Corporate tax in UAE: 5 key questions answered

The introduction of corporate tax in the UAE on June 1 marks a pivotal step in diversifying revenue sources for the government. Nimish Goel, Partner at WTS Dhruva Consultants, sheds light on key inquiries pertaining to this initiative:

Q1: What are the main issues regarding the implementation of corporate tax in the UAE?

A1: Implementing a new tax inevitably brings challenges. However, the UAE’s proactive issuance of tax regulations has eased the process. The main focus now is understanding the impact of corporate tax (CT) on businesses. CT awareness seminars held by the Ministry of Finance and the Federal Tax Authority (FTA) are crucial in enhancing stakeholder understanding. There are provisions in the CT Law open to interpretation, and businesses are waiting for the clarification window before moving into full implementation. Adapting accounting systems is a key consideration during this phase.

Q2: How far are companies prepared to meet the tax requirements?

A2: The structured introduction of the UAE’s CT law has allowed companies to assess potential impacts. Those who proactively initiated impact assessments are well-positioned to meet the requirements. Entities that have recently started or not yet begun assessments should prioritize this, especially since the CT law will apply to most companies from January 1, 2024. The sooner the impact assessment is completed, the more time there is for the implementation phase. Many companies are engaging corporate tax specialists to ensure readiness for CT implementation.

Q3: What are the main challenges facing UAE companies on corporate tax?

A3: Amidst various challenges, the current focal point is restructuring operations, maintaining accurate records and financials, and implementing changes to IT systems or ERPs. Another area of emphasis is related party transactions, which must adhere to the arm’s length principle. However, benchmarking such transactions is challenging due to limited public corporate information. Further clarity is anticipated in the coming weeks, driven by the Federal Tax Authority’s proactive approach.

Q4: How will this move benefit the UAE economy?

A4: The implementation of corporate tax will facilitate greater integration of the UAE economy with the global landscape. This change will enhance the country’s image, eliminating the perception of it being a no-tax jurisdiction. Additionally, with corporate tax rates as low as 0% for free zones and 9% for the mainland, the UAE will become more attractive to overseas investments. This new revenue stream can also support vital infrastructure projects, thereby boosting the economy further.

Q5: Will this affect the competitiveness of the UAE economy?

A5: Despite the introduction of a general corporate tax rate of 9% (15% for larger multinational enterprises) and a 5% VAT rate, the UAE’s overall taxation remains among the lowest globally. This favorable tax environment, coupled with benefits such as 0% corporate tax on qualifying free zone income, participation exemption, and an extensive network of Double Tax Treaties, will continue to enhance the positive sentiment around the UAE economy.

CA Amarakoon Susantha

CA Amarakoon Susantha

AM Susantha is an experienced Tax Advisor at NAM Accountants in Dubai, with expertise in corporate and international taxation. He offers tailored tax solutions that align with clients' financial goals.

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