The UAE CT regime will become effective for fiscal years starting on or after 1 June 2023 and is expected to be a federal level corporate taxation. Thus, all UAE businesses, corporations and entities engaged in and licensed to undertaken commercial activities shall be subject to the UAE CT. Businesses engaged in the extraction of natural resources will be exempt from the UAE CT and shall continue to be subject to Emirate level taxation.
- CT would apply to free zone businesses that do not comply with all regulatory requirements and conduct business with mainland UAE. Registration and filing requirements would also apply.
- Carry forward of losses from CT effective date would be allowed. Group level tax set-off would be allowed subject to certain conditions.
- UAE group of companies can form a tax group and select to be treated as a single taxable entity, subject to certain conditions.
- No withholding tax on local or cross border payments.
- Tax Credit would be allowed for foreign taxes paid on UAE taxable income.
- Transfer pricing rules and documentation requirements would apply as per OECD Transfer Pricing Guidelines.
CORPORTAE TAX GROUPS
UAE group of companies will be able to elect to form a tax group and be treated as a single entity for taxation purposes, subject to certain conditions to be specified in the UAE CIT law. A UAE tax group will be able to file a single tax return for the entire group.
SET-OFF AND CARRY FORWARD OF LOSSES
Entities will be allowed to utilise prior period losses (from the effective date onwards) to offset taxable income. Excess losses can also be carried forward to the subsequent year, if certain conditions are met. Further details on the set-off and carry forward of tax losses will be provided in the UAE CT law.
TRANSGER PRICING RULES
The OECD Transfer Pricing Rules shall now be applicable in the UAE. All companies have to comply with the Transfer Pricing rules and documentation requirements. These transfer pricing rules will now become mandatory and may also be applicable to domestic transactions.
Currently the UAE CT regime does not envisage withholding taxes on domestic as well as cross-border payments of dividend, interest, royalties or any other payments.
Alia Noor (FCMA, CIMA, MBA, GCC VAT Comp Dip, Oxford fintech programme, COSO Framework)
Ahmad Alagbari Chartered Accountants