We, ALM Tax Consultant LLC are starting a new blog every month to answer all the queries we received over the past month. Whether you're new to the UAE's business environment or simply seeking clarity on a specific topic, this blog will guide you through some of the most pressing issues. Here’s this month’s batch of frequently asked questions:
1) Do all companies need to apply for TRNs?
In the UAE, companies are required to apply for Tax Registration Number (TRN) depending on the type of taxes applicable to them. As of now, there are two main taxes involved with each having their own TRN:
- Corporate Tax (CT): This is mandatory for all juridical (legal) persons and natural persons (individuals) once certain criteria are met.
- VAT (Value Added Tax): VAT has two thresholds for registration:
- Mandatory Registration: If your company’s taxable supplies exceed AED 375,000 in any given 12-month period, you are required to register for VAT within 30 days. This includes both sales within the UAE (Standard-rated supplies) and exports (Zero-rated supplies).
- Voluntary Registration: If your company’s taxable supplies exceed AED 187,500 in the same period, you may voluntarily register for VAT.
For businesses who are always zero rated, as an alternate, they can also apply for VAT exemption.
The late penalty of AED 10,000 applies in both the cases of CT as well as VAT.
2) A foreign company has a branch in the UAE. What is the Corporate Tax (CT) treatment?
In case a foreign company opens its branch in the UAE, such a branch will be treated as a foreign establishment as per the UAE Corporate Tax (CT) rules. This means the branch must file a tax return to declare its UAE presence and the activities it conducts in the country. The branch also has to ensure compliance with the tax filings like any other taxable person in the UAE.
3) Can my friend set up company in UAE without being present in the country?
Yes, your friend can certainly set up a company in the UAE without his physical presence in the UAE. UAE laws have been designed with flexibility, especially to attract foreign investment and ease of doing business.
Your friend can give a Power of Attorney (POA) to a representative based in the UAE. The representative can handle all paperwork and formalities necessary to set up the company. So, even if your friend is overseas, the process can continue without any interruption.
4) What are service charges on real estate in UAE, and are they taxable?
In the UAE, service charges for real estate are typically paid on a quarterly basis, although this can vary depending on the agreement. The charges are fixed by the Land Department and relate to the maintenance and services of the property.
When it comes to tax, such charges do not come with VAT since they are under the scope of the cost of maintaining the property, and not a taxable sale.
5) As a free zone company, am I allowed to work with mainland companies, and are there any penalties for selling in the mainland if I pay VAT?
Yes, as a free zone company, you can do business with mainland companies. The process typically involves customs clearance of goods sold or transferred from the free zone to the mainland. Once cleared through customs, the transaction follows the normal business process.
From the VAT point of view, if your free zone company is VAT registered, you are required to adhere to the VAT rules, i.e., apply VAT on sales to mainland companies which is treated as import (RCM) for the mainland companies. There is no additional penalty for selling to mainland companies if you adhere to the VAT rules and follow the necessary customs procedures. Keep in mind that it is always important to maintain proper documentation and adhere to the legal procedures so that you do not face any issues.
Contact us for further information.
Stay tuned for next month’s blog, where we’ll answer more of your questions and help you navigate the business landscape in the UAE!
