11-Mar-2024 Tax Transparency in the UAE: Understanding Corporate Tax
corporate tax tax compliance #uaetaxUAE introduced Corporate Tax to align with global standards, applicable since June 1, 2023. It targets all UAE and foreign entities managed in the UAE, with penalties for non-compliance set at AED 10,000. Key actions include timely registration to avoid penalties and ongoing compliance with UAE CT law.
Background
In alignment with international standards for tax transparency and the prevention of harmful tax practices, the UAE Federal Tax Authority has recently implemented Corporate Tax. This strategic move reflects the UAE's commitment to meeting global benchmarks and positions the country as a competitive global hub for business and investment. This article delves into the fundamental aspects of Corporate Tax, its applicability, registration timelines, and the potential penalties for non-compliance.
What is Corporate Tax?
Corporate Tax, also referred to as Business Profits Tax, is a form of direct tax levied on the net income or profit of corporations and other businesses.
When did it become applicable?
The UAE Corporate Tax Regime became applicable for the Financial Years starting on or after 1st June 2023 through Federal Decree Law No. 47 of 2022.
Examples,
- For Businesses having Financial Year starting on 1st July 2023 and ending on 30th June 2024, Corporate Tax is applicable from 1st July 2023.
- For Businesses having Financial Year starting on 1st January 2023 and ending on 31st December 2023, Corporate Tax is applicable from 1st January 2024.
Who is subject to UAE Corporate Tax?
UAE Corporate Tax is applicable to all juridical persons incorporated in the UAE and to all foreign juridical persons that are effectively managed and controlled in the UAE. A foreign juridical person that operates in the UAE through a permanent establishment or that has a taxable nexus in the UAE would also be subject to Corporate Tax.
Natural persons will be subject to Corporate Tax only if they are engaged in a Business or Business activities in the UAE.
Government entities and Qualified Public Benefit Entities (Charitable Institutions) are however exempted from UAE Corporate Tax subject to certain conditions.
Recent Update
The UAE Federal Tax Authority “FTA” has issued Decision No. 3 of 2024 dated 22nd February 2024 specifying the timelines for Registration of Taxable Persons for Corporate Tax “CT”. These timelines will become effective from 01st March 2024.
According to the UAE CT Law, every Taxable Person is required to submit an application for obtaining Tax Registration Number (TRN) for doing CT compliances.
Timelines
| Taxable Person into existence as on 01st March 2024 i.e., Existing Entities | ||
| Juridical Persons | Registration Criteria | Deadline for submitting Tax Registration Application |
| Resident Person | Date of Issuing License | |
| 1st January – 28th/29th February | 31st May 2024 | |
| 1st March – 30th April | 30th June 2024 | |
| 1st May – 31st May | 31st July 2024 | |
| 1st June – 30th June | 31st August 2024 | |
| 1st July – 31st July | 30th September 2024 | |
| 1st August – 30th September | 31st October 2024 | |
| 1st October – 30th November | 30th November 2024 | |
| 1st December – 31st December | 31st December 2024 | |
| Does not have a License as on 01st March 2024 | 3 months from the effective date of this decision i.e., 31st May 2024 | |
| Non-Resident Person | Having Permanent Establishment (PE) in the State | 9 months from the date of existence of the PE |
| Having Nexus in the State | 3 months from the effective date of this decision i.e., 31st May 2024 | |
| Natural Persons | ||
| Resident Person | Turnover exceeds AED 1 Million in a Gregorian Calendar Year | 31st March of the Subsequent Gregorian Calendar Year |
| Non-Resident Person | Turnover exceeds AED 1 Million in a Gregorian Calendar Year | 3 months from the date of meeting requirements of being subject to tax in UAE |
| Taxable Person comes into existence after 01st March 2024 i.e., Newly Formed Entities | ||
| Juridical Persons | Registration Criteria | Deadline for submitting Tax Registration Application |
| Resident Person | Person incorporated or registered in the State of UAE (including a Free Zone Person) | 3 months from the date of incorporation or registration in UAE |
| Person incorporated or registered in a Foreign Jurisdiction that is effectively managed and controlled in UAE | 3 months from the end of the Financial Year of the person | |
| Non-Resident Person | Having Permanent Establishment (PE) in the State | 6 months from the date of existence of the PE |
| Having Nexus in the State | 3 months from the date of establishment of the Nexus | |
| Natural Persons | ||
| Resident Person | Turnover exceeds AED 1 Million in a Gregorian Calendar Year | 31st March of the Subsequent Gregorian Calendar Year |
| Non-Resident Person | Turnover exceeds AED 1 Million in a Gregorian Calendar Year | 3 months from the date of meeting requirements of being subject to tax in UAE |
Notes:
1. License refers to the document issued by a Licensing Authority under which a business or business activity is conducted in the UAE i.e., Trade and / or Commercial License. If a person has more than one license, the License with the earliest issuance date shall be considered for determining the timeline.
E.g., If one license is issued w.e.f. 15th January and another is issued on 17th March, then timeline will be considered with respect to license issued on 15th January, hence, 31st May 2024.
2. Non-resident persons who do not have a Permanent Establishment or a Nexus in the State of UAE are not required to register for UAE CT.
3. Permanent Establishment in the State would be considered based on Article 14 of Federal Decree Law No. 47 of 2022.
5. Any Juridical Person that is a Non-Resident shall have a nexus in the state if it earns income from any Immovable Property in the State.
6. Natural Persons conducting business or business activities in the State of UAE shall not be required to register for UAE CT where the total turnover derived from such activities does not exceed AED 1 million in a Gregorian calendar year.
Penalty for Non Compliance
In case of failure to submit the CT registration application within the aforementioned timelines, a Penalty of AED 10,000 shall be imposed on such taxable person.
Key Takeaways and Action Plan
1. Determine the relevant registration category accurately.
2. Ensure the prompt submission of the CT registration application to prevent penalties.
3. Stay informed about and regularly assess post-registration compliances under UAE CT Law.
Thank you Readers for your Time and Attention. If you have any questions or suggestions, please don't hesitate to reach out on info@apmh.in / chiragkumar.goyal@gmail.com. Your input is invaluable.