This indicates the beginning of a new era of business taxation for resident companies and non-residents with a permanent establishment in the UAE, as they face the corporate tax UAE law, which will be implemented on June 1, 2023—aims, among other things, at international standards for tax transparency and avoidance of harmful tax practices.
It is worth noting that corporate tax law contains features that represent best practices in international taxation. As such, some instruction can be withdrawn from OECD practices and standards regarding tax estimation and tax returns.
The UAE’s new corporate tax regime has far-reaching implications for companies operating in the UAE. In addition to conducting a detailed assessment of corporate tax law implementation, companies must develop processes and procedures to manage tax compliance. So let’s witness a little deeper into the significant savings associated with the impact on the business:
What is corporate tax compliance?
Corporate tax compliance and reporting is a basic requirement in nearly every jurisdiction worldwide. Tax rules vary to create precise and broad tax bases, often interlinked with cross-border exemptions and reductions. Applying a growing set of rules to a new operating model adds complexity.
With the growing focus on governance and regulation, tax compliance has never been more important.
Non-compliance carries financial risks – financial penalties and possible tax increases- and serious business risks, as it may destroy the taxpayer’s reputation with the higher authorities and the public.
To remain in competition, companies are increasingly focusing on core competencies and activities that create value for the company.
The Importance of Tax Compliance in the UAE
Tax Compliance is critical to keep the system working for everyone and reinforce programs and services that upgrade and improve lives. One way to encourage compliance is to make the rules as clear and simple as possible.
Starting with the Value Added Tax (VAT) in January 2018, followed by the introduction of ESR (Economic Substance Rules) and Country-by-Country Reporting Regulations (CbCR) in April 2019, the UAE has undergone a series of tax reforms over the past few years to keep pace with market pace and diversify revenue.
The new anti-terrorism law will impose corporate income tax on business profits generated by UAE companies during the tax accounting period.
Scope of corporate tax
The defined corporate income tax regime is expected to apply to all business activities in the UAE (i.e., commercial, industrial, and professional), except the extraction of natural resources, which are (and will be) taxed emirate-wide.
The CIT also applies to individuals, provided they possess (or are required by law to possess) a business license or permit to conduct commercial, industrial, and professional activities in the UAE. This includes income earned by freelancers from activities carried out under a freelance license or permit.
The finance ministry said the proposed federal communications and information technology system would also apply to UAE banking (although branches of foreign banks are already subject to the emirate-wide CIT system).
It was also announced that the corporate tax incentives currently offered to free zone companies would continue to be honored, provided the free zone company complies with all applicable regulatory requirements and does not conduct business in the UAE mainland.
This could influence many companies currently working in the UAE mainland and free zones under the multi-licensing regime.
However, free zone companies must comply with certain obligations under the corporate income tax regime, including the requirements to register and file corporate income tax returns.
Three different corporate income tax rates are proposed to apply, as follows:
- 0% tax rate on taxable income up to AED 375,000 (approximately US$ 102,000);
- 9% on taxable income exceeding AED 375,000; and different tax rates for large multinational corporations with total global revenues above EUR 750 million (AED 3.15 billion) under the second pillar of the OECD’s Base Erosion and Profit Shifting (BEPS) (not yet published).
- Non-compliance with corporate tax
Failure to pay taxes can have a negative impact on business. That’s why it’s so important for individuals and businesses to comply with taxes.
Tax rules are different from those that apply to individuals. This is because corporate activities are not subject to the same laws as personal activities.
In this sense, it results noting that, in addition to income tax, every business corporation has to pay the following taxes: sales tax on the goods and services it sells, property tax, professional employee tax, and sales tax.
Other taxes include that if business owners do not pay their taxes or make payments on time, they will be considered in default.
Failure to comply with tax laws can be an obligatory mistake that can happen to any business person. This could be due to the owner’s ignorance of various regulations and tax returns. Even if a business owner cannot avoid taxes, the authorities may still penalize him. This may adversely affect your business.
Ensure corporate tax compliance.
Failure to comply with various tax-related legislative measures can be a major challenge. That’s why many business owners seek the help of a professional tax accountant. This service will help them avoid mistakes and benefit their business.
This is mainly because their services can function in the following ways:
They can provide individuals and businesses with a clear understanding of ever-changing tax laws.
They can ensure that errors are minimized when filing tax returns. In turn, this will prevent accidental non-compliance due to poor judgment.
They will ensure their clients can complete their taxes within the specified deadline.
This field requires individuals to know the latest tax laws and the tax rates that apply in different countries. They should also know well about various national and international tax laws. They are also well-versed in many tax-related areas, such as corporate tax, estate, and estate taxes. Beginning to collect taxes can be beneficial for those with the required qualifications.
Preparing for Corporate Tax
- Read the Corporations Tax Act and the supporting information on the websites of the Treasury and Federal Tax Office.
- Use the information available to determine if your business is subject to corporate tax and, if so, from what date.
- Understand the business requirements imposed by corporate tax law, such as:
- If and when your business needs to register for corporation tax;
- What is the taxation time for your business;
- When your business is required to file a corporate tax return;
- What options or applications your company can or must make for corporate tax purposes;
- What financial information and records your company must keep for corporate tax purposes;
- Visit the websites of the Ministry of Finance and the Federal Office of Public Finance regularly for more information and guidance on corporate taxation.
Corporations must pay corporation tax to be successful. Doing so will keep the business booming and keep you out of trouble. Businesses must comply with tax regulations to thrive. Failure to do so can affect your long-term viability. Please comply with tax laws to protect the company’s image. That’s why individuals and businesses must connect with professionals who can guide and help them with their tax compliance tasks.