The United Arab Emirates (UAE) is attractive for foreign businesses looking to establish their presence in the Middle East. The country is striving to create a competitive tax environment to attract companies to set up their businesses. The UAE is currently in the process of introducing corporate tax for the first time. The move is part of the UAE’s efforts to diversify its revenue sources and reduce its dependence on oil and gas. While the UAE has long been known for its low corporate tax rate, the introduction of corporate income tax marks a significant change in the country’s tax landscape.
The introduction of Corporate Tax (CT) in the UAE has set the following objectives:
- To solidify its standing as a prime destination for business and investment on the global stage.
- To fast-track progress and advancements in the nation’s development to meet its long-term goals.
- Reinforcing its dedication to adhering to global standards of tax transparency and countering detrimental tax practices.
Scope Of Corporate Tax
UAE is introducing a corporate income tax that will impact all businesses and commercial activities in the country, with the exception of natural resource extraction. This type of taxation will still be carried out at the emirate level. Additionally, individual salaries will not be affected by this change if the job or income-generating activity does not require a commercial license. The corporate tax rate structure is as follows:
- 0% for annual taxable profits under AED 375,000.
- 9% for annual taxable profits over AED 375,000.
However, large multinational companies that fall under Pillar Two of the OECD Base Erosion and Profit-Shifting project may be subject to different tax rates. Businesses operating in free zones, including financial free zones, in the UAE will now be subject to Corporate Tax. However, the Corporate Tax system will still recognize the tax incentives that are currently provided to free zone businesses that follow all regulatory guidelines and do not conduct business on the mainland of UAE.
All individuals and entities that are subject to Corporate Tax, including those operating in free zones, must register for Corporate Tax and acquire a Corporate Tax Registration Number. Furthermore, The Federal Tax Authority may also ask certain exemptions holders to register for Corporate Tax.
In addition to the registration, Taxable persons are expected to submit a Corporate Tax return for each tax period within 9 months after the end of that period. Moreover, The payment of any Corporate Tax due for the tax period, for which a return is submitted, would generally be required to be done within the same deadline.
It is important for companies operating in the UAE to understand the implications of this new corporate income tax and how it will be calculated. The tax is a federal one and will apply to all emirates. It will take effect for businesses with financial years starting on or after June 1, 2023. This change is expected to have a significant impact on the economy and drive business activity, making the UAE more attractive for global investments and thereby contributing to local economic growth.
Role Of An ERP Software
As the introduction of Corporate Tax (CT) approaches, many organizations are assessing the impact it will have on their operations and weighing their options for automating their compliance efforts.
One option that businesses in the UAE are exploring is the use of ERP software, such as FactsERP, to automate accounting and reporting in order to meet the requirements of the new tax regime while also increasing operational efficiency, minimizing audit risk, and providing increased transparency into financial data.
FactsERP is a comprehensive software solution that allows companies to manage various aspects of their business, including invoicing, sales, inventory, payroll, and more, all from a single application. Additionally, it automates the calculation and reporting of taxes, providing companies with the insights they need to manage their taxes and optimize performance.
FactsERP is a user-friendly yet powerful solution that can simplify business growth for companies of all sizes and industries. Its state-of-the-art features help organizations to reduce compliance risks with accurate calculations, save time with automated processes, increase growth with time-saving features, and reduce risks through better risk management.