Guide to Corporate Tax (CT) for UAE Businesses

This guide provides an overview of the corporate tax (CT) for UAE businesses. Key areas include

• Requirements for registration
• Requirements for deregistration,
• Necessary Documentation for CT filing
• Important considerations for Qualifying Free Zone Persons (QFZPs).

First, Let’s brush up with What is Corporate Tax law in UAE?

The UAE Government implemented a Corporate Tax on 1^st June 2023. Businesses with annual net profits exceeding
AED 375,000 will be subject to a 9% corporate tax rate, in line with applicable terms and conditions.

Who Needs to Register for UAE Corporate Tax?

Understanding whether you need to register for UAE Corporate Tax is crucial for compliance. Here’s a breakdown of who needs to register:

Natural Persons

Natural persons must register if:

• They conduct business activities in the UAE (excluding income from wages, salaries, personal investment, or real estate).
• Their total turnover exceeds AED 1 million in a Gregorian calendar year.

Note: If your turnover is less than AED 1 million, registration is not required.

Juridical Persons (Companies or entities)

• Incorporated in the UAE – Registration is mandatory.
• Incorporated outside the UAE – Registration depends on several factors:
• Effectively managed in the UAE
• Has a permanent establishment in the UAE
• Has UAE-sourced income

Exemptions: Government entities and government-controlled entities engaged in extractive business like oil, gas, and mining are not required to register for corporate tax.

CT Deregistration: What You Need to Know

If your business is liquidated or ceases operations, you must:

1. Apply for Corporate Tax Deregistration within three months of Liquidation.
2. Submit a final tax return covering the period up to cessation date.

CT Return Filing Deadlines:

• For liquidated companies or ceased businesses: The final tax return is due nine months from the liquidation date.
• Ongoing businesses: The tax return and payment are due 9 months from the end of each financial year.

Documents and Information Required for CT Return

When filing your corporate tax return, certain documents and information are required to ensure compliance. Here’s a list of the Mandatory documents:

Mandatory Documents

• Financial Statements: These are required for all taxpayers, unless opting for Small Business Relief (SBR).
• Auditor’s Opinion: If the financials are audited, the auditor’s opinion must be included.
• Related Party Schedule: Required if related-party transactions exceed AED 40 million.
• Connected Person Schedule: Needed for payments or benefits exceeding AED 500,000.
• Transfer Pricing (TP) Disclosure: If applicable, disclose the TP methods used to determine the Arm’s Length Price (ALP).

Additional Required Information:

• Average number of employees during the tax period.
• Details of any foreign tax credits.
• Interest Capping Schedule: If applicable, for companies exceeding AED 12 million.
• Capital Distribution Schedule: If applicable.
• Tax Losses Schedule: For reporting carried-forward losses.
• Exemptions or relief details, if any.

For Qualifying Free Zone (QFZP) companies, additional documents like details of taxable revenue, outsourcing providers, and confirmations from the Free Zone Authority may be required.

Special Considerations for Qualifying Free Zone (QFZP) Businesses

Certain businesses in the UAE are eligible for Qualifying Free Zone (QFZP) status, which provides tax exemptions under specific conditions.

Businesses qualifying as QFZPs must:

• File a separate tax return
• Maintain detailed records to demonstrate compliance with QFZP criteria.
• Qualifying Income - To benefit from the 0% tax rate, the income must be derived from activities that are considered qualifying business activities. These activities need to be conducted within the boundaries of the qualifying Free Zone.

Qualifying Activities

The Qualifying Activities (subject to T&Cs) under the UAE Corporate Tax (CT) regime refer to specific business operations that are eligible to benefit from favourable tax treatment, particularly in the case of businesses located within Qualifying Free Zones.

• Manufacturing of goods or materials.
• Processing of goods or materials.
• Holding of shares and other securities.
• Ownership, management, and operation of ships.
• Reinsurance services subject to regulatory oversight.
• Fund management services subject to regulatory oversight.
• Wealth and investment management services subject to regulatory oversight.
• Headquarter services to related parties.
• Treasury and financing services to related parties.
• Financing and leasing of aircraft, including engines and rotable components.
• Distribution of goods or materials in or from a Designated Zone to a customer that resells, processes, or alters such goods/materials for sale or resale.
• Logistics services.
• Ancillary activities to the listed activities.

Required Documents for QFZP

• Number of Employees: Provide average employee count at the beginning and end of the tax period.
• Taxable Revenue: Details of any taxable revenue, including income from permanent establishments (PE).
• De Minimis Details: Disclose qualifying and non-qualifying income.
• List of Qualifying Activities: Outline activities that fall under the QFZP exemption criteria.
• Operating & Capital Expenditure: Report expenses related to qualifying activities.
• Free Zone Confirmation: A self-declaration confirming that the business meets QFZP conditions, including the maintenance of audited financials.

QFZP businesses benefit from various tax exemptions, including relief for income sourced from foreign permanent establishments (PE) and exemptions on certain capital gains.

Adjustments in Corporate Tax Return

When filing the CT return, you may need to make specific adjustments due to elections or other factors. These could include:

• Elections: Irrevocable decisions, such as choosing the Realization Basis for taxing unrealized gains.
• Exempt Income: Income that qualifies for exemptions (e.g., income from foreign PEs or specific group transactions).
• Business Restructuring Relief: Companies undergoing restructuring or transferring assets within a qualifying group may be eligible for relief, ensuring that no taxes are levied on the gains.
• Realization Basis Election: Businesses can defer taxation or unrealized gains until assets are sold, provided the election is made in the first tax period.

This allows businesses to choose not to tax unrealized gains on assets like property or financial instruments until they are sold.

Simplified CT Return for Small Businesses (SBR)

• Small businesses with turnover under AED 3 million may qualify for a simplified corporate tax return under Small Business Relief (SBR).
• Businesses under SBR are not required to upload financial statements with the return (though they must keep them for internal records).
• This is available only to businesses not registered as QFZP or multinational enterprises (MNEs).

Conclusion

The UAE’s corporate tax regime brings new filing obligations and opportunities for businesses, especially those considering deregistration due to liquidation or cessation of operations, or those operating within free zones. Whether you are a small business or a multinational corporation, understanding the documentation requirements, elections, and adjustments is critical for ensuring compliance.

For more specific guidance on corporate tax deregistration or qualifying free zone filing, it’s always recommended to consult with a professional tax advisor like ALM Tax Consultants for a tailored advice to ensure that your return is filed accurately and on time: Connect with us.