What is the UAE Corporate Tax?

The United Arab Emirates has introduced a federal Corporate Tax on business profits that has been effective for financial years starting on or after June 1, 2023. This means that any business that has a financial year from January to December will be subject to Corporate Tax starting January 1, 2024.

To ensure compliance and minimise disruptions, businesses in the UAE are urged to act quickly in order to adapt their corporate structure, accounting systems, and business processes to the new tax regime.

Understanding the Corporate Tax Regime

The first step in making your business Corporate Tax ready is to familiarise yourself with the key aspects of the UAE Corporate Tax regime:

• The standard statutory tax rate of 9% is levied on taxable profits over AED 375,000 and a 0% tax rate is applicable for taxable profits up to AED 375,000 to support small businesses and startups.
• A different Corporate Tax rate is levied for large multinationals that meet specific criteria set with reference to the OECD Base Erosion and Profit Shifting (BEPS) project.
• All taxable persons must register, regardless of their corporate tax liability.
• The standard statutory tax rate of 9% is levied on taxable profits over AED 375,000 and a 0% tax rate is applicable for taxable profits up to AED 375,000 to support small businesses and startups.

Conducting an Impact Analysis

The second step is to perform a detailed impact analysis to identify the practical implications of the corporate tax law on your business operations, corporate structure, accounting systems, financial position, and stakeholders. Key considerations include:

• Mapping inter-company transactions and reviewing existing transfer pricing policies.
• Evaluating how Corporate Tax will be applicable on income streams and analysing any exemption criteria.
• Assessing the impact of corporate tax on business operations, supply chain, IT, and financial functions.

Ensuring Technology Readiness

When preparing to transition to a corporate tax structure, the third step is to consider factors such as its integration with current business processes, the ability of existing IT systems to manage the transition, and the desired level of process automation. Work closely with your technology partners to deploy the appropriate taxing technology architecture and ensure you are compliant from a systems perspective.

Reviewing and Updating Policies and Procedures

The fourth step is to review and update your company’s policies and procedures to align with the Corporate Tax requirements. This includes:

• Identifying what changes are required for the business model and corporate structure to minimise the fiscal burden.
• Establishing robust accounting systems and processes to meet corporate tax requirements.
• Implementing procedures for related-party transactions and transfer pricing documentation.

Registering for CT

The fifth and final step is for all taxable persons, including those with no Corporate Tax liability, to register for CT and obtain a Corporate Tax Registration Number. Registration can be done electronically through the EmaraTax Portal. Even if you are already registered for VAT, you must still register for CT.

Seeking Professional Advice

It is always advisable to consult with tax professionals to ensure that your business is fully compliant with the CT regime. Not only can they provide guidance on specific aspects of the law, and assist with the impact analysis, but they can also help you to navigate the registration process and ongoing compliance requirements.