"Tax doesn't have to be taxing"

Date Posted:Thu, 10th Mar 2022

"Tax doesn't have to be taxing"

For those all to familiar with the above HMRC phrase wouldn't have been phased by the announcement on the 31st of January 2022 of a Corporate Tax (CT) on business profits.

 

Why?
For those wondering why this tax was introduced, it was in light of the Pillar Two Global Minimum Tax ("GloBE") exercise introduced by the Organization for Economic Co-operation and Development ("OECD"). In summary these regulations allow for a level playing field for corporations to pay a fair amount of tax no matter which jurisdiction they operate in.

When?
CT will commence from for financial years starting on or after 1 June 2023. 

The UAE Federal Tax Authority ("FTA") and Ministry of Finance (MoF) have already published FAQs in regards to the introduction of Corporation tax. However the key date to keep in the diary is around mid-year (June onwards) when a more detailed prospectus on the structure and framework of this tax should be made available.

What?
CT will apply on all taxable (not accounting profits as we have to adjust for non-deductible items such as entertainment etc.) net profits of the business. Unlike VAT which is a relatively neutral business tax (where you act as a tax collector), this tax would require a payment.

 The UAE CT framework will have 3 categories: -

  • An exemption for taxable net profits up to AED 375,000.
  • A CT tax rate of 9% on taxable net profits above AED 375,000.
  • Specific tax rate for MNCs that fall within the scope of OECD's 'Pillar Two' (Large corporates with consolidated global revenues in excess of EUR 750m).

For Free zone businesses, tax holidays will be honored so along as they comply with all regulatory requirements and do not conduct business with the UAE mainland.

 

Thus is the time to rallying the troops (Accounting and Finance teams take note); businesses will need to assess how CT will impact their businesses and ensure compliance.

Given the ever evolving tax landscape one would err on the side of caution in terms of speculation of rules nor should you transpose another tax regimes rules and regulations given that each tax jurisdiction is different.  Thus it would be best to await the publication of the laws, rules and regulation in full to gather a holistic approach.

Should you have any queries on the CT implementation, please get in touch with our team on [email protected]    

This article is purely for educational and informative purposes only. It does not represent any affiliated body or constitute to any legal advice.