On September 12th, 2022, the ‘Taxation of Corporations and Businesses’ Federal Decree Law became available to the public, there are many highlights of the Corporate tax law, one of the highlighted points was the 9 percent UAE corporate tax rate which will be calculated on taxable profits, which means it will not include gross revenue of a business. Here, in this article, we are going to discuss 5 major important points concerning corporate tax in UAE which should be in everyone’s mind.
- Will influencers, freelancers, and individuals pay the tax?
Despite its common usage, the term “Corporate Tax in UAE” is actually a misnomer when applied to individuals. While corporation tax will not apply to pay and other work income, it would apply to those who are self-employed or engage in business, some of the operations like farms, professions, and services are all good examples. In the same vein, it might be possible to tax influencers and independent contractors. Any business, whether it’s run by a single person or a corporation, will have to pay taxes. The kind of businesses that people have to pay taxes on will be decided by the cabinet and it will be released soon. Earnings such as dividends, capital gains, and interest from savings accounts received in a private representative should be exempt from taxation. Income via real estate investors is normally exempt from taxation, though this will depend on the specifics of any relevant cabinet decisions.
- How do small businesses get tax relief?
To qualify for “small business relief,” a company’s revenue or gross income must be below a specific threshold. Such companies will be assumed to have no income and will be expected to take on fewer regulatory burdens. Sales volume, which will not include earnings or taxable income, will be used to determine the limit. Note the following example of tax calculation so that you can understand it better;
- If any small business, person or social media influencer earns Dh600,000 then the tax that he has to pay will be Dh20,250.
=(600,000 (-) 375,000)
SoDh20,250 will be the tax that he/she has to pay to the Federal Tax Authority.
- Important about tax exemptions to Freezone Persons
The following entities among the Freezone entities can avoid corporate income tax UAE provided that it;
- has a sufficient physical presence in the UAE,
- earns “qualified income,”
- abides by transfer pricing laws and keeps appropriate records,
- does not decide intentionally to be taxed by corporate tax law.
Now for some people, the qualified income will be an issue for them to understand so the cabinet decision will define the parameters of “qualified income” in the coming days.
Based on the public guidance document provided by the Ministry of Finance previously, all of a Freezone entity’s revenue, including the ‘qualifying income,’ would be taxed at 9% if it earned any income that is not free (i.e. non-qualifying income). However, it appears that 0% will apply to “qualified income” and 9% would apply to “non-qualifying income” under the statute enacted by the federal tax authority. Such category-based taxing might be a great relief.
- You should keep the financial records to avoid any problems in the coming years
Financial statements and any other papers and records necessary to support corporation tax returns must be prepared and kept by taxpayers. At the very least, you need to keep your records for seven years. Unless it is part of a corporate tax group, every UAE firm will have to create its own set of financial statements. An audit of financial accounts is recommended, but this requirement may not apply to all organizations. The types of taxpaying entities that are expected to keep audited/certified financial statements will be determined by the relevant cabinet decision(s). Similarly, taxpayers would need to convert sums, both income and expense, in a different currency so at the exchange rate provided by the Central Board of the UAE for each individual transaction.
- Revenue Authority
The law includes anti-abuse and anti-avoidance elements in keeping with best international practices. Transactions or arrangements that are made for no good business reason but to receive tax benefits unfairly might be disregarded by the tax authorities thanks to these regulations.
Choose Corporate Tax UAE
On or after June 1, 2023, you will be required to pay the corporate tax in UAE if u fall in the taxpayer category. To successfully make the change to corporate tax, it is necessary to conduct a comprehensive evaluation of all business activities, with an emphasis on the need for accounting discipline, record keeping, and document retention. You can take the assistance of corporate tax advisors for this. While the shift to corporate tax may be uncomfortable at best, prompt action on the part of businesses should alleviate any potential for suffering. So, hire corporate tax advisory.