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]]>In a recent decision, the Cabinet has laid out new guidelines for determining the qualifying income of free zone entities for the purpose of taxation. These guidelines aim to provide clarity and transparency in assessing the taxable income of qualifying free zone persons. This article serves as a comprehensive guide to help individuals and businesses understand the concept of qualifying income and its implications for taxation within free zones.
Qualifying income refers to the revenue generated from activities conducted by a qualifying free zone person, excluding certain types of income specifically identified as non-qualifying. To determine qualifying income, it is essential to identify the nature of the activities being conducted and the parties involved in the transactions.
(a) Manufacturing of goods or materials.
(b) Processing of goods or materials.
(c) Holding of shares and other securities.
(d) Ownership, management and operation of Ships.
(e) Reinsurance services that are subject to the regulatory oversight of the competent
authority in the State.
(f) Fund management services that are subject to the regulatory oversight of the
competent authority in the State.
(g) Wealth and investment management services that are subject to the regulatory
oversight of the competent authority in the State.
(h) Headquarter services to Related Parties.
(i) Treasury and financing services to Related Parties.
(j) Financing and leasing of Aircraft, including engines and rotable components.
(k) Distribution of goods or materials in or from a Designated Zone to a customer that
resells such goods or materials, or parts thereof or processes or alters such goods or
materials or parts thereof for the purposes of sale or resale.
(l) Logistics services.
The decision categorizes income into three main types for the purpose of assessing its qualification: income derived from transactions with other free zone persons, income derived from transactions with non-free zone persons in relation to qualifying activities, and any other income that satisfies the de minimis requirements specified by the Minister.
Qualifying income includes revenue generated from transactions with other free zone persons, as long as these transactions are not associated with excluded activities. The term “Beneficial Recipient” refers to the party that has the right to use and enjoy the goods or services without any obligation to pass them on to another person.
Qualifying income may also arise from transactions with non-free zone persons, but only if the activities conducted are deemed qualifying and not excluded activities. This distinction ensures that income derived from specific non-free zone transactions can be included as qualifying income.
The decision establishes de minimis requirements to determine the threshold for nonqualifying revenue. The non-qualifying revenue should not exceed a certain percentage of the total revenue or a specified amount, whichever is lower, as set by the Minister. Non-qualifying revenue includes income derived from excluded activities or activities that are not deemed qualifying when the other party involved is a non-free zone person.
To ascertain whether a qualifying free zone person has a domestic permanent establishment, Article 14 of the Corporate Tax Law is applicable. The decision emphasizes treating the qualifying free zone person and its domestic permanent establishment as separate entities. Separate and independent person – that is a related party of the qualifying free zone person.
Income attributable to a domestic permanent establishment or a foreign permanent establishment of the qualifying free zone person is considered taxable income and subject to taxation. Similarly, income derived from immovable property located in a free zone, such as commercial property, is also considered taxable income.
a) Transactions with Non-Free Zone Persons in respect of Commercial Property.
b) Transactions with any Person in respect of immovable property that is not Commercial Property.
To ensure the legitimacy of operations within free zones, a qualifying free zone person is required to conduct its core income-generating activities within the free zone itself. Adequate substance, including assets, qualified employees, and operating expenditures, must be maintained. However, certain activities can be outsourced to related parties or third parties within the free zone, provided that adequate supervision is in place.
The recent Cabinet decision on determining qualifying income for free zones brings clarity and transparency to the taxation process. By defining qualifying income and establishing specific guidelines, the decision aims to create a fair and balanced tax regime within free zones. It is essential for qualifying free zone persons to familiarize themselves with these guidelines to ensure compliance with the law and optimize their tax planning strategies. Contact us today, and let us help you achieve your tax goals. Phone: +971 56 412 7768, Email: [email protected], Web: https://expand.company
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]]>Value Added Tax (VAT) has become an integral part of the business landscape in the United Arab Emirates (UAE). To comply with the VAT regulations and ensure a smooth transition, businesses need comprehensive support and expert guidance. Expand Tax and Businessmen Services is a leading consultancy in the UAE that offers exceptional VAT services, including VAT registration, VAT deregistration, VAT accounting, VAT return filing, and more. In this article, we will delve into the details of VAT, its registration process, and the importance of partnering with Expand Tax and Businessmen Services.
VAT, or Value Added Tax, is an indirect tax levied on most goods and services. In the UAE, the current standard VAT rate is 5%. While certain essential items like food, education, and healthcare services are exempt from VAT, it is crucial for businesses to understand its implications on their operations and cost of living. Expand Tax and Businessmen Services recognizes the importance of maintaining high living standards while ensuring compliance with VAT regulations.
VAT registration is a mandatory requirement for businesses in the UAE with an annual turnover exceeding AED 375,000. Expand Tax and Businessmen Services offers a user-friendly online VAT registration process available 24/7 through the Federal Tax Authority’s (FTA) website. By visiting the FTA’s e-Services portal, businesses can sign up, create an account, and submit the necessary documents accurately. Expand Tax and Businessmen Services guides businesses through the registration process, ensuring precise information and timely completion.
To facilitate the VAT registration process, Expand Tax and Businessmen Services outlines the key documents required based on the nature of the organization:
a) Individual Business:
1. Applicant’s request letter with a signature
2. Applicant’s resident permit
3. Applicant’s passport copy
b) Business as an Authority:
1. Decree copy
2. Application letter with authorized signatory
3. Act of incorporation copy
c) Dubai-based Business:
1. Applicant’s application letter signed by the company’s authorities
2. Trading license copy
Choosing Expand Tax and Businessmen Services as your trusted partner for VAT registration in the UAE comes with numerous advantages. Let’s explore the benefits in detail
Expand Tax and Businessmen Services understands the complexities of VAT laws and regulations in the UAE. With their team of experienced professionals, they provide expert guidance to ensure that your business remains compliant with the VAT requirements. They assist in setting up accurate record-keeping systems, implementing VAT accounting practices, and maintaining proper bookkeeping. By entrusting your VAT registration to Expand Tax and Businessmen Services, you can rest assured that your business is in safe hands.
Meeting the deadlines for VAT return filing is crucial to avoid penalties and non-compliance issues. However, for businesses dealing with a significant volume of transactions, submitting accurate records within the limited timeframe can be challenging. Expand Tax and Businessmen Services eases this burden by offering comprehensive VAT return filing services. Their team of tax agents ensures that the net VAT positions of your business are accurately calculated and that all necessary documents are filed within the prescribed time period.
One of the significant benefits of VAT registration is the ability to claim VAT refunds on eligible expenses incurred for your business. Expand Tax and Businessmen Services understands the intricacies of the VAT reclaims process and assists businesses in optimizing costs. Their experts navigate the complexities of VAT refunds, ensuring that the VAT paid on expenses is recovered efficiently. By maximizing your VAT reclaims, Expand Tax and Businessmen Services help you optimize your business expenses and improve your overall financial performance.
In certain situations, businesses may cease trading or no longer engage in taxable supplies. In such cases, VAT deregistration is necessary to comply with UAE VAT legislation. Expand Tax and Businessmen Services provides seamless support throughout the VAT deregistration process. Their team ensures that the tax registration number (TRN) is cancelled, and all necessary requirements are met as per the Federal Tax Authority (FTA) guidelines. By entrusting the VAT deregistration process to Expand
Tax and Businessmen Services, businesses can smoothly navigate this transition and avoid any potential compliance issues.
By appointing Expand Tax and Businessmen Services as your regulated tax agent, you gain access to a range of benefits. Their experts keep you updated on the latest changes in VAT laws and regulations, ensuring that your business remains compliant at all times. They provide proactive tax planning and offer guidance on how to optimize your VAT processes. With Expand Tax and Businessmen Services as your trusted partner, you can focus on your core business operations while having peace of mind knowing that your VAT matters are handled by knowledgeable professionals.
Partnering with Expand Tax and Businessmen Services for VAT registration in the UAE offers numerous advantages. Their expertise in VAT compliance, timely VAT return filing, VAT reclaims, and VAT deregistration ensures that your business operates smoothly within the legal framework. By appointing them as your regulated tax agent, you benefit from their comprehensive services and stay updated on the ever-evolving VAT landscape. With Expand Tax and Businessmen Services, you can navigate the complexities of VAT with confidence and focus on growing your business.
Contact us today, and let us help you achieve your VAT goals. Phone: +971 56 412 7768, Email: [email protected], Web: https://expand.company
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]]>The post Impact of the Corporate Tax on Businesses in the UAE appeared first on Expand tax and businessmen services.
]]>A. Applicability of Corporate Tax for Companies The new corporate tax regime will apply to domestic companies in the UAE mainland, free zone entities, foreign companies with a permanent establishment in the UAE, or earning income from sources within the UAE.
B. Classification of Residential Status Resident companies, including domestic and foreign companies effectively managed and controlled in the UAE, will be subject to corporate tax on worldwide income. Non-resident companies will only be taxed on UAE-sourced income and income attributable to a permanent establishment.
C. Progressive Corporate Tax Rates The corporate tax rates in the UAE are progressive, with a 0% rate for annual taxable income up to AED 375,000 and a 9% rate for income exceeding that threshold. Multinational corporations with consolidated global revenue over EUR 750 million may have different tax rates.
D. Allowable and Disallowable Expenses While generally, revenue expenditures incurred for business purposes are allowed as deductions, there are specific expenses that will not be allowed, such as entertainment expenses, administrative penalties, unrealized gains and losses, and interest exceeding 30% of EBITDA.
A. Audit Requirement Companies subject to the corporate tax regime must have their financial statements audited in accordance with internationally accepted accounting standards. Accurate financial reporting, including the separation of personal and business expenses, proper valuation of assets, and adherence to accounting principles, will be crucial for determining taxable profits.
B. Review of Systems and Processes Businesses need to assess their existing processes and systems related to income and expenditure accounting, inter-company transactions, capital assets, and inventory management. Updating and reconfiguring these processes will ensure compliance with reporting and compliance requirements under the corporate tax regime.
C. Review of Existing Contracts The introduction of corporate tax may impact profit margins for businesses. Companies might consider adjusting their selling prices to maintain profitability, while suppliers and service providers may increase costs to account for tax outflows. Existing contracts with customers and suppliers should be reviewed to assess the possibility of price adjustments.
D. Risk of Place of Effective Management (POEM) Foreign companies headquartered in the UAE with subsidiaries abroad need to evaluate the risks associated with the POEM concept. The location where key management and commercial decisions are made will determine tax exposure. Regular assessment of POEM and residence status on a year-on-year basis will be necessary.
E. Permanent Establishment (PE) Risk Foreign companies conducting business in the UAE through any form of presence should evaluate their business models, agreements, intragroup and cross-border transactions to assess the potential PE risks. Restructuring at group or transaction levels may be necessary to mitigate PE exposure.
F. Compliance Requirements Businesses within the scope of the corporate tax regime must register with the Federal Tax Authority, compute and pay tax liabilities, file tax returns, and maintain accurate financial records. Transfer pricing provisions should be followed, and related-party transactions should be at arm’s length.
A. Competitive Tax Policy The UAE’s corporate tax rate is relatively low compared to other Gulf countries, making it an attractive destination for business and investment. The implementation of corporate taxes aligns the UAE with global tax standards, enhancing its reputation as a reliable and transparent business hub. This can lead to increased foreign direct investment and stimulate economic growth.
B. Diversification of Revenue Streams The introduction of corporate taxes helps the UAE diversify its revenue streams away from its heavy reliance on oil. By implementing a tax system, the government can generate additional income to support public services, infrastructure development, and social welfare programs. This diversification strengthens the overall resilience of the UAE economy and reduces its vulnerability to fluctuations in oil prices.
C. Enhanced Public Services and Infrastructure The revenue generated from corporate taxes can be used to improve public services and infrastructure in the UAE. Investments in education, healthcare, transportation, and other essential sectors can lead to better quality of life for residents and contribute to the overall development of the country. This, in turn, can attract more businesses and skilled professionals to the UAE.
D. Leveling the Playing Field The introduction of corporate taxes promotes fairness and equity among businesses operating in the UAE. Previously, some companies enjoyed a tax advantage due to the absence of corporate taxes, while others in different jurisdictions faced tax obligations. By implementing a corporate tax regime, the UAE ensures that all businesses operate under similar tax obligations, creating a level playing field and fostering healthy competition.
E. Development of Local Talent and Expertise The implementation of corporate taxes necessitates the establishment of tax departments within companies and the hiring of tax professionals. This creates opportunities for Emirati citizens and residents to develop expertise in taxation, accounting, and finance. It also encourages the growth of local consulting and advisory firms specialized in tax services, contributing to the development of a knowledge-based economy.
F. International Cooperation and Alignment The introduction of corporate taxes in the UAE demonstrates the country’s commitment to international standards and cooperation in tax matters. This enhances the UAE’s reputation as a responsible global player and strengthens its relationships with other countries. It can lead to increased collaboration on tax-related matters, including information exchange, double taxation avoidance, and the prevention of tax evasion.
In light of the introduction of corporate tax in the UAE, there may be concerns about its impact on the country’s appeal to foreign investors. However, it is crucial to consider the broader implications to gain a comprehensive understanding of its effects.
The UAE has always prioritized policies that foster economic growth, diversification, and entrepreneurship. This approach has allowed the country to move away from its traditional dependence on oil and gas revenues and successfully diversify into sectors such as tourism, real estate, construction, finance, and technology. As a result, the UAE now stands as the second-largest economy in the Middle East, with an estimated value of $415 billion.
Historically, one of the key attractions for foreign investors in the UAE has been the absence of a federal corporate income tax (CIT). Therefore, the implementation of a corporate tax regime, effective from 1 June 2023, has raised questions about its implications and influence on the UAE economy.
To assess the impact of corporate tax on the country’s appeal to foreign investors, it is essential to consider the global context. The worldwide average statutory corporate income tax rate, across 180 jurisdictions, stands at 23.37 percent, rising to 25.43 percent when weighted by gross domestic product (GDP).
In this context, the UAE’s corporate tax rate of 9 percent positions it as having one of the world’s lowest corporate tax rates, ranking jointly third with other countries. Additionally, the UAE is one of only three Organisation for Economic Co-operation and Development (OECD) member states among the 20 countries with the lowest corporate tax rates.
This demonstrates the UAE’s success in striking a balance between its obligations and commitment to the OECD and its objective of maintaining its status as an attractive investment destination. By adhering to the global minimum effective tax rate established by the OECD, the UAE showcases its commitment to long-term economic stability and growth, which enhances its appeal to investors seeking a stable and predictable business environment.
Furthermore, the introduction of corporate tax can be viewed as a signal of the UAE’s dedication to economic stability and growth, making it more appealing to investors looking for such attributes. Businesses entering the UAE market will gain greater confidence in making investments and establish stronger trust with their customers and stakeholders.
The implementation of corporate tax in the UAE represents a significant step towards achieving the country’s diversification goals. This move enables the establishment of a new revenue stream that reduces reliance on oil revenues and allows for funding of projects beyond the energy industry.
Increased spending on infrastructure projects, such as transportation networks, water and electricity supply systems, and telecommunications networks, will support the growth of various sectors and generate fresh demand and investment opportunities. Moreover, corporate tax revenues will contribute to the development of initiatives aimed at supporting small and medium-sized enterprises (SMEs). The allocation of funds to accelerator programs like Dubai’s Future Accelerators and Abu Dhabi’s Hub 71 will provide critical resources and support for startups and early-stage companies, enabling their success.
These measures will play a vital role in fostering the growth of the UAE’s startup ecosystem, facilitating the access of SMEs to capital, mentorship, networking opportunities, and essential resources. Ultimately, these actions will fuel the country’s economic growth and incentivize businesses to choose the UAE as a base for their operations.
The support available to new businesses in the UAE positions the country competitively among its global counterparts. Coupled with its strategic location between major markets in the East and West, the UAE offers an excellent opportunity for businesses to explore international expansion and gain access to lucrative growth markets.
If you have any tax-related queries or concerns, we encourage you to reach out to Expand Tax and Businessmen Services. Our dedicated team of experts is here to assist you every step of the way, providing comprehensive support and guidance. Whether you require assistance with registration, tax compliance, documentation, or filing, our team is well-equipped to handle all your needs. We understand that navigating the complexities of taxation can be overwhelming, which is why we are committed to offering you the highest level of professional service. Rest assured that with Expand Tax and Businessmen Services, your tax matters are in safe hands. Contact us today, and let us help you achieve your tax goals. Phone: +971 56 412 7768, Email: [email protected]
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