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If you’re a UAE business owner, or looking to be, corporate tax is a topic you can’t afford to ignore. The recent release of a document by the Federal Tax Authority has caused a stir in the tax community.

Whilst it’s not legally binding, it is important to understand the implications and useful elements.

As the UAE operates on a consensual basis, all taxpayers should think about necessary changes to comply.

Understanding UAE corporate tax

Corporate tax is levied on the profits of companies and is a key part of the UAE’s tax system. It is important to be aware of the rules, to ensure compliance and avoid any potential penalties or legal issues. As of June 2023, the UAE initiated corporate tax provisions, making companies liable for taxation from either June 2023 or January 2024. The UAE also extended benefits to certain businesses up to 2026, exempting them from the 9% corporate tax. It is paramount to understand the stipulations related to corporate tax. Specifically that it is levied only on firms generating net profits above 375,000 AED.

The UAE tax system operates on a self-assessment basis, meaning that businesses are responsible for determining their own tax liability and filing tax returns accordingly. But, don’t be alarmed because our team can provide accountancy support, until you can fully understand the UAE taxation rules. Request a quote today, so we can present our services & fees!

By understanding UAE corporate tax, businesses and individuals can effectively plan their tax strategies, minimise tax liabilities, and ensure compliance with the law. Ultimately, a solid understanding of UAE corporate tax is vital.

The latest guidance

Sections 5.3.4 and 5.4.5 of the guidance suggest that the rules in the double taxation agreement would supersede UAE law. This is significant as it provides clarity on how double taxation would be addressed for companies operating in multiple jurisdictions. Another notable change highlighted in the guidance is regarding end-of-service (EOS) payments. For individuals who have been in the UAE for a decade or more, changes have been made to the EOS benefits. Whilst this simplifies the existing system, it is important to note that it is not a conventional pension regime.

A new pension system is expected to be introduced in the near future. Section 5.7.5.2 of the guidance discusses the corporate tax anomaly created by private pension funds. The UAE tax system aims to leave income for private individuals who are not trading untaxed. However, private pension funds, despite being regulated and existing within juridical entities, are swept up in the general tax net. To address this issue, the UAE is considering carving out a specific sphere for private pension funds. This would serve two purposes – to develop a private pension sector and to encourage savings for tax-efficient returns and investments in national or regional projects and businesses. As a quote from an unknown source aptly puts it, “What is more community than supporting the future development of the place you live in?”

Another important point raised in the guidance is the lack of accounting provisions for EOS payments. This has led to businesses overstating their profits, as EOS payments are not taken into consideration. The guidance document emphasises the need for accurate accounting practices to ensure transparency and compliance with the tax laws.

Overall, the latest guidance provides valuable insights into the complexities of UAE corporate tax and the steps being taken to address key issues. It is crucial for businesses to stay informed about these updates to ensure compliance and minimise potential tax liabilities.

The importance of professional tax guidance

We recognise the significance of professional tax guidance when it comes to navigating the intricacies of UAE corporate tax. And our team of skilled UAE accountants, can offer businesses and individuals the assistance they require to comprehend and adhere to current and future taxation regulations. We also possess expertise in double taxation agreements, ensuring that if you have businesses in multiple countries, you can avoid being taxed excessively. Furthermore, we provide a variety of services beyond accountancy, such as visa applications and real estate support, making us a comprehensive resource.

Take advantage of a free initial consultation to discover more about how we can help you.

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