemptions from corporate tax.
• This includes entities engaged in extractive businesses, non-extractive natural resource businesses, qualifying public benefit entities, qualifying investment funds, and more.
• The specific eligibility criteria for each category may vary and are defined by the regulations.

3. Eligibility criteria and claiming exemptions:

• To qualify for exemptions, businesses need to meet certain criteria defined by the tax laws and regulations.
• It is essential for businesses to carefully review the requirements and ensure that they meet the eligibility criteria before claiming exemptions.
• The process of claiming exemptions may involve providing supporting documents and fulfilling certain reporting obligations to the relevant tax authorities.
• Businesses should seek professional advice from tax experts or legal advisors to navigate the eligibility criteria and the process of claiming exemptions effectively.

4. Compliance and documentation:

• Even if a business falls within an exempt category, it is important to maintain proper documentation and records to substantiate the claim for exemption.
• Businesses should maintain accurate financial records, contracts, agreements, and any other supporting documentation that may be required to demonstrate eligibility for exemptions.
• It is advisable to consult with tax experts or legal advisors to ensure proper compliance with documentation requirements and to mitigate any potential risks of non-compliance.

Understanding the exemptions available under the corporate tax regime is essential for businesses in the UAE.

4. Application for Reconsideration and Objections:

When businesses encounter tax-related disputes or disagreements with the Federal Tax Authority (FTA) in the UAE, they have the opportunity to navigate the resolution process through the Application for Reconsideration and Objections. Understanding these processes and their requirements is essential for businesses to effectively address their concerns. Here is a detailed overview of the Application for Reconsideration and Objections:

Application for Reconsideration to the FTA:

1. Process of Application for Reconsideration:

• The Application for Reconsideration allows businesses to formally request the FTA to review and reconsider their decision regarding tax matters.
• Businesses need to submit the Application for Reconsideration directly to the FTA within the specified timeframe.

2. Timeframe and Requirements:

• The Application for Reconsideration must be submitted within 20 business days from the date of receiving the decision notification from the FTA.
• It is essential to adhere to the timeframe to ensure the application is considered valid and processed accordingly.

3. Supporting Documentation and Reasoning:

• The Application for Reconsideration should include clear reasoning and details explaining why the business believes the decision should be reconsidered.
• Providing legislative references and relevant FTA publications can strengthen the application and support the arguments put forth by the business.

4. FTA Decision:

• Upon receiving the Application for Reconsideration, the FTA will review the request and provide a decision within 25 business days from the receipt of the application.
• It is important for businesses to be prepared to receive and carefully review the FTA’s decision within the specified timeframe.

Objections to the Tax Disputes Resolution Committee (TDRC):

1. Lodging Objections with the TDRC:

• If businesses are unable to resolve their dispute through the Application for Reconsideration, they have the option to lodge objections with the Tax Disputes Resolution Committee (TDRC) for further review and resolution.
• The TDRC is responsible for independently considering objections and providing a fair resolution.

2. Conditions and Timeframes:

• To submit an objection to the TDRC, businesses must meet certain conditions, including settling all tax and penalties, and submitting the Application for Reconsideration to the FTA.
• The objection must be lodged within 20 business days from the date of the decision or from the expiry of the FTA’s response timeframe, if applicable.

3. Documentation and Supporting Evidence:

• When submitting objections to the TDRC, businesses are required to provide a completed TDRC Objection Form, an explanatory memorandum, and all relevant supporting documentation.
• The documentation should include evidence of the original FTA decision, the Application for Reconsideration submitted to the FTA, responses received from the FTA, and evidence of tax liabilities and penalties subject to the FTA’s decision.

4. Importance of Clear Reasoning and References:

• Clear reasoning and arguments supported by legislative references and relevant documentation are crucial in the objection process.
• Providing a well-substantiated objection can strengthen the business’s position and increase the chances of a favourable resolution by the TDRC.

5. Pre-Registration and Timelines:

As the implementation of corporate tax in the UAE approaches, businesses are required to pre-register for corporate tax through the EmaraTax platform. Pre-registration is an important step in the transition to the new tax regime and plays a crucial role in ensuring compliance with the tax laws. Here are some key points to understand about pre-registration and timelines:

1. Pre-registration process through EmaraTax platform:

• The Federal Tax Authority (FTA) has established the EmaraTax platform to facilitate the pre-registration process for corporate tax.
• Businesses need to access the platform and provide the necessary information and details as required for pre-registration.
• The EmaraTax platform serves as a centralised system for businesses to interact with the FTA and fulfil their tax-related obligations.

2. Timelines and deadlines for early registration:

• The FTA has specified a timeline for early registration, allowing certain categories of companies to pre-register for corporate tax in advance.
• The early registration period usually begins several months before the official implementation of corporate tax.
• The duration of the early registration period may vary, but it generally provides businesses with sufficient time to complete the pre-registration process.
• The eligibility for early registration is often determined based on specific categories of companies, which may include factors such as business size, industry, or other criteria defined by the FTA.

3. Importance of early registration:

• Early registration is crucial for businesses to ensure compliance with the corporate tax laws and avoid any penalties or non-compliance issues.
• By pre-registering for corporate tax, businesses can proactively demonstrate their commitment to fulfilling their tax obligations and participating in the new tax regime.
• Early registration also allows businesses to familiarize themselves with the tax requirements, understand their tax liabilities, and plan their financial strategies accordingly.
• It is important to note that early registration does not necessarily imply an immediate tax liability. It serves as a preparatory step for businesses to be ready for the official implementation of corporate tax.

4. Compliance and avoiding penalties:

• Failure to pre-register for corporate tax within the specified timelines may result in penalties imposed by the FTA.
• It is crucial for businesses to adhere to the pre-registration deadlines and ensure timely completion of the process.
• By complying with the pre-registration requirements, businesses can avoid any disruptions in their operations and mitigate the risks associated with non-compliance.

Pre-registration is a proactive measure that businesses should undertake to ensure a smooth transition to the corporate tax regime. By following the timelines, accessing the EmaraTax platform, and completing the pre-registration process accurately, businesses can demonstrate their commitment to compliance, avoid penalties, and ensure a seamless integration into the new tax framework.

6. Practical Considerations and Challenges:

1. Addressing practical challenges faced by businesses, such as tax audits, understanding technical decisions by the FTA, and managing unexpected VAT costs.
2. Exploring the importance of tax governance strategies and the decision-making process when disagreeing with the FTA’s decision.
3. Providing practical tips for businesses to navigate these challenges and ensure smooth compliance with the new tax laws.

7. Payment Methods and Refunds:

When it comes to settling tax and penalties in the UAE, businesses have several payment methods available to meet their obligations. Understanding the different payment options and the process for receiving refunds is crucial for effective tax management. Here is a comprehensive explanation of payment methods and refunds:

1. Payment Methods:

a. E-Dirham: E-Dirham is a popular payment method for domestic taxpayers in the UAE. It provides a convenient way to make tax payments electronically. However, for international businesses without a local branch or subsidiary, E-Dirham may not be a viable option.

b. Credit Card: Businesses can choose to make tax payments using credit cards. While this method offers convenience and flexibility, it is important to note that credit card payments may incur additional charges or fees, typically ranging from 2% to 3% of the total payment amount.

c. Bank Transfer: Bank transfer is often considered the most effective payment method for settling tax and penalties in the UAE. It allows businesses to transfer funds directly from their bank accounts to the designated tax authority accounts. However, some businesses may face challenges when transferring funds from foreign banks to a UAE GIBAN (Global Intermediary Bank Account Number).

2. Advantages and Disadvantages:

a. E-Dirham: The advantages of using E-Dirham include its convenience and accessibility for domestic taxpayers. However, international businesses may find it impractical due to the lack of a local presence.

b. Credit Card: Credit card payments provide businesses with flexibility and ease of payment. However, the associated fees can add to the overall cost, particularly for larger tax liabilities.

c. Bank Transfer: Bank transfer offers a secure and direct method of payment, allowing businesses to make larger tax payments efficiently. However, foreign businesses may encounter challenges when initiating international bank transfers to a UAE GIBAN number.

3. Refunds:

a. Local Bank Account Requirement: To receive refunds of overpaid tax or penalties, businesses must have a local bank account in the UAE. The refund amount will be credited directly to the designated bank account.

b. Process for Claiming Refunds: Businesses can initiate the process of claiming refunds by submitting the necessary documentation and refund application to the relevant tax authority. The documentation may include evidence of overpaid tax, supporting financial statements, and any other relevant documentation as required by the tax authority.

It is crucial for businesses to plan their tax payments effectively, considering the advantages and disadvantages of each payment method. By choosing the most suitable payment method, businesses can ensure timely and accurate settlement of their tax liabilities. Furthermore, maintaining a local bank account is essential for receiving refunds of overpaid tax or penalties. Businesses should keep track of their tax obligations, monitor any potential overpayments, and initiate the refund process in a timely manner to avoid unnecessary delays.

8. Key Stakeholders:

• In-depth exploration of the roles and significance of key stakeholders involved in the tax dispute resolution process, including taxpayers, tax agents, tax disputes and litigation lawyers, and tax advisors.
• Discussion on the importance of collaboration and communication between stakeholders to ensure efficient and effective resolution of tax disputes.

In conclusion, the recent updates and changes in corporate tax laws in the UAE have ushered in a new era for businesses operating in the country. The introduction of corporate tax at a rate of 9 percent for taxable business profits exceeding AED375,000 signifies a significant shift in the tax landscape. However, small businesses and startups can take advantage of a zero percent tax rate on profits up to AED375,000, providing support for their growth and development.

It is crucial for businesses to understand the exemptions available, such as those for government entities, government-controlled entities, and specific business categories. These exemptions can alleviate the tax burden for eligible entities, but it is important to meet the eligibility criteria and follow the proper process for claiming exemptions.

Managing the timeline and implementation of corporate tax is paramount. Businesses need to be aware of when they become subject to corporate tax based on their financial year, ensuring they plan and prepare accordingly. Early registration through the EmaraTax platform can facilitate compliance and avoid penalties, and businesses should take advantage of the opportunity to pre-register within the designated timelines.

When disputes arise, businesses should be familiar with the process of submitting an ‘Application for Reconsideration’ to the Federal Tax Authority (FTA) and lodging objections with the Tax Disputes Resolution Committee (TDRC). Providing clear reasoning, supporting documentation, and legislative references during these processes is essential to present a strong case.

In terms of payment methods, businesses have options such as E-Dirham, credit card, and bank transfer to settle their tax and penalties. Choosing the most suitable payment method based on associated fees, processing times, and convenience is crucial. Additionally, businesses should ensure they have a local bank account to facilitate the receipt of refunds for overpaid tax or penalties, following the prescribed refund application process.

By staying informed, complying with the new corporate tax laws, and seeking guidance from tax professionals and financial advisors, businesses can navigate the changes, effectively manage their tax obligations, and contribute to their continued growth and success in the UAE.