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Corporate Tax (0% and 9%) in UAE from 1 June 2023

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Introduction and effective date

In a landmark decision the Ministry of Finance (“Ministry”) on 31 January 2022 announced the United Arab Emirates (“UAE”) will introduce Corporate Tax (a type of direct taxes) effective on or after 1 June 2023. The Federal Tax Authority (“FTA”) will be responsible for the enforcement, collection, and administration of UAE Corporate Tax. Corporate Tax will be applied to all UAE businesses and commercial activities alike, except for the extraction of natural resources, which will remain subject to Emirate level Corporate Taxation.

The news came in as the UAE aims itself as a world leading hub for business, innovation and competitiveness to align itself on global level for achieving transparency and preventing harmful Taxes practices together with accelerating the UAE’s development and transformation to achieve its strategic objectives.

 

Rate of Corporate Tax and threshold

The Corporate Tax Rate will be

9% Standard rate for companies (with annual income above AED 375,000)

0% to support small business (with annual income below AED 375,000) – to that the Ministry added “The Tax regime will be amongst the most competitive in the world”

A different tax rate for large multinationals that meet specific criteria set with reference to ‘Pillar Two’ of the OECD Base Erosion and Profit Shifting project (this will further be explained in the legislation).

 

Examples for Corporate Tax application

A business that has a financial year starting on 1 July 2023 and ending on 30 June 2024 will become subject to UAE CT from 1 July 2023 (which is the beginning of the first financial year that starts on or after 1 June 2023). The taxable income will be the accounting net profit / income of a business, after making necessary adjustments for certain items to be specified under the UAE Corporate Tax Law (draft not yet available).

 

Exclusions (out of scope of UAE Corporate Tax) – explicitly defined by the Ministry of Finance

Personal income from employment

Real Estate investment (by individuals)

Dividend income, capital gains and other income earned from owning shares or other securities (by individuals), also Dividends and capital gains earned by a UAE business from its qualifying shareholdings will be exempt.

Interest income (by individuals)

Any income generated by individual (which is not arising as a result of a business)

No withholding Taxes

Free zone businesses will be subject to UAE Corporate Tax, but the UAE Corporate Tax regime will continue to honor the Corporate Tax incentives (if any) currently being offered to free zone businesses that comply with all regulatory requirements and that do not conduct business with mainland UAE.

 

Corporate Tax Returns – cycle of submission

Only one Corporate Tax Return will need to be filed per financial period, no provisional or advance CT filings will be required, a financial period will generally a year. UAE businesses will not be required to make advance UAE Corporate Tax payments (as observed in regimes in other countries).

 

Corporate Tax Violations

Similar to other Taxes in the UAE (e.g. VAT), businesses will be subject to penalties for non-compliance with the Corporate Tax regime.

 

Immediate action required

UAE companies will need to consider impact assessment and readiness towards the Corporate Tax and its implementation, upgrade ERP as required.

To understand accurately how this Corporate Tax regime will impact your business, preparing an implementation plan and assistance with reporting and updating your ERP, reach out to our Tax Team at Taxation@affiniax.com.

 

Author Jilal Ahmed – 31 January 2022

PHISHING ALERT: UAE VAT

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“We are aware that a number of clients have been sent emails and letters from fraudsters pertaining to be the Federal Tax Authority or Banks and requesting for certain details from them.

The Federal Tax Authority would generally only communicate with registrants through emails from the domain tax.gov.ae sent to the registered email address, or via your eservices.tax.gov.ae portal and registered number.

If you are uncertain as to the genuineness of communication received, please feel free to contact our VAT services team for guidance.”

OWN FREEHOLD PROPERTIES IN DUBAI WITHOUT A DUBAI LICENSE FOR RAKICC REGISTERED COMPANIES

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Dubai Land Department (DLD) strengthen ties with Ras Al Khaimah International Corporate Centre (RAKICC) by signing Memorandums of Understanding (MOU) for the registration of freehold properties in Dubai. With this, there is no need for RAKICC Registered Companies to obtain a Dubai trade/commercial license to own a property in Dubai. No objection Certificate from RAKICC is one of the main requirements to acquire a freehold property. As of now, there are total of 23 freehold areas in Dubai and some of them are the following:
  • Dubai Marina
  • Downtown Dubai
  • Jumeirah Village Circle
  • Palm Jumeirah
  • Jumeirah Lakes Towers
  • Business Bay
And project developer such as:
  • Dubai Global
  • Dubai Holding Projects
  • EMAAR
  • Nakheel
  • Dubai Real Estate Corporation – Wasl Properties
  • Meraas Holding
This collaboration aims to open more doors of opportunities to invest in the Emirate’s Real Estate market and to disperse DLD’s expertise in Real Estate regulation and registration at the local, federal and global levels. For more inquiries or clarifications, please feel free to contact our Corporate Services team at mail@affiniax.com.

DMCC INTRODUCES DUAL LICENSING SCHEME BY PARTNERING WITH DED

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As part of a continuous effort to transform Dubai into an investment friendly ecosystem, Dubai Multi Commodities Centre (DMCC), the world’s flagship Free Zone and Government of Dubai Authority on commodities trade and enterprises, and the Department of Economic Development (DED), the Government of Dubai entity that regulates the economic activities of all onshore companies, have signed a strategic agreement to collaborate on the licensing of companies in Dubai- allowing them to operate within the Free Zone and onshore.

The Memorandum of Understanding (MoU) introduces a dual licensing scheme to DMCC member companies, enabling them to establish a presence and operation in mainland Dubai under a DED license. It will also enable Free Zone businesses to carry out some service activities onshore, provided that DMCC member companies will obtain a no objection certificate (NOC) from the DMCC Authority.

The partnership aims to further facilitate trade and boost economic activity with the potential change to the entrepreneurship and business outlook in the Emirate and to further improve transparency, governance and compliance in the business sector. This will also welcome new business opportunity and flexibility to conduct businesses across Dubai.

We will keep you posted on any update regarding the above matter and its implementation.

100% FOREIGN OWNERSHIP IN THE UAE FOR CERTAIN ACTIVITIES

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His Highness Shaikh Mohammad Bin Rashid Al Maktoum chairman of the UAE cabinet, Vice President, Prime Minister and Ruler of Dubai has approved the sectors and economic activities eligible for up to 100% foreign ownership in the UAE.

Total of 122 economic activities across 13 sectors were specified to be entitled for up to 100% foreign ownership. The decision aims to support the growth environment and to reaffirm UAE’s position on the global arena as a hub for investment.

The sectors covered are
  • Renewable Energy
  • Space
  • Agriculture and Manufacturing Industry
  • Transport and Storage
  • Hospitality and Food Services
  • Information and Communications
  • Professional, Scientific and Technical activities
  • Administrative Services
  • Support Services
  • Educational Activities
  • Healthcare
  • Art and Entertainment
  • Construction
The Local Governments will specify the ownership percentage of foreign investors in these activities.

We will keep you posted on any update regarding the above matter and it’s implementation.

We at Affiniax Partners can assist you with Economic Department Company Formation. For more information towards the company formation please feel free to contact our Corporate Service team at mail@affiniax.com.

WHY INVEST IN THE UNITED ARAB EMIRATES?

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Introduction: United Arab Emirates
The UAE’s status as a growing knowledge hub is enhancing its attractiveness as a business destination that offers a multitude of possibilities. There are more than 40 free trade zones in UAE which offer business stability and 100% foreign ownership.

The taxation regime is extremely appealing with 0% Corporate Income Tax for most sectors and no Personal Income Tax or Social Security Contributions.

Business confidentiality and having no restrictions in establishing more than just one activity in the UAE makes it easy for international investors to set up their businesses in the UAE. Moreover, strong and rapidly expanding infrastructure plays a major role in attracting businesses to the UAE.

Dubai is fast becoming an important financial center that offers business support for foreign investors looking to invest in the region. With the World Expo being held in Dubai in 2020, a number of international companies and investors will be looking to explore opportunities in the UAE.

Having nearly 30 years of presence and experience in the region, Affiniax Partners are well placed to assist your clients with their requirements in the UAE.

Few aspects to consider when considering your move to Dubai:
  • Skilled local and International workforce.
  • The import and export sector benefits from a series of advantages and foreign companies are exempt from most tax and duties.
  • Entrepreneurs in Dubai can easily connect with countries worldwide when having a business in the UAE.
  • It is very easy to set up a branch or a subsidiary in Dubai.
  • The incorporation process in Dubai is not subject to complex formalities and entrepreneurs can easily set up their business.
  • The tax benefits are huge in Dubai, and entrepreneurs from abroad can enjoy tax exemptions like 0% corporate or income taxes.
  • The positive trends of the real estate sector in Dubai attract different foreign businesses every year.
  • A strong Currency with pegged AED to USD rate.
  • Dubai is an important tourist destination which offers plenty of opportunities in this area.
  • The UAE has already signed over 40 Double Tax Treaties with various jurisdictions and is in the process of agreeing on agreements with more jurisdictions, including the UK, Australia, and other EU countries.

DOUBLE TAX TREATY: INDIA & UNITED ARAB EMIRATES

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The Double Tax Treaty between UAE and India was signed in 1989 and later amended through notifications of 1993, 2001, 2007 & 2013.

Double taxation is defined when similar taxes are imposed in two countries on the same taxpayer on the same tax base, which harmfully affects the exchange of goods, services and capital and technology transfer and trade across the border.

Public and Private companies, investment firms, air transport firms and other companies operating in the UAE, as well as residents, benefit from Avoidance of Double Taxation Agreements (DTA).

Thanks to an intensive economic trade of more than 20 billion dollars between UAE and India, the two countries have signed an arrangement based on the promotion of mutual economic relations. Because of this tax convention, India and UAE have managed to avoid over-taxation of their legal entities and taken successful steps to prevent tax evasion.

The following incomes are protected by the double taxation treaties signed between the UAE and India:
  1. Revenues from personal services.
  2. Revenues derived from shipping and air transportation.
  3. Interests, dividends, and royalties registered in both countries.
  4. Incomes from the alienation of immovable or movable properties are protected by this DTT (under specific conditions).
Companies with permanent establishments like factories, offices, branches, workshops, or any other workplaces in Dubai are covered.

To determine the country of residence for a legal entity, the state takes into consideration whether the business has one of the following establishments on its territory:
  • A place of Management;
  • A Branch;
  • An Office;
  • A Mine;
  • A Factory or Workshop.

TRANSFER PRICING AND UNITED ARAB EMIRATES

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Transfer Pricing (TP) is a practice that allows for pricing transactions internally within businesses and between companies that operate under common control or ownership, including cross border transactions.

The United Arab Emirates (“UAE”) joined the OECD Inclusive Framework on Base Erosion and Profit Shifting (“BEPS”) on 16 May 2018.

Through joining the Inclusive Framework, the UAE has (for now) committed to implementing the following four BEPS minimum standards:

Action 5: Countering Harmful Tax Practices More Effectively, Considering Transparency and Substance

UAE Progress

The implementation of VAT in the UAE as of 1 January 2018 (which requires taxpayers’ registration with the UAE’s Federal Tax Authority and in doing so, furnishing information to a central tax administration agency) has allowed the UAE to make progress in this regard.

Action 6: Preventing the Granting of Treaty Benefits in Inappropriate Circumstances

UAE Progress

It remains to be seen what approach the UAE may adopt in this respect.

Action 13: Transfer Pricing Documentation and Country-by-Country Reporting (“CbCR”)

UAE Progress

We do not yet have visibility as to whether the UAE will sign the CbCR MCAA or choose one of the other mechanisms for implementing CbCR. It is currently also unclear whether the UAE will adopt the OECD CbCR Model legislation or enact its own tailored legislation.

Action 14: Making Dispute Resolution Mechanisms More Effective

UAE Progress

Other jurisdictions such as Singapore, Netherlands and Luxembourg have signed up to the MLI to implement the MAP-related changes rather than enter into a bilateral renegotiation of their existing DTAs. It remains to be seen on the official approach the UAE may adopt in this respect.

Latest Developments

During the second week of March 2019, European Union governments updated a blacklist of tax havens this week, adding the United Arab Emirates.

Blacklisted states face stricter controls on transactions with the EU, although no sanctions have yet been agreed by EU states. Though, experts believe that such restrictions could include increased audit risks and denial of certain benefits.

Abdulaziz al-Ghurair, the banking group’s chairman, told reporters during a banking conference in Dubai. “I’m sure in the near future this will be solved.” “Because we have chosen to be an international financial center, we have to comply with the world’s regulations …” Al-Ghurair said. “We had issues like this in the past and they’ve been solved.”

Key Takeaways & opportunities

Whilst the UAE has only become a member of the Inclusive Framework on 16 May 2018, the UAE has already been making strides into ensuring its compliance with the four BEPS minimum standards through its participation in various Conventions issued by OECD that are designed to facilitate the implementation of the four BEPS minimum standards. Further, the UAE has already in place in its domestic rule’s certain information collection mechanisms.

As a next step, the UAE would need to review, update and put in place domestic legislation to comply with the minimum standards.

With several transfer pricing regulations going to be introduced in MENA over the next few years, this should be viewed as an opportunity to introduce a structured intra-group pricing framework to align with investment strategies and overcoming risks by implementing technology solutions that align with existing business systems.

A recent survey suggests that 82% of respondents agree that transfer pricing structures are under critical evaluation in the MENA region.

KINGDOM OF SAUDI ARABIA AND UNITED ARAB EMIRATES DOUBLE TAX TREATY – OFFICIAL PUBLICATION

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In its official gazette (Umm Al-Qura) the Kingdom of Saudi Arabia (KSA) on 1 March 2019 published its Double Tax Treaty (DTT) with the United Arab Emirates. This marks the first DTT among the Gulf Cooperation Council (GCC) countries. It is considered as the foundation for the accelerated cross-border trade between these two countries. The official notification on the UAE gazette for the treaty is still awaited which will ultimately set the DTT in force. The DTT will be effective on the first day of the second month in which UAE will issue the DTT in its official gazette.

The DTT was officially signed on 23 May 2018 between UAE & KSA. The DTT is in line with the Organization for Economic Co-operation and Development (OECD) Model Tax Convention. Both UAE and KSA resident individuals and companies will be subject to the provisions of the DTT.

Some important features of the treaty are as follows:
Permanent Establishment
The treaty follows the OECD definition for Permanent Establishment (PE) i.e. a fixed place of business through which the enterprise is engaged, in whole or in part.

Under the DTT, if services are carried out by an establishment of a Contracting State through employees in the other contracting state for a period of 183 days in a 12-month period, the establishment will be considered to have a PE in that other state.

Dividends: Dividends will be taxed in the source country, with a maximum 5% Withholding Tax rate (which is the current statutory Withholding Tax rate in KSA for dividends) if the recipient is resident of the other country.

Royalties: Royalties will be taxed at a maximum rate of 10% in the source country if the recipient is the resident of the other country. Which is a reduced rate (compared to 15% domestic rate of KSA).

Interest: KSA Withholding Tax on interest income will be exempt if the recipient is resident of another country, i.e. interest will be taxable in the source country (statutory rate of Withholding Tax on interest income in KSA is 5%).

Capital gains: Income derived by a resident of a Contracting State from immovable property situated in the other Contracting State will be taxed in that other country. Such that the income will be taxed in the country of origin. Disposal of shares will continue to be subject to KSA capital gains tax rate of 20% where appropriate.

Business Profits: The profits of an enterprise shall only be taxable in the source country unless the enterprise is carrying out business in the other Contracting State through PE. Accordingly, the income from services which are not delivered through PE in another country will be exempt from Withholding Tax in that country. The domestic Withholding Tax rates on business profits in KSA are between 5% and 20%.

If you wish to better understand the DTT and how it would affect your business or circumstances, Contact us at mail@affiniax.comDownload: Unofficial Translation of Double Tax Treaty – KSA and UAE

THE BENEFITS OF MOVING TO A CLOUD ACCOUNTING PLATFORM IN THE UAE

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The benefits of moving to a cloud accounting platform in the UAE

The world we live in is rapidly moving towards digital for all aspects of business, one of the most aggressive moves is that of the accounting world. With your company’s financials at stake, what are the real benefits of moving to a cloud accounting platform? Here are the top reasons you should be considering a move to cloud based accounting.

Reduced Capital Expenditure

The move to cloud not only offers an operational cost option for the software. It also reduces the need for infrastructure to support it. Costly hardware and backup solutions are not required as they are now provided as a part of the software as a service offering. The scale of the infrastructures offered by the service providers will generally far exceed an in-house operation, so it will also increase your business’ accounting security and availability.

Reduced Total Cost

Not only does your online accounting system reduce your capital expenditure, it actually reduces the overall cost. Cloud accounting solutions can enter the market on a freemium model (base levels of the software are offered free with the choice to upgrade for more advanced features) and can be up-scaled on users and requirements as necessary.

There is now no need to invest in an all-encompassing system of which you will use a minor selection of the functions.

Scalability

A cloud-based system scales to fit your company. Entrepreneurs have a very cheap but limited system, this can grow to add users and functionalities as per the requirements of your business and team. The system will grow alongside your company and it will allow for the addition of functions and resources as required.

Staffing efficiency

With the use of technology, manual tasks can almost be eliminated. This opens a business’ options to allow outsourcing of technical and operational functions. Functions such as the capture of expenses receipts can now be eliminated by using application based functions on one’s phone. A simple photo is taken and it is assigned to the correct account. This means that no longer are you counting through endless receipts at the end of the month and you can easily ascertain the cost and value of each client’s activities.

Real-time information updating

From your accountants to your C suite, the information is available as live. The system will allow you to build dashboards and reports which are tailored to the person using it. A C-level may want to see more of an overview whilst an accountant may need more transactional level information. With the connection of bank accounts to the systems you achieve real-time, live accurate data.

Access from anywhere

Part of the success of cloud computing is the ability to access information from practically anywhere. The rise of smartphone adoption has allowed business officials access to key company information as long as they have a form of Wi-Fi connection.

Security

Cloud solutions often face the issue of security and people often think that because a system is out of the office it is less secure. However, exactly the opposite is the truth. The following shows just a few of the key security enhancements that migration to cloud-based accounting will offer:

  • User authentication – two-step authentication for logins and transactions ensure that with the use of 2 personal devices only can you access the account.
  • Data encryption – industry-level encryption services ensure that information is delivered and translated to correct areas only. 
  • Network security and data center – economies of scale allow a much higher level of infrastructure and the security that runs within it. This can offer governmental levels of security at a fraction of the price.

Immediate Fixes

Most softwares offer an uptime guarantee of >99%. Their vast teams ensure that updates, patches and fixes are completed before issues occur. They are also often very responsive to system improvements and thrive on critical feedback. The systems can literally change and improve in front of your eyes.

Data Backup and Restoration

One of the largest investments in accounting is the backup of the data. If you do not have a backup of your software offsite you run the risk of losing your data. It is said that 60% of companies that complete data loss will be shut down within 6 months. With cloud accounting, you have servers based in environmentally perfect surroundings, these will be replicated in similar environments, often in other countries. Only severe disasters could disrupt these types of systems, and at this point, we probably wouldn’t be worried about our accounting.

There are many benefits to promote the adoption of a cloud-based accounting system in the UAE and beyond. It is vital that you choose the right team to help you set up or migrate the services, and to see if it is a viable option in the first instance. Speak to one of our team to understand the benefits to you and your business and grow with the best.

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