The UAE has released Federal Decree-Law No. (47) of 2022,also known as the "CT law," which outlines corporate tax regulations.It will be effective from 1 June 2023. The law provides clarity on variousprovisions but leaves some areas to be further clarified. All businesses in theUAE should carefully assess the impact of the CT law.
Key Highlights:
1. Free Zone entities: Qualifying Free Zone Personscan have both Qualifying Income (taxed at 0%) and non-qualifying Taxable Income(taxed at 9%). However, details on this are yet to be finalized.
2. Exempt persons: The CT law defines which personswill be exempt from UAE CT, including non-extractive natural resourcesbusinesses. Government entities and Government Controlled entities havespecific exemptions.
3. Calculation of taxable income: Taxable income willbe based on net profit or loss reported in financial statements preparedaccording to accepted accounting standards. The law provides insights into taxadjustments and the treatmentof unrealized gains, losses, and interest expenses.
4. Tax grouping: Tax grouping allows taxpayers toreduce administrative burdens and share losses for tax reduction. The lawprovides clarity on utilizing tax losses when a subsidiary joins or leaves aTax group.
5. Transfer Pricing (TP): The CT law covers severalTP aspects, including arm's length principle, TP methods aligned with OECDguidelines, definitions, transfer pricing adjustments, and TP documentationrequirements.
6. Transitional provisions: Opening balance sheetsfor tax purposes will be the prior period's closing accounting balance sheet,simplifying deferred tax calculations. However, specific conditions oradjustments may be prescribed by the Minister.
7. Participation exemptions: The participationexemption exempts certain income (dividends, capital gains) from UAE CT,subject to criteria like ownership percentage and a 12-month holding period.
8. Global minimum tax: The CT law doesn't providefurther guidance on Pillar Two. Multinationals will be subject to regular UAECT until Pillar Two rules are adopted.
9. Other areas of note: Non-residents with businessactivities in the UAE are considered taxable persons. Foreign permanent establishmentsmust be subject to foreign tax. Conditions and a two-year claw-back periodapply to group transfers and restructuring. Anti-abuse rules targettransactions without valid commercial reasons.
10. Administration: The CT law outlines tax returninformation, filing deadlines, tax payment dates, and record-keepingrequirements.
Next Steps:
Companies should plan ahead and prepare for the upcomingcorporate tax regime, considering its significant implications. Assessments,transfer pricing reviews, and operational updates are crucial.
