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Are Taxable Persons Liable to Submit a Corporate Tax Return?

As per the UAE corporate tax law, taxable persons will be liable to issue a corporate tax return within a taxable period. Further, taxable persons are compelled to stay compliant to the Federal tax’s regulations and standards. Therefore, it is essentially advised for taxable persons to seek the expert services of reputable tax consultants in UAE to stay compliant to the Federal Tax Authority’s standards.  

How Much Corporate Tax is Imposed on a Taxable Person?

As per the UAE Federal-Decree-Law No.47Corporate tax is imposed on the taxable income at a rate implemented by the decree law as follows: Corporate Tax will be levied at a headline rate of 9% on Taxable Income exceeding AED 375,000. Taxable Income below this threshold will be subject to a 0% rate of Corporate Tax.

Who is a Liable Taxable Person?

The following legal entities are considered resident taxable persons;

  • Any natural person conducting a business or engaging in a business activity in the UAE;
  • Any legal entity established outside the UAE but controlled and managed from the UAE; and
  • Any other entity determined in a decision made by the Cabinet. 

While the non-resident taxable individuals include;

  • The non-permanent resident's establishment in the UAE,
  • The non-income residents derived from sources within the UAE, and
  • The non-nexus residents inside the UAE generate income derived from sources within the UAE.

How is a Free Zone Person Taxable?

According to Article 1 of the Decree Law no. 47, a free zone person is a legal entity that has been formed, founded, or otherwise constituted in a free zone, including a division of a non-resident organization. A free zone person is exempted from corporate tax in UAE on qualifying income. But it is required for him to pay nine percent company tax on the income deemed as non-qualifying by Article 18 of this decree. 

Read More: Corporate Tax in UAE for Free zone Companies

Who is a Qualifying Freezone Person?

A Freezone Person is one who meets the above criteria but a Qualifying Freezone Entity has to satisfy all these conditions:

  • Has a sufficient supply in the State?
  • Obtains Qualifying Income as described in this decree.
  • Corporate tax in the UAE is not imposed on him in accordance with Article 19 of Decree no. 47

Determination of Taxable Income

If a person holds more than one business, then for the determination of taxable income he has to undertake the following steps;

  • He is accountable for the management of both businesses separately. The other business will be regarded as a distinct business.
  • The shared expenses between the two expenses will be subjected to the tax in proportion to their generated revenue.
  • The Person shall compute the Taxable Income for both Businesses independently for each Tax Period.

Calculation of Taxable Income as Per the Arm's Length Law

If the transactions are executed between related parties, then these arrangements must fulfill Arm’s length law. The settlement is considered to meet Arm’s length standard if it satisfies these conditions;

  • The transaction's or arrangement's consequences are compatible with the outcome that would have materialized if the businesses were not indulged in Related Parties and had participated in an identical transaction or arrangement under similar situations.
  • The result has to be calculated by:
    1.  A compatible price control process
    2. The resale cost method
    3. The price-plus method
    4. The transactional net margin method
    5. The transactional profit split method
  • If none of the above pricing methods can be applied to the results, then the concerned person has the method to apply any pricing method of his choice.
  • The following factors must be kept clear while carrying out transactions and pricing methods:
    1. Terms of transactions
    2. Properties of Transactions
    3. Economic situations in which the transactions are made
    4. Participation of Third Parties
    5. Business program

Seek the Expert Service of UAE Tax Consultants

For taxable persons to establish their taxability and to stay compliant with the Federal Tax’s regulations and standards, it is advised to seek the expert services of reputable tax consultants in the UAE. Thus, contact us today and we shall be happy to assist you!  

Read More : “Applicable Taxable Income” Threshold under UAE Corporate Tax Confirmed

Ervee is a CPA with international experience in Tax and Accounting. He has over 12 years of experience in accounting and bookkeeping and over a year in VAT implementation, registration, and accounting in UAE. He regularly drives out inefficiencies in company operations and loves the challenge of helping clients find additional ways for an easier and improved compliance and verification of transactions.