UAE issues explanatory guidance including tax exemption, corporate tax clarification – News

The point-by-point guide is designed to help readers understand the government’s intentions and help interpret the law

The UAE Ministry of Finance has issued guidelines for the interpretation of Federal Decree No. 47 of 2022 on the taxation of companies and businesses, which provides the legal basis for the imposition of federal taxes on the profits of companies and businesses, effective from fiscal years 2022 or after 2023 June 1st.

The guide provides an article-by-article explanation of the meaning and expected effects of the provisions of the Corporate Tax Law and its implementing decisions. This guide can be used to explain corporate tax law and how specific provisions may need to be applied.

Younis Haji Al Khouri, Deputy Minister of Finance, said: “The Ministry of Finance is working hard to provide clear guidance to those who are or may be required to pay UAE corporate tax so that they can understand what the law says and why it was enacted. The interpretive guidance reflects our commitment to Continued commitment to ensuring taxpayers are supported and informed before the law comes into effect.”

It includes an explanation of the various features of the UAE corporate tax system that will encourage business activity and minimize the compliance burden on taxpayers.

Most importantly, there is zero corporate tax rate on taxable income up to AED 375,000 and zero corporate tax rate for eligible free zone personnel in recognition of the historical importance of free zones to the development of the UAE.

In addition, the corporate tax system provides financial and administrative relief to support start-ups and small businesses. Businesses eligible for such relief will not be required to pay any tax and will use simplified reporting requirements when their turnover is less than AED 3 million.

The guidance describes other features, including zero withholding tax on cross-border and domestic payments; foreign branches are exempt from corporate tax on profits, dividends and capital gains derived from domestic and foreign equity interests, subject to the relevant conditions; Foreign tax credits for foreign source income that is not exempt from double taxation.

Nirav Rajput, Senior Legal Counsel, Aurifer Middle East Tax, said the point-by-point guide, not previously published for Value Added Tax (VAT), Economic Substance Regulation (ESR) or GST, was meant to help readers glean the government’s intentions and help interpret the law.

“Broadly speaking, the guidance follows the federal statute itself, enacted in October 2022, and various decisions issued since then. The scope of “qualified income” is still expected to be published in the coming weeks. Meanwhile, the guidance confirms that Certain qualifying activities carried out by free zone personnel are eligible for zero corporate tax concessions,” he said.

Among several nuances, he added, the guidance clarifies that “resident” for CT purposes is not dependent on the concept of “lawful residency.”

“For example, mere possession of an Emirates ID does not, by itself, determine residency for corporate taxation. Furthermore, the guidance clarifies that a foreign company’s legal status in the UAE is exercisable if it exercises “strategic decisions and powers concerning the management of the entity” (rather than day-to-day functions) in the UAE. is “effectively managed or controlled”. It was also clarified that the 50 per cent limit on recreational activities does not cover staff expenses,” it said.

Additionally, it highlights targeted exemptions for certain entities that are subject to emirate-level corporate taxes or are considered important to the UAE’s social fabric.

These include government entities, investment funds, pension and social security funds, nonprofits and natural resource companies.

The guidance also includes a detailed explanation of the international benchmark transfer pricing documentation requirements and thresholds to ensure that the compliance burden on SMEs is minimized. It clarifies the ability to utilize tax losses without time constraints in future tax periods and to transfer tax losses between tax group companies subject to the fulfillment of relevant conditions.

This means that UAE groups can report and pay corporate tax on a consolidated basis as a single taxable entity, ensuring administrative efficiency and simplicity.

The UAE Ministry of Finance has also issued Ministerial Decision No. (97) of 2023 requiring transparency and fairness in transfer pricing documentation in the UAE tax regime.

Taxpayers are required by law to retain transfer pricing documentation, in particular master and local documentation, including whether their revenue for the relevant tax period was at least AED 200 million, or whether they are part of a multinational conglomerate and own A complete consolidated group has a revenue of at least AED 3.15 billion for the relevant tax period.

Reporter @khaleejtimes.com