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Corporate Tax is a direct tax levied on the net profits of corporations and other business entities. Commonly referred to as “Business Profits Tax” or “Corporate Income Tax” in various jurisdictions, it plays a crucial role in contributing to national revenues. In the United Arab Emirates, the Ministry of Finance announced the introduction of a Federal Corporate Tax on January 31, 2022, marking a significant shift in the country’s tax framework. Effective from the tax period starting June 1, 2023, businesses in the UAE are subject to a uniform Corporate Tax rate of 9% on taxable income exceeding AED 375,000 during a tax period.
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Frequently asked questions
How shall be the deadline for the registration of a juridical person holding multiple licenses be determined?
Where a juridical person holds multiple licenses, the deadline for corporate tax registration is determined by the earliest license issuance date.
Would a natural person conducting business activities on a visit visa be considered for purpose of taxation ?
Yes, Natural persons engaged in business or business activities, with an annual turnover exceeding AED 1 million, are subject to tax, irrespective of their citizenship or visa status
Can a natural person who is subject to taxation choose any financial year as their tax period?
No, the tax Period of a natural person who conducts a Business or Business Activity that is subject to Corporate Tax, shall be the Gregorian calendar year (1 January until 31 December).
Can an entity incorporated outside the UAE be included in a tax group?
Yes, only a foreign entity that is effectively managed and controlled in the UAE and is considered a UAE resident person, can be part of a Tax Group.
Is the transfer and offsetting of losses from one entity to another entity allowed?
Yes, tax losses from one UAE group company can be used to offset taxable income of another UAE company where there is 75% or more common ownership, and certain other conditions are met.
Are any taxable persons exempted from the applicability of general interest deduction rules?
Yes, Interest expenditure incurred by banks, insurance providers, and natural persons is not subject to the general interest deduction rules. It would be deductible and treated similarly to other expenses.
Can taxation occur at the unincorporated partnership level rather than at the individual partner level?
Yes, partners must apply to the Federal Tax Authority for an unincorporated partnership to be recognized as a taxable entity in its own right. Once approved, the income shall be taxed at the level of the unincorporated 0partnership rather than at the level of the partners.
Can dividends earned from a foreign company be exempted from taxation without any conditions?
No, only dividend income received from a foreign juridical person that meets participation exemption criteria, would be exempt from taxation.
Is the foreign tax credit fully allowed as a deduction against corporate tax payable?
No, foreign tax credits can be used to offset corporate tax liability up to the amount of UAE corporate tax payable on the foreign sourced income. The unutilised foreign tax credit cannot be carried forward or claimed as refund.
Are tax groups beneficial, and do they allow the utilization of pre-grouping tax losses?
The formation of tax groups would be beneficial as it allows offsetting the losses of one entity against the income of another entity and reducing the compliance burden associated with filing multiple tax returns and other requirement. Additionally, it enables the utilization of pre-grouping tax losses against the income attributable to the relevant member of the tax group to which the loss pertains.
it required to file corporate tax return in the event of a business loss?
Taxable Persons are required to file a Corporate Tax Return, irrespective of whether they have made a profit or not. Taxable Persons should pay Corporate Tax and file their Corporate Tax Return within 9 months from the end of the relevant Tax Period.
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