Unlike Value Added Tax, UAE corporate tax is only applicable to businesses that have an annual taxable income of more than AED 375,000. Subsequent to the UAE corporate tax statute issuance, entities ought to outset formal auditing and taxation procedures to enforce compliance with the UAE Federal Tax Authority’s regulations and standards.
What is the Effective Date of Corporate Tax?
Corporate Tax will be applicable commencing from June 2023. Companies that consider a fiscal year from 1st June to 31st May must submit their Corporate Tax filing by the end of 2024. Whereas, companies that follow fiscal years from 1st Jan to 31st Dec, are subject to Corporate Tax effective from 1st January 2024, and the filing of CT will be towards mid of the following year 2025.
What Are the Applicable Corporate Tax Rates?
The Corporate Tax Rates are as follows:
- 0% Corporate Tax for taxable income up to AED 375,000
- 9% Standard rate of CIT for taxable income more than AED 375,000
- Large size companies and Multinational Enterprises that have a consolidated global revenue of more than 3.15 Billion will be subjected to different CIT rates as per the Organization of Economic Co-operation and Development (OECD) Base Erosion and Profit Sharing Basis that fall under the scope of Pillar 2 of BEPS 2.0
Corporate Income Tax in Free Zones
A 0% tax rate is applicable for businesses in the free zones, however free zone companies ought to be eligible as “qualifying Free zone companies based on the below criteria to avail of the benefit of 0% Corporate Income Tax.
- Business transactions are conducted with entities outside UAE
- Business transactions are conducted within the same or other free zones
- The business derives only a passive income from the mainland.
If a free zone company generates its income from the mainland, it will be subject to Corporate Income Tax.
Essential Facets to Consider for Filing Corporate Tax.
Transfer Pricing Policy
The Arm’s Length principle means that the commonly controlled parties involved in the transfer pricing must comply with one or a combination of the following methods or scenarios as two independent entities. The FTA presents strict compliance adhering to the transfer pricing methods used by companies in the UAE.
- The comparable uncontrolled price method
- The Resale Price Method
- The Cost Plus Method
- The transactional profit Split Method
- The transactional Net Margin Method
Farahat & Co Can Assist Your Company With the Following Services:
Several companies find the TP method challenging and difficult to understand. As a top corporate tax consultant in UAE, Farahat and Co have experience in dealing with international companies with their tax requirements. We are equally esthetic to assist companies in the UAE with their Transfer Pricing policies by setting up a robust TP framework. Following are some of the Transfer pricing services offered by Farahat and Co.
- Preparing a transfer pricing framework and policies ensuring the related company transactions comply with the Arm’s length principle.
- For international transactions, a compliance report for OECD Transfer Pricing with respect to corporate Tax TP guidelines & global transfer Pricing standard practices and BEPS readiness. Preparing an optimal business legal restructure to comply with TP Policies that will benefit the business in the long run.
- Preparation of a thorough analysis report for international financial transactions, contracts analysis, Substance test, BEPS, and income mechanism as per corporate Tax requirements.
- Impact analysis of Corporate Tax in UAE on the business transfer pricing and BEPS covering all the aspects of the business.
- Building a documentation policy as per the transfer pricing documentation requirements for local and international transactions and a country-by-country report, local file, and Master File
- Analysis of Transfer Pricing (TP) on Corporate Tax, VAT, and Accounting Valuations.
- Procurement and Supply Chain audit for efficient Tax efficient supply chain
- Transfer Pricing assessment and compliance as per the jurisdiction in the UAE.
- TP Risk assessment and Risk management
- Consultation for dispute resolution, representation before the FTA, and legal representations as per your company’s requirements
Corporate Tax Planning
- Consulting businesses with the effective tax rate applicable through analysis and a thorough business impact assessment.
- Tax compliance
- Base Erosion and Profit Sharing analysis
- Technological support and staff training
- Multi-Country planning
- Financial audit as per Corporate Tax guidelines
Redefining Your Business Process
Systems and accounting software had to be upgraded to align with the corporate tax guidelines. Several departments, including finance, will be required to be trained on the corporate tax drivers and the potential impact that it may have on each of the departments. The accounting and finance department can benefit from the upgrade of the existing software. Farhat and Co have assisted several companies in planning a smooth transition upon the introduction of Tax. Introduction to AI-run system modules and data migration are the key areas where your business's daily operations can be impacted.
Farahat and Co ensure you have a frictionless transit during the Corporate Tax introduction period with value-added data at your disposal to make efficient decisions for your business.
Some of the services we offer are:
- Risk assessment and management
- Accounting system automation and financial reporting
- AI process implementation
- Impact analysis and business intelligence report
- Outsources qualified accounting staff
- Outsource internal auditor