Business-Breakfast by Antwort Law: Innovation in UAE Corporate Tax. Explanation of the new tax regime to entrepreneurs.

On December 19, the Antwort Law team held a business-breakfast in Dubai, bringing together entrepreneurs from various fields - IT, real estate, beauty industry and fintech. The main goal of the meeting was not only to present innovations in the UAE corporate tax, but also to explain to entrepreneurs a systematic approach to the security of their business.

During the business breakfast, two key steps for entrepreneurs were highlighted: the introduction of mandatory accounting from June 2023 in proven systems such as Xero, Zoho Corporation, Wave, and registration as taxpayers of corporate taxes with the Tax authority.

This article examines the topic of corporate tax in the UAE and the innovations that came into effect on June 1 of this year. Under the new rules, the first tax period for Emirati companies will be defined as the first calendar year or twelve-month period beginning after June 1.

Entrepreneurs registered in free zones expected no taxes (0%). However, the decisions of the Ministry of Finance in June led to the divergence of expectations of businesses and authorities. The Ministry of Finance defined the criteria for qualified income of residents of free zones, which can be taxed at 0%.

We would like to emphasize that for many companies registered in free zones, the application of the zero rate will become impossible, and residents will have to carefully monitor their incomes. However, the Antwort Law team provides its clients with constant monitoring of innovations and informing about positive changes.

Another important change is related to the concept of substance, that is, the economic presence of the country. According to the corporate tax law, the nil rate can only be used by qualified residents of free zones with sufficient substance.

Finally, we provide a detailed overview of six key conditions that must be met in order to use the 0% rate, such as:

  1. maintain an adequate level of presence (substance) in the free zone;
  2. receive qualified income;
  3. not decide to tax the profit with corporate tax in the UAE as an ordinary taxpayer;
  4. observe the rules of "outstretched hand" in agreements with interdependent persons and fulfill the conditions for submitting transfer documentation;
  5. comply with the minimum requirements (de minimis requirements) - the unqualified turnover of a free zone resident should not exceed 5 million dirhams or 5% of the total turnover during the tax period;
  6. to prepare erudite financial statements.

Failure to comply with any of these conditions will deprive a qualified resident of the free zone of his status, and such a participant, starting from the relevant tax period and for 4 subsequent tax periods, will not be able to enjoy the benefits of the preferential tax regime.

We would like to note that Antwort Law clients can always be sure that their taxes are under reliable protection. All participants of the meeting received detailed instructions and have already developed an action plan in accordance with the new laws. For companies with a fiscal year equivalent to a calendar year, registration must be completed by September 30, 2025.

With us, clients can not worry about their taxes!

Diana Gulevskaya

Antwort Law

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