The UAE continues to draw business owners and entrepreneurs from around the world, as its advantageous tax benefits prove highly attractive. As of June 1st, 2023, corporate taxes for businesses that meet specific criteria in the Emirates will be set at a competitive rate of 9%.

By introducing the new tax regime, UAE is making major strides to be a perfect destination for international investors. Business owners can look forward to a brighter financial future as the compliance measures such as ESR, VAT, UBO, and AML established by the government creates higher standards for company formation and operations. 

As a part of an effort to embrace best international practices in taxation made obligatory for companies, the UAE is transforming itself into becoming a lucrative investment destination for businesses. By upholding transparency standards within the financial system through this mandatory requirement, UAE citizens will benefit from easier access to capital markets when it comes time for the expansion of opportunities.

The UAE’s new Corporate Tax Regime will bring a substantial change in the financial environment not only about creating increased confidence within its financial system but also building credibility and stability – all of which ultimately lead them towards becoming an attractive player on the global market stage.

To understand the importance of the New Corporate Tax Regime, let’s delve into the core features that make this regime so significant and attractive to companies across the region.

1. The application of the 9% corporate tax on resident and non-resident persons is subject to certain conditions. 
2. Certain entities are exempted from Corporate Tax such as: 
   1. A government entity
   2. Businesses in natural and non-natural resources
   3. Public benefit entity
   4. Investments fund
   5. Pension fund
3. Certain Incomes are exempted from Corporate Tax such as: 
   1. Dividends
   2. Participating Interests
   3. Income from Foreign permanent establishment 
   4. Non-resident operating aircraft or ships as part of international transportation
4. There have been changes in the initial suggestion paper released in early 2022 highlighting that real estate is not exempted from corporate tax. 
5. Free zone entities that qualify are taxed at 0%.
6. The grouping of Freezone with Mainland entities is not allowed unless the Freezone entity accepts a 9% tax.
7. Grouping of taxes can be done:
   1. When all the persons are juridical persons and not free zone entities. 
   2. When one person who owns 75% or more has higher ownership than the other person.
   3. When the financial statements are prepared for the same Financial Year under IFRS. 
8. Within the qualifying group, there can be unrealized gain or loss which can be recognized on both accrual and cash basis.
   1. Those who are taxable are juridical persons with PE in the UAE.
   2. Those that have 75% or more interest are taxed.
9. For business restructuring, there are no gains or losses to be computed.
10. Deduction for net interest is allowed up to 30% of EBITDA and the remaining is carried forward for 10 tax periods.
11. Deduction on the entertainment expenditure is limited to 50% – any benefits to owners or the related parties such as salaries, dividends, or profits are not allowed. 
12. Deductions on purchases made by the owners on behalf of the business are allowed based on market value.
13. Transfer pricing methods need to be applied for transactions with related parties. 
14. The withholding tax is 0%.
15. Corporate tax liability can be settled as a foreign tax credit but cannot be carried forward.
16. Tax losses cannot be carried backward but only forward.

How can the New Corporate Tax be beneficial for your business? 

The introduction of the 9% corporate tax can benefit your business in several ways. Firstly, it could give you greater visibility in terms of filing taxes since you now have a single rate that applies regardless of where and when your company was established. This could simplify your accounting process and reduce administrative costs associated with accounting and filing taxes. 

Secondly, it could open up opportunities for you to access capital markets for financing growth projects or expansion plans as potential investors will find it more attractive to invest in companies registered in UAE due to its taxation system compared with other jurisdictions. 

Finally, this new system could help boost investments and improve the image of the UAE by providing greater transparency into the country’s financial activities, which ultimately leads to a higher level of confidence within the region. It could also save a number of entities from high penalties. 

How can AccountAbility help you? 

The introduction of a 9% corporate tax is a game changer for companies and startups alike. If you are planning on registering a business or already have an existing one registered here then it would be wise to familiarize yourself with this new legislation so that you can take advantage of any opportunities available while complying with all relevant regulations set forth by authorities. 

By hiring accountability, you are ensured that all required documents are submitted correctly and on time so that there won’t be any rejections when filing taxes come June 2023.  So, if you are trying to navigate the unfamiliar waters of Corporate Tax and need assistance with filing, payments, returns, and other related aspects then AccountAbility is here to assist you with years of expertise, empowering your businesses in UAE to make smooth transitions into this brave new world. 

As we create strategies tailored specifically for the corporate objectives, you are up to speed in no time – saving you money, time, and effort! With our guidance, there’s just no way not to stay ahead: get on board now by booking a free consultation with us. We’ll take the hassle out of managing paperwork and provide you peace of mind knowing that everything is taken care of – let professionals do what they do best. 

Reach out to us at info@accountability.ae or +971 50 279 8784⁠ for more information today! At AccountAbility, we’re here to help you!