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Registering, filing and paying Corporate Tax

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All Taxable Persons (including Free Zone Persons) will be required to register for Corporate Tax and obtain a Corporate Tax Registration Number. The Federal Tax Authority may also request certain Exempt Persons to register for Corporate Tax.

Taxable Persons are required to file a Corporate Tax return for each Tax Period within 9 months from the end of the relevant period. The same deadline would generally apply for the payment of any Corporate Tax due in respect of the Tax Period for which a return is filed.

Illustrated below are examples of the registration, filing and payment deadlines associated for Taxable Persons with a Tax Period (Financial Year) ending on 31 May or 31 December (respectively).

18.How to prepare for Corporate Tax?

1.Read the Corporate Tax Law and the supporting information available on the websites of the Ministry of Finance and      the Federal Tax Authority.
2.Use the available information to determine whether your business will be subject to Corporate Tax and if so, from what date.
3.Understand the requirements for your business under the Corporate Tax Law, including, for example:
a.Whether and by when your business needs to register for Corporate Tax;
b.What is the accounting / Tax Period for your business;
c.By when your business would need to file a Corporate Tax return;
d.What elections or applications your business may or should make for Corporate Tax purposes;
e.What financial information and records your business will need to keep for Corporate Tax purposes;
4.Regularly check the websites of the Ministry of Finance and the Federal Tax Authority for further information and guidance on the Corporate Tax regime.

 

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Free Zone Persons

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When can a Free Zone Person be a Qualifying Free Zone Person?

A Free Zone Person that is a Qualifying Free Zone Person can benefit from a preferential Corporate Tax rate of 0% on their “Qualifying Income” only.

In order to be considered a Qualifying Free Zone Person, the Free Zone Person must:

●maintain adequate substance in the UAE;
●derive ‘Qualifying Income’;
●not have made an election to be subject to Corporate Tax at the standard rates; and
●comply with the transfer pricing requirements under the Corporate Tax Law.

The Minister may prescribe additional conditions that a Qualifying Free Zone Person must meet.

If a Qualifying Free Zone Person fails to meet any of the conditions or makes an election to be subject to the regular Corporate Tax regime, they will be subject to the standard rates of Corporate Tax from the beginning of the Tax Period where they failed to meet the conditions.

 

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What are Tax Groups, and when can they be formed?

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Two or more Taxable Persons who meet certain conditions (see below) can apply to form a “Tax Group” and be treated as a single Taxable Person for Corporate Tax purposes.

To form a Tax Group, both the parent company and its subsidiaries must be resident juridical persons, have the same Financial Year and prepare their financial statements using the same accounting standards.

Additionally, to form a Tax Group, the parent company must:

●own at least 95% of the share capital of the subsidiary;
●hold at least 95% of the voting rights in the subsidiary; and
●is entitled to at least 95% of the subsidiary’s profits and net assets.

The ownership, rights and entitlement can be held either directly or indirectly through subsidiaries, but a Tax Group cannot include an Exempt Person or Qualifying Free Zone Person.

 

How to calculate the Taxable Income of a Tax Group?

To determine the Taxable Income of a Tax Group, the parent company must prepare consolidated financial accounts covering each subsidiary that is a member of the Tax Group for the relevant Tax Period. Transactions between the parent company and each group member and transactions between the group members would be eliminated for the purposes of calculating the Taxable Income of the Tax Group.

 

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What is the Corporate Tax rate?

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Corporate Tax will be levied at a headline rate of 9% on Taxable Income exceeding AED 375,000. Taxable Income below this threshold will be subject to a 0% rate of Corporate Tax.
Corporate Tax will be charged on Taxable Income as follows:

What is the Withholding Tax rate?

A 0% withholding tax may apply to certain types of UAE sourced income paid to non-residents. Because of the 0% rate, in practice, no withholding tax would be due and there will be no withholding tax related registration and filing obligations for UAE businesses or foreign recipients of UAE sourced income.
Withholding tax does not apply to transactions between UAE resident persons.

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