Corporate Tax Registration Opens for UAE Companies

The UAE's Federal Tax Authority (FTA) has just announced the launch of Corporate Tax registration for Public Joint Stock Companies and Private Companies. Starting from May 15, 2023, businesses can register conveniently through the EmaraTax digital tax services platform.

This move aligns with the implementation of the Corporate Tax Law, which mandates that Taxable Persons must register and obtain a Tax Registration Number. While Free Zone Persons and other categories of Taxable Persons will have registration available at a later date, early registration is highly recommended to ensure sufficient time for compliance.

Individual legal entities can take advantage of the current registration opportunity, and the formation of a Corporate Tax Group can be applied for at a later stage. To register or obtain more information, simply visit the FTA website or get in touch with their dedicated customer support at 800 82923.

FTA Introduces Tax Agents Classification for Improved Compliance

The FTA has launched the Tax Agents Classification initiative, making it easier for taxpayers to select a specialised Tax Agent from 10 sectors. Over 70% of registered agents have been classified. By accessing the FTA website, taxpayers can filter and choose agents based on their sector. The initiative aims to enhance customer satisfaction, streamline processes, and improve tax compliance. Tax Agents are classified based on their specialisations and supporting documents. The FTA expects improved compliance and accurate tax-related information for taxpayers.

Abu Dhabi's Tenfold Expansion of its Financial District

The Abu Dhabi Global Market (ADGM) is set to become one of the world's largest financial districts following UAE Cabinet Resolution No. 41 for 2023. The resolution extends ADGM's jurisdiction to Al Reem Island, making the ADGM financial district ten times its current size​1​.

This move follows increasing demand from international businesses, which will benefit from a 0% corporate tax rate on qualifying income within the financial free zone​1​. ADGM, in just eight years, supports 1,400 entities, 5,500 licenses, and 11,000 employees, recording substantial growth in assets and licenses last year​1​.

H.E. Ahmed Jasim Al Zaabi, Chairman of ADGM, highlighted the district's appeal to global financial institutions, entrepreneurs, and fintech talents, expecting the expansion to unlock more significant economic opportunities​1​.

With this expansion, Abu Dhabi, home to the largest sovereign wealth funds, is consolidating its position as a leading international financial center​. Transitional arrangements for entities operating on Al Reem Island are being finalized​.

New Corporate Tax Accounting Standards Announced in UAE

In the UAE, Ministerial Decision No. 114 of 2023 has defined new accounting standards and methods for the purposes of Federal Decree-Law No. 47 of 2022, which pertains to the taxation of corporations and businesses.

Key takeaways from the decision are:

1. Definition of Financial Statements: Financial statements, for taxation purposes, now encompass a complete set of statements including income, other comprehensive income, balance sheet, changes in equity, and cash flow statement. These statements must comply with the accounting standards applied by the taxable person.

2. Cash Basis of Accounting: Under exceptional circumstances or when revenue does not exceed AED 3,000,000, businesses can use the Cash Basis of Accounting. This method recognises income and expenditure when cash payments are received and paid. However, an application must be submitted to the authority for approval.

3. Consolidation of Financial Statements: Tax groups must prepare consolidated financial statements by aggregating the standalone statements of the parent company and each subsidiary within the group. Transactions between them are to be eliminated.

4. Applicable Accounting Standards: Taxable persons should follow the International Financial Reporting Standards (IFRS). However, if revenue does not exceed AED 50,000,000, the International Financial Reporting Standards for Small and medium-sized entities (IFRS for SMEs) may be applied.

These changes are effective immediately upon publication, signifying a significant shift in accounting practices for corporations and businesses. Stay updated and ensure compliance with the new accounting standards.

Ministerial Decision on Private Pension and Social Security Funds for Corporate Tax Purposes

The Minister of State for Financial Affairs has issued Ministerial Decision No. 115 of 2023, outlining the regulations for private pension funds and private social security funds under Federal Decree-Law No. 47 of 2022 on the Taxation of Corporations and Businesses. Here are the key takeaways:

1. Definitions: The Decision provides definitions for terms used in relation to private pension funds and private social security funds, including "Disability," "Pension Plan," "Pension Plan Member," "Beneficiary," "End of Service Benefit," and "Auditor."

2. Private Pension Fund: A private pension fund may apply for exemption from corporate tax if it meets certain conditions, including having assets specifically allocated for pension plan benefits, granting rights or claims to members or beneficiaries, and earning income specified in the Decision.

3. Private Social Security Fund: Similarly, a private social security fund may apply for corporate tax exemption if it fulfills certain conditions, such as having assets designated for the end of service benefit and earning income specified in the Decision.

4. Income: Private pension funds and private social security funds must derive their income from investments or deposits related to fulfilling their obligations, underwriting commissions, rebates of charges, or other income in accordance with an investment policy for the benefit of plan members or beneficiaries.

5. Contributions: Employers can deduct the total value of contributions made to a private pension fund for their employees who are pension plan members, subject to certain limitations.

6. Administration: The Auditor of a private pension fund or private social security fund must annually confirm compliance with the Decision's provisions. If an exemption has been granted, the Auditor must report any breaches of the conditions to the Authority. The Authority has the right to withdraw the exemption under specific circumstances.

7. Publication and Application: The Decision will be published and come into effect the day after its publication.

This Ministerial Decision provides clarity on the regulations governing private pension funds and private social security funds for corporate tax purposes. The value of contributions that may be deducted for each Pension Plan Member should not exceed 15% of the total Pension Plan Member’s remuneration that is deductible for corporate tax purposes outlines the conditions for tax exemption and establishes guidelines for administration and reporting, ensuring compliance with the Corporate Tax Law.

Ministerial Decision on Participation Exemption for Corporate Tax Purposes

The Minister of State for Financial Affairs has issued Ministerial Decision No. 116 of 2023, which provides guidelines on the participation exemption for the taxation of corporations and businesses under Federal Decree-Law No. 47 of 2022. Here are the key takeaways:

1. Definitions: The Decision provides clear definitions for important terms such as "Disability," "Pension Plan," "Pension Plan Member," "Beneficiary," "End of Service Benefit," and "Auditor."

2. Tax Exemption: Private pension funds and private social security funds can apply for corporate tax exemption if they meet specific conditions. These include having allocated assets for pension plan benefits, granting rights to members or beneficiaries, and earning specified income.

3. Income Sources: Funds must derive their income from investments or deposits related to fulfilling their obligations, underwriting commissions, rebates of charges, or other income in line with the investment policy for the benefit of plan members or beneficiaries.

4. Contribution Deductions: Employers can deduct the total value of contributions made to a private pension fund for their employees who are pension plan members, with certain limitations.

5. Administration and Reporting: The Auditor of a fund must annually confirm compliance with the Decision's provisions. If an exemption has been granted, any breaches of conditions must be reported to the Authority, which retains the right to withdraw the exemption under specific circumstances.

6. Effective Date: The Decision will be published and come into effect the day after its publication.

This Ministerial Decision brings much-needed clarity and structure to private pension and social security funds' taxation. It outlines the conditions for tax exemption and provides guidance on administration and reporting, ensuring compliance with the Corporate Tax Law.

For more information, stay tuned for the official publication or reach out to our knowledgeable experts. Secure your fund's compliance and tax advantages today!

UAE Delegation Strengthens Ties with Czech Republic, Signs Tax Agreement

A UAE delegation, led by Minister Al Sayegh, visited the Czech Republic to enhance cooperation. They met with Czech officials, signed a Double Taxation Agreement, and discussed climate action. The visit boosts economic ties between the countries, with the UAE serving as a gateway for Czech exporters. Various agreements support the bilateral partnership, including Air Services and Investment Protection.

UAE Ministry of Finance Publishes 6 Key Decisions on Corporate Tax

The UAE Ministry of Finance has published 6 significant decisions to enhance the corporate tax framework for businesses in the country. The decisions cover various aspects of taxation and provide valuable guidance for businesses operating in the UAE.

Decision 116 of 2023 addresses participation exemption criteria for corporate tax exemptions on dividends, profit distributions, and capital gains. It establishes conditions such as a minimum holding period and the subsidiary's tax rate or effective tax rate.

Decision 125 of 2023 clarifies the requirements for forming a tax group, including the residency of the parent company in the UAE. It also covers the utilization of pre-grouping tax losses.

Decision 126 of 2023 states that payments economically equivalent to interest, including those related to Islamic financing, are considered general interest deductions for corporate tax purposes.

Decision 127 of 2023 provides guidance on unincorporated partnerships, foreign partnerships, and family foundations, defining their tax treatment and reporting obligations.

Decision 105 of 2023 ensures that businesses undergoing liquidation or termination can still be eligible for tax exemptions if they notify the Federal Tax Authority within 20 business days.

Decision 120 of 2023 outlines the adjustments under transitional rules for calculating gains on immovable property and other assets.

These decisions aim to provide clarity and guidance to businesses in the UAE as they navigate the forthcoming corporate tax regime. The Ministry of Finance plays a vital role in establishing a strong regulatory framework for taxation in the country, offering support to businesses and taxpayers.

May’s Business Takeaway UAE

While the annual GDP growth is expected to remain positive, it has experienced a slowdown in recent months. Crude production, a key driver of the economy, expanded by 3.0% year on year in Q1, marking the slowest increase since Q2 2021. Unfortunately, in April, crude production growth further decelerated to just 0.4% year on year. To compound the challenges, the UAE made the decision to reduce its output by 144,000 barrels per day in May, which has had a negative impact on the oil sector's performance.

However, despite these setbacks in the oil industry, the non-oil sector continues to drive the country's growth. The private-sector Purchasing Managers' Index (PMI) showed expansionary conditions in Q1, although it slightly cooled compared to the previous quarter. Notably, the PMI for April revealed the strongest improvement in business conditions in six months, attributed to increased demand and robust employment growth.

Shifting our focus to inflation, Dubai experienced a decline in prices, with inflation cooling to a 14-month low of 3.3% in April (compared to 4.3% in March). This decline can be primarily attributed to lower transportation costs and easing food price growth. While comprehensive country-wide data beyond Q2 2022 is currently unavailable, experts predict that headline inflation in the UAE will continue to cool down throughout the year, largely due to the implementation of tight monetary policies.

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